Art Of Value

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To Increase Value, Create an Experience with Joe Pine – 099

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Creating an experience means that work becomes a performance for which you charge an admission fee. What would you have to revise to sell a ticket to engage with your business? The answer to this question can launch your business beyond the first three stages of economic value–commodity, goods and services–to the fourth stage, the experience.

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The Progression of Economic Value

  • What is the most important thing you can share about pricing?
    • You are what you charge for.
      • If you charge for undifferentiated stuff, you are a commodity.
      • If you charge for tangible things, you are in the goods business.
      • If you charge for the activities you and your people perform, then you are in the services business.
      • If you charge for the time your customers spend with you, you are in the experience business (staging a memorable and engaging experience).
      • If you charge for the demonstrated outcome your customers achieve, you are in the transformation business.
    • There is no more economic value you can provide than to help someone achieve his aspirations.
    • Goods and services are no longer enough, as consumers only care about price.
  • What do you mean by “What would we have to do different if we charged an admission fee”?
    • An admission fee is charging for time.
    • Companies give away their next level of value to better sell what they have today.
    • IBM means service, which meant that they gave away whatever service you wanted, as long as you bought the product.
      • Eventually, they realized that the people only cared about the services and the equation flipped.
    • Think about how you charge for time to align what customers value with what you charge.
    • Assume you are charging an admission fee and you will acquire the wherewithal to create a great experience.
    • We increasingly pay people for our experiences.
    • When you made a birthday cake from raw ingredients, it was less expensive than the value created in a cake mix.
      • Then you would order a cake at a bakery, and it is more expensive than the mix.
      • Now you outsource the whole party to Chuck E. Cheese, and it is even more expensive.
    • You create more value as you step up the progression of economic value.
  • What would it take for a hotel, doctor or bank to create an experience?
    • Some hotels now charge for 24-hour periods, realizing that they are charging for time, not just activities.
    • In the healthcare industry, the better the patient experience, the better the outcome.
      • Waiting rooms are one of the worst parts of the healthcare experience.
      • What if you could immediately get into the flow of care, even if it started through technology?
    • Most banks made the lions share of their profits off fees when you make a mistake.
      • One bank started charging for people to talk to a teller vs. use the ATM.
    • What if you “charged admission” and made it worth it to visit with the live person?
    • ING wanted physical touch points for its virtual banking services and created cafés across the country.
      • They charged for the coffee, but not for admission, to signal there was a real business.
      • The barista then engaged you, talking about your financial needs.
      • Many banks have a café bar because it engages all 5 senses and it's where people want to spend time.
    • Banks have an untapped resource, knowing what people are spending and for what they are spending it.
    • Money is a means to an end, so the key is what is the end?
    • If you can ascertain what a customer's aspiration is, and focus on helping them achieve it, you will create much more economic value.

Creating An Experience in Business

  • How can a small business create an experience for the customer?
    • Recognize that when you are in the business of staging experiences, then your work is theater.
    • Whenever you and your employees are in front of customers, you are on stage, and you need to figure out how to engage the audience.
    • The original Geek Squad was costumed and drove around in Geek Mobiles, providing a computer repair experience.
    • The goal was that the experience was so great that consumers would look forward to having their computers repaired.
    • Today the experience is the marketing.
  • What are the four types of theater?
    • The one people recognize the most is improv, making it up as you go along.
    • Platform theater is like a Shakespearean play, without making anything up.
      • It is good if customers are watching you work, but are not interacting with you.
      • For example, FedEx employees are always supposed to walk quickly to give the impression of speed.
    • Matching theater is like film or TV, where you film different performances, and they are matched together.
      • All of the potential interaction points with the customer have to match.
    • Street theater seems like improv, but the performers change routines, mixing and matching them to create the right performance at the right time.
      • They need to have a great ending and are able to work the audience.
    • The big idea is the same whether it is a big business or small business. There is a tremendous opportunity.
    • If you do not create theater (experience), you will become commoditized.
    • What is your organizing principle for your experience?
    • Once you have that, you can create a cohesive experience that everyone can be engaged by.
  • What is ING-ing?
    • Any word that ends in “ing” is a gerund, which makes a thing into an activity.
    • Start playing around with “ing” words and how you might change them, like the door opening experience, the waiting room experience, or even making up words.
    • TST Engineering in Ft. Collins, Colorado, developed a theme that they are dream makers for their customers.
      • When they built their offices, they put in a slide. At the signature moment, they take the customer to the second floor and they slide down to the first floor.
  • Could creating an experience help rescue the medical industry?

    • Yes, this could help them overcome the regulation and insurance mess by creating an experience.
    • Vance Thompson Vision designs its buildings like an eye, such that it is listed as a tourist attraction.
    • Most professional services need to think about why their customers are coming to them.
    • In medicine, you want to go from sick to well.
    • With accounting, you want to take home the most money and not go to jail.
    • Think about “from to” – how do you take the customer from where they are to where they want to go.
    • Go beyond just the project into thinking about the relationship with the customer. It takes a series of experiences to affect the transformation you want.
    • Starizon was created because of page 193 of The Experience Economy. It created an experience design place to get customers to come to their location.
    • They have a 25% Transformation Guarantee–25% of the price is completely at the customer's discretion to pay all or none of it.
    • The art of value is aligning what you charge for with what the customer values, which is either the experience or the transformation, not the activity.

Discover the Customer's Sacrifice

  • What is “customer sacrifice”?
    • Mass customization is about efficiently serving customers at a low cost.
    • Customizing a product turns it into a service; customizing a service turns it into an experience; customizing an experience turns it into a transformation.
    • A key measure is customer sacrifice vs. customer satisfaction.
    • Customer satisfaction is about meeting expectations, which might not be the best measure.
    • Customer sacrifice is the ideal offering the customer needs and what they have to sacrifice when they settle for only what they can get.
    • To uncover where the customer is sacrificing, do ethnographic research – observe your customers when they interact with you.
      • If you can uncover this area, you have found gold.
    • When you find a sacrifice with one customer, others are likely going to sacrifice similarly.
    • Look for a common uniqueness to customize your service.
  • Is there a cable TV provider that is creating a true experience?
    • Roku and Apple TV might be close to allowing a consumer to choose their channels and put them in the order they would like.
      • No one is doing this well yet.
    • What you really want is one channel, which will show you what you want to watch next, based on your viewing habits.
    • Dumb products are becoming smart and smart products need to become genius products.
  • What is one of your best stories about creating value for a customer?
    • One of the greatest impacts was with a European company who wanted him to do a workshop on mass customization.
    • They found a brief window to do a workshop.
    • Through that workshop, they created a mass customization experience, which is running still.
    • He met the needs of what they had at that time to jump-start their endeavor.
    • It is not about the time you spend, but how much you impact them.

About Joe Pine

Joe is the co-founder of Strategic Horizons. He is the author of 6 books, including The Experience Economy. He's written for the Harvard Business Review and Wall Street Journal. He has taught and spoke at MIT, Harvard University, Penn State, and UCLA. His personally stated mission is to help improve the economic value of your business.

Value Pricing Is A Competitive Advantage with Michael Bradley – 097

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As a profession, lawyers may be the most resistant to value pricing due to their conservative nature. However, this is the very reason Michael Bradley from Marque Lawyers considers it a strategic advantage. The outcome for the customer is the first priority. If Marque cannot create value for the customer, they will not engage simply to make money.

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Changing The Practice of Law

  • What is the most important thing you can share about pricing?
    • Value pricing is more profitable than the alternatives.
    • To effectively move to value pricing, you have to give up all the trappings of hourly billing.
    • For his business, it took 2-3 years to make more money than they would have with hourly billing.
      • But, it is a false comparison.
    • If they hand not priced by value, they would not have that differentiation in the market.
    • It gives you a powerful competitive edge.
    • They would be near at the bottom of the market if they had not started value pricing.
  • Why do you want to change the way law is practiced?
    • The small group that started Marque Lawyers came from a big firm.
    • While they liked being lawyers, they did not like the way law was being practiced.
    • Many internal processes were dysfunctional and counter-productive.
    • They wanted to be able to enjoy life, be happy, and be lawyers.
      • Changing how they engaged on price was part of it.
    • The way most lawyers charge has nothing to do with the value that the customer receives.
      • They often pay too much for things of little value.
    • As a lawyer in most firms, you are only evaluated by your billable hours, which has nothing to do with why you wanted to be a lawyer.
    • It is a soulless way to look at what you do and is incredibly unsatisfying.
    • It is insane to measure the value of people or customers in 6-minute increments.
    • It also rewards inefficiency.
    • With time costing, a lawyer would get paid the same if he were in court advocating for a customer or having a cup of coffee in the cafeteria with him.
    • Customers and lawyers become mired in cynicism with hourly billing.
    • By moving away from it, you can make both customers and lawyers enjoy the practice.
    • Working with a lawyer does not have to be an ordeal.
    • If there is a positive experience, the customer will want more.

Using a Retainer for Litigation

  • How do you approach using a retainer with a customer?
    • They spend time with the customer upfront to understand the legal needs.
    • They reach a figure that is a fair reflection of the value they will provide.
    • They start retainer for a few months on a trial basis, then review and adjust.
      • Afterward, they review annually.
    • The approach is inclusive, and they are focused on the clients' end goals.
    • A retainer works like an insurance policy.
    • “What happens if you ‘underprice' it?” usually means, “How does this compare to an hourly model?”
    • The difference is in the point of focus – the next 6 minutes vs. the outcome.
    • Only a small part of the value of a customer has to do with what you are doing for them today.
    • Most of the value of a customer is exponential over many years.
    • Put the emphasis on the relationship, rather than how much you get paid immediately.
    • It is important that you demonstrate longevity to the customer and earn trust.
    • When you engage a customer that way, the customer starts to understand the long-term relationship.
  • How can you offer a retainer for litigation when the process is uncertain?
    • The best pricing model is a hybrid that includes a retainer and a fixed-fee.
    • It is similar to building an office building, a long-term project with lots of moving parts, variables, and things that could go wrong.
    • But, you can break it down into components.
    • Any experienced litigator can pitch a ballpark figure for what a case would cost.
    • It is a project, broken down by what they know will happen vs. what could happen.
    • The retainer is about the day-to-day, and then a fixed fee is provided for each phase of the litigation.
    • The concern about pricing litigation is affected by the time cost mentality; value pricing makes it more elastic.
    • You need to be more flexible in your thinking and willing to take more risks.
    • Transferring the risk from the customer to the professional helps build the relationship and create more value.
    • Ron Baker says that time costing is suboptimal because it only works as long as you keep everyone busy.
    • The value a group of lawyers can generate is extraordinary.

Value Pricing for Lawyers

  • Why are lawyers reluctant to use their judgment to price?
    • Jay Shepherd talked about how lawyers use their judgment with their customers.
    • Hourly billing makes it easy to measure people and be profitable from a management perspective.
    • For a long time, it produced very profitable businesses.
    • Lawyers are risk resistant and trained to say no.
    • Trying to convince them to move from something that does not seem broken is impossible.
    • External force from the marketplace is the only way to change it; it is a slow process.
    • The business model can become a competitive advantage in that kind of market.
  • How do you approach a value conversation with a customer?
    • They deemphasize the money part of the conversation so that they can focus on the customer's needs and goals.
    • Get the relationship started first and then talk about money.
    • There will be an agreement before any substantive work starts.
    • If the first sense a customer gets is that you are a mercenary, it starts the relationship on the wrong foot.
    • The approach is really about what the customer is trying to achieve, where Marque can add the most value.
    • There are no specific questions they ask, but they try to get to the heart of what the customer is trying to accomplish.
    • It is harder when they are dealing with in-house lawyers, due to the hourly billing mindset.
    • Commercial customers are very receptive to the approach.
    • If a customer has had a bad experience with another firm, it is usually due to hourly billing.
    • Retainer customers will get the worst service in an hourly billing model because the lawyers do not get “credit” for working on the account.
  • What is one of your favorite ways to offer options to a customer?
    • When they are first engaging the customer, they talk about the retainer model.
    • But, sometimes that is not appropriate at first because they are not sure what need to be accomplished.
    • They will do a fixed fee at first to see how it works.
    • They make it clear that they are flexible with how they charge while they advise what is best for the customer in the specific circumstance.
    • Having fun is one of the core values at Marque, including social interaction.
    • They invest heavily in social life as a firm, and they measure their business decisions against whether or not they will have fun.
  • What is one of your best stories about creating value for a customer?
    • A small creative agency did not have much money and had a few minor legal needs.
    • They engaged closely with the agency and worked with it as strategic advisors and mentors to develop the strategic plan and branding for the marketplace.
    • The agency will always be a customer, but the journey has delivered it a value that cannot be measured in numbers.
    • The satisfaction and enjoyment of going on the journey with the agency have been great for the firm.

About Michael Bradley

Michael describes himself as the idiot savant of the legal profession, but then he also gave his team $400 each to spend on shoes. He practiced big law for several years. Then in 2008, he started Marque Lawyers. He specializes in trade practice and intellectual property matters. He writes and speaks about the legal profession, pricing, and general business.

Learn to Value Price Through a Process with Andrew Robertson – 085

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The accounting profession is conservative by nature. Yet Peter Drucker said, “Profit comes from risk”. This juxtaposition of stability vs. stretching describes the challenge of the accountant to innovate in his practice. Andrew Robertson has created a consultancy for accountants to help them bridge the gap. He starts by creating standard offerings for common services like taxes and financial statements. Then he layers custom advisory services, unique for each customer, to move the relationship up the value curve. Andrew is eager to share his insights and wisdom to ensure the accounting profession continues to be relevant in the face of technology and competition.

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Your Standard Offer and Value Pricing

  • What is the most important thing you can share about pricing?
    • Pricing can be scary for accountants.
    • However, processes and systems can create a repeatable result.
    • Define a standard way to a price for your core offering.
    • Price other services based on the value to the customer.
    • The advisory services are often already part of your core offerings.
    • Compliance is not just financial statements and tax returns, but can include daily interaction with your customers.
    • You can value price the core offering also, but that is more about prestige.
    • The majority of accountants make money by volume rather than creating more value for existing customers.
  • What is the biggest challenge to switch to value pricing?
    • Mindset is the biggest challenge.
    • It is scary to move away from the traditional way of doing things.
    • Firms are currently making a decent profit.
    • It is a leap of faith.
    • By creating a structure for value pricing, it makes it an easier transition.
    • It helps accountants move past the conventional mindset.
    • Billing on time is a safety net.

[clickToTweet tweet=”Most accountants make money by volume rather than creating more value for existing customers.” quote=”Most accountants make money by volume rather than creating more value for existing customers.”]

Core Work vs. Advisory Work

  • Have accounting firms started to value price the “core” work?
    • Once they are comfortable with pricing the advisory work, firms then start to value price the core also.
    • Once an accounting firm defines its core offering, it and take a fresh look at who their customer is.
    • The customer who just wants compliance work will no longer be a customer.
    • The firm removes the core work (compliance only) and focuses more on value-add services.
    • At this point, they naturally become true value pricing firms.
    • The stages of transitioning help firms who want to move toward to value pricing without an 180-degree commitment.
    • Following the process, you can reduce the transition time by half.
  • What types of services are core and advisory?
    • A regionally focused, traditional firm, whose average fee is very low, looked at their core offerings.
    • They created three offers:
      • The base offer is a compliance only offer.
      • The next step up is compliance plus – more offerings, but no business advisory.
      • The top package is the business advisory, where the firm will do whatever is needed when the customer calls.
    • When they provided three options, they increased the number who were willing to pay for the business advisory.
    • They got more requests for cash flows and budgets to refinance, so they created a bank monitoring service, providing monitoring on a quarterly basis.
    • The firm saw a 50% increase from the monitoring service.
    • The average price per customer rose 25 % after the first year.
    • Another boutique firm, created a base offer including forecasting, tax planning, financial statements, tax return, and contact us anytime.
    • The owner began to be perceived more as a strategist and his customers only called him to talk about their businesses, rather than day-to-day tax planning.
    • He increased his revenue by 36% and his profitability by 23%.

[clickToTweet tweet=”Find someone to question your mindset to help you innovate. #accounting #coaching” quote=”Find someone to question your mindset to help you innovate.”]

How to Innovate in Accounting

  • How can an accounting firm innovate?
    • If you are just starting in your accounting process, do not do what everyone else is doing.
    • Innovation is saying what value you can add to your customers beyond compliance.
    • Once you know what your other skill sets are, you can find additional ways to create value.
    • For an existing firm, identify your core products and structure them in a way to articulate to the unique value proposition to your customers.
    • The partners can move away from compliance and have more time to think about value.
    • Innovation is approaching something in a non-traditional way.
    • Accountants often do not understand the value that they create or how to articulate it to their customers.
  • How can an accounting firm develop an innovative mindset?
    • There are two types of business people: the person who can find his own way or the person who knows he needs coaching.
    • The CEO of Google has a coach who questions him about his mindset.
    • Find someone to question your mindset to help you innovate.
    • Asking great questions is a core skill, and it is hardest to ask them of yourself.
    • Getting more work from existing customers is often easier than getting new customers.
    • Use the knowledge and experience you have and determine how to create value for your customers using those skills.
    • Third-party perspective can bring clarity to a situation; however an industry expert can provide a different perspective.
    • A mastermind group that includes people from a wide variety of industries can provide outside perspective.
    • One small adjustment in your mindset can allow you to see the world in a different way and create extraordinary results.
  • What is one of your best stories about creating value for a customer?
    • A small town customer had a small electrician business.
    • He was a compliance-only customer.
    • The customer wanted a holiday so that he could think.
    • Andrew made him $30K by asking him when he was scheduling his holiday.
    • That one question added a massive amount of value.

About Andrew Robertson

Andrew Robertson is the founder of the TwentySix Group. They specialize in growth mentoring for accounting firms, by questioning tradition. He helps them restructure for the future, moving from compliance work to advisory work and creating processes and systems to standardize their core offerings. Previously, he was a CPA and partner at Easdowns Business Specialists.

The Most Important Thing About Pricing Vol. 2 – 078

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Happy New Year! At start of each show I ask my expert guest the same question: What is the most important thing you can share about pricing? After 50 interviews in 2015, I have compiled their answers into Volume 2 of “The Most Important Thing About Pricing”.

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It's About the Customer

  • Ray Edwards – Set your price based on the value that your bring to your customer.
  • Brennan Dunn – It is not about you, it is about the customer.
  • Brian Casel – Keep the customer’s view of the value in mind.
  • Lee Cockerell – Price is all about value.
  • Ben Furfie – The goal of value pricing is to match the price with the customer’s perception of value.
  • Kai Davis – If value is greater than price, it will be a no-brainer for the customer.
  • Joni Newkirk – Lead with the customer; where does she perceive the value.
  • Michael Port – People buy to express their values.

Learning to Price

  • Josh Zweig – Pricing is a skill that is dynamic.
  • Matthew Burgess – Value pricing is a journey.
  • John Chisholm – Pricing is not perfect; it is an art.
  • Mark Stiving – Understand the decision your customer is making right before they buy: Which one? or Will I?
  • Kevin Mitchell – The best leveler to increase your profit is strong pricing knowledge and acumen.
  • Mark Wickersham – Pricing has absolutely nothing to do with costs.
  • Rags Srinivasan – There are no pricing problems; only segmentation problems.
  • Jason Coleman – There is no magic formula to price something.

Your View of Creating Value

  • Bob Burg – Unless your name is Walmart, do not make low price your value proposition.
  • Ed Gandia – Whatever idea you have about what something is worth, you are probably wrong.
  • Jonathan Stark – Just do it. If you bill by the hour, you are not pricing.
  • Jody Maberry – You are worth more than you think you are.
  • Kary Oberbrunner – Pricing is a reflection of self-image.
  • Mike Kim – You can probably charge higher than you think you are worth.
  • Chris Cerrone & Laci Urcioli – Know your value and the value you bring to your customer.
  • Tim Dietrich – It is never too late to give value pricing a try.
  • Jennifer Kinson – Talking about price does not have to be uncomfortable.

The Impact of Pricing

  • Jay Shepherd – Intentional pricing is better than accidental pricing.
  • Tim Williams – Stand your ground; protect your pricing integrity.
  • Steve Major – Pricing can change your business and your life.
  • Jason Cohen – Figure out how to deliver 10X the value, and then you have true pricing power.
  • Wes Higbee – Be deliberate about the type of customer relationship you want to have.
  • Donald Kelly – Price is the reward for the value the customer perceives.
  • David Wells – Pricing fundamentally changes the attitude for your team.
  • Josh Elledge – When customers reject standard pricing, there is an opportunity to innovate.

Why I Disagree With Seth Godin

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Seth Godin recently published a blog post titled When to charge by the hour. And while usually I agree with most of what he writes, this time, I have a different point of view.

First, in principle, I do not believe anything should be priced by the hour. The customer is buying the outcome of the service, not the hours and minutes to create it (inputs).

Second, pricing by the project is better if the price is based on the value to the customer. Usually, a project price is a fixed price based on an hourly estimate. Ron Baker, the founder of VeraSage, calls it “hourly billing in drag“.

Third, one example Seth mentions in the article is back massage. Yes, massage therapy is conveniently packaged in time blocks (one-hour, 90-minutes, etc.). However, the customer is buying the result of the service, not the time.

Fourth, another example he mentions is logo design and the possibility of revisions. In this scenario, it is the professional's responsibility to write a clear scope of work and educate the customer during the buying process.

A better way to define the scope of work is to offer the customer options. For example, a logo with one round of revisions is $X; with three rounds of revisions is $Y; or with unlimited revisions is $Z.

Ultimately, the service professional should use his expertise and experience to offer the customer a fixed scope of work for a fixed price based on the value created.

Creating and Pricing A WordPress Plugin with Jason Coleman – 075

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Jason Coleman is the founder of Stranger Studios and the creator of Paid Memberships Pro, a membership plugin for WordPress. He is the co-author of Building Web Apps with WordPress. Jason enjoys playing Minecraft and Super Mario Maker with his kids.

Kary Oberunner‘s podcast with Kirk is here: How to tell your friends their Digital Fly© is down (Episode 51)

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Transitioning from Services to Products

  • What is the most important thing you can share about pricing?
    • There is not one magic formula to price something.
    • Find as many methods of pricing as you can and use all of them.
    • Take what you learn to come up with a price.
    • If you are using different methods, you will notice that certain prices become a sweet spot.
    • You will learn about your market, your customer and the prices that do not work by using the various methods.
    • Do not get discouraged by competitors' prices, but rather learn how to educate your customers on the value to justify your price.
  • How did you get started developing websites for WordPress?
    • He has been making websites in high school.
    • After college, he worked at Accenture and then left to do freelance development with his wife.
    • They started making blog sites with WordPress.
    • In 2010, they started using WordPress for site development, pushing it to its limits.
    • They used a custom plugin they built for 5-7 e-commerce customers in 2011.
    •  They had a couple of customers who needed membership functionality, and they built Paid Memberships Pro as open-source from the ground up.
  • How did you make the switch from consulting to selling a product?
    • After creating the product, they started attracting membership-based consulting customers and established a niche.
    • Over time, they went from WordPress developers to membership site developers.
    • The switch helped their consulting business by attracting leads through the plugin.
    • They were able to charge a higher premium based on their expertise in the membership niche.
  • Is “repeatable” work more valuable than custom work?
    • Focus on a niche and try to do a repeatable engagement.
    • If you are doing the same kind of work, you get faster at it.
    • If you charge a fixed price, your effective rate goes up.
    • Your customers become more confident in signing up with you.
    • Products can include a consultation call.
    • During that consultation, you can qualify customers for future work.
    • He thinks of it as simplifying his business to allow him to do more of what he wants to do.

Selling Service As a Product

  • What are the advantages of selling service as a product?
    • “Do It For Me” was a product that included them installing the plugin for customers.
    • It was priced almost at a loss so they could become educated on use-cases from customers.
    • If you upsell consultant work to those customers, you guarantee that it is someone who can pay you.
    • The “product” lets you work on small, low-risk projects to feel out the customer.
  • What was the result of your recent price change for Paid Memberships Pro?
    • Before July 2015, they had one paid level, at $97/year, providing access to the support forums and advanced tutorials on the website; otherwise, the plugin was available for free.
    • In July, they added a second tier at $197/year, providing automatic updates for add-ons to integrate.
    • They knew the $97/year price was low; the higher price has worked.
    • They were going after market share and didn't want to hinder its initial growth.
    • By adding the higher level with additional value, they are selling more and getting a higher average revenue on sales, without any pushback from customers.
    • By introducing the higher price level, they were able to capture $100 more from most customers.
  • What are some pricing experiments you have planned in the future?
    • The one-week sale drove more people to purchase the product.
    • Jason learned there was room to increase prices when adding more value.
    • Time and materials analysis showed that it costs more than $47 to service a member, so having more paying customers is not the best thing for the business.
    • The current experiment will determine if a price increase to $297 will change who buys.
    • The reason stores show the original price vs. the sales price is to set the benchmark for value.
    • The current experiment will determine the conversion rate for different pricing while charging the customers the same amount.

Pricing for Membership Sites

  • What is the pricing add-on you are creating for Paid Memberships Pro?
    • Jason created an add-on to run A/B pricing tests.
    • You can set up an experiment to determine which price converts better.
    • That information is stored in the order to compare the experiments.
    • A customer is testing different landing pages to do A/B tests to see which converts better.
  • What have you learned about pricing membership sites from your customers?
    • In a lot of cases, simpler is better.
    • You can get creative about how to price the memberships, using the plugin.
    • He discovered that if things were difficult to code, they would be hard to explain to the end customer.
    • If you limit the number of options, it is better.
    • There is a psychology to drive people to one membership level by positioning three levels of value.
    • More than three options paralyzes people.
    • Episode #64 also discusses how to simplify options.
  • What is one of your best stories about creating value for a customer?
    • A lobbying organization for a branch of the military had an application process for membership.
    • The paper application was replaced by an online application.
    • Immediately after implementing it, their enrollment increased three times.
    • As an advocacy group, they not only got more people involved, they also increased revenue.
    • They were able to find more services for their members and were able to stay true to their mission.

About Jason Coleman

Pay What You Want Pricing with Tom Morkes – 016

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Tom Morkes is an expert at Pay What You Want pricing. In fact, he wrote a book on it. PWYW pricing lets the consumer choose the price to pay for the product or service.

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What is the most important thing you can share about pricing?

  • Pricing is marketing.
  • How you price your products and services is part of marketing, and therefore part of the sales process.
  • Pricing is essential early in the process, while you are developing a product or service.

What is Pay What You Want pricing?

  • Pay What You Want pricing lets the consumer/buyer decide the price of the product or service.
  • It doesn't work with commodities.
  • Marketing is more important with Pay What You Want pricing.
  • Some people will pay you more if you remove the fixed price.
  • The Vennare Brothers' The Hybrid Athlete inspired Tom's interest in this pricing method.
  • It is not relegated to products, but can also work with services.
  • If you can't express the value you are offering, this pricing method will not work.
  • Price anchoring is an important marketing technique for this method.
  • A blank space for people to put in any number is not the best option for more expensive products and services.
  • If you remove the caps (low and high), people will pay you more than you think they will. It will also remove the barrier to entry on the bottom end.
  • You have to be comfortable that some are going to pay less, but a small percent will pay dramatically more, offsetting the lower buyers.
  • You need to rely on the people who are generous to sustain you, which is a smaller percentage of the buyers.

How does Pay What You Want compare to other price concepts?

  • Crowd Funding is different from Pay What You Want, but they are similar and can learn from each other.
    • How do you show someone the value?
    • How do you encourage them to be generous?
  • Value Pricing and Pay What You Want use tiers or options.
  • TIP (To Insure Performance) is a combination of Value Pricing and Pay What You Want. TIP is similar to how bartenders and waiters price.
  • Pay What You Want Invoicing – Send a blank invoice and let the customer choose what to pay.
  • Experiment and try it out on small projects, like charging for parts and letting the customer pay what they want for service.
  • Some examples of Pay What You Want Pricing
  • Gumroad is an ecommerce site that supports Pay What You Want well.

About Tom Morkes

Creating and Pricing High-Value Services with Jason Blumer – 014

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Jason Blumer is an accountant and entrepreneur, constantly starting businesses. His focus for the past few years has been on business coaching, trying to change businesses from the inside out. He is trying to single-handedly start a revolution in the accounting industry. He runs Blumer CPAs, a virtual accounting firm. He started the Thriveal CPA Network to help accountants stop billing by the hour and start pricing on the value they create for their customers. He has two podcasts of his own, Thrivecast and the Businessology Show.

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Price is Tied to Value

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. – Warren Buffett

  • What is the most important thing you can share about pricing?
    • The future success of a business is in its ability to price high.
    • If you can't raise your prices, you have to figure out why.
    • Value pricing is a methodology. There is no right price.
    • Price is intrinsically tied into value.
    • Learning to have the value conversation is at the heart of value pricing.
  • How do you know if you are profitable when you are not tracking time?
    • You can look at your P&L statement to determine if you are profitable.
    • You do have to know your costs; they are hard numbers.
    • Cost is the cash you have to pay to deliver on the value promises you are making to your customer.
    • Profit is not the same thing as cash flow, which ebbs and flows, depending on how you scope documents and present terms.
    • Value pricing can improve and predict your cash flow.
    • You price better and your margins are better with value pricing.
    • Value pricing is a hard thing to do – it is the right thing to do, but it is harder.
    • It is good to have support from a coach to help you make the change.
  • What is one of the biggest obstacles when switching to value pricing?
    • Value pricing is a methodology where there is no “right” price.
    • You have to become comfortable with the fluffy discussions of value and the unknown subjective world.
    • You can still use a spreadsheet to calculate the price.
  • How do you define value pricing?
    • Value Pricing is how to get the maximum price for the value you're promising.
    • Business is win-win; you can't price high (promise high value) unless the customer receives high value.
    • Both sides have to believe that the agreement is awesome.
    • Value pricing forces you to be more intimate with your customers.
    • Your customers begin to trust you with their fears and failures in order for you to provide the best value for them.
  • How do you push through the “uneasiness” of pricing?
    • You can help people push through the uneasiness with coaching.
    • Pricing is a skill you get better at, but you never stop learning.
    • It is a courageous thing to get aligned on the right things with your customers.
    • You have to push through the fear and leave your money baggage conversations behind.
    • Coaches can help you unlock what you are struggling with.
    • You must believe you create value.
    • The business owner does not have to do the pricing; determine who is the best person to do the pricing for your organization.
    • Check your own perceptions of value at the door.
    • The danger of hourly billing is that it never faces you with the question as to whether or not you are valuable.
    • Can you put, “I sell transformation,” on your website?
    • You won't get good at pricing until you are willing to be uncomfortable.

Value Pricing for Accountants

  • How can accountants successfully implement value pricing?
    • Yes, a million times yes! It's amazing to see it happen.
    • It forces your hand to define your customer better.
    • A scarcity-poor mindset will not align with value pricing.
    • There is a cost with change.
    • Implementing value pricing in your business requires sacrifices in three areas: Customers, Services, Team
    • The team has to be able to believe that you sell transformation, making them high value and higher priced.
    • The Dangers of Safety is a blog post about being uncomfortable through the changes.
    • Doing anything right is not easy.
    • The cost you have to pay to implement value pricing is worth the payoff.
    • You have to be ready to see and seize the opportunity to price based on value.
    • Pricing based on value happens before the work is done, so the customer has to believe in you.
    • The challenges of value pricing are worth the higher prices and the lives that you transform.
    • When you sell something that is transformative, you have huge leverage to create huge pricing in return.
    • Industries are being commoditized by technology.
    • The accounting profession is not willing to embrace that truth.
    • Baby boomers run 80-90% of the industry and that generation has the tendency to place more value on a transaction.
    • It is a profession with a mindset that is unwilling to change, which is making it hard.
    • Innovate or die!
    • The “die” part is happening so slowly that it is making it more challenging to change.
  • What are you doing to help accountants learn to price by value?
    • There are coaching courses offered through Thriveal.
    • George Gilder said profit is an index of altruism.
    • A lot of young people are coming into Thriveal, and are blasted with discussions on value.
    • Jason also speaks and writes on value.
    • The message isn't always well-received, so you have to argue about it as well.
    • It will be one firm at a time implementing this business model.
    • Implementing Value Pricing is much more accepted by younger people.
  •  What is the Thriveal CPA Network?
    • Thriveal is a private, vetted community of entrepreneurial, strategic, creative firm owners.
    • They want to run a business like a business, not like a firm.
    • They are creating flatter models and giving more autonomy to their team members to help make decisions.
    • They do not advertise for new members, and it is not for the majority of firm owners.
    • There is a manifesto document with 6 key points that Jason wrote.
    • The firm members are not the same, but the entrepreneurs think the same.
    • They want to see the members doing courageous things, even if they are fearful.
    • The Thriveal Laboratory was started to do experiments, run by Adrian Simmons.

Masterminds and Coaching

  • Why should an owner or entrepreneur have a business coach?
    • Coaching may be popular, but it is somewhat unknown.
    • Unlike a consultant who identifies what to fix, a coach makes you think deeper.
    • A coach is trained to walk you through pathways of change.
    • Coaching is about transformation.
    • It is somewhat like business counseling.
    • A third party coach, who is emotionally distant from the issue, pushes you where you can't push yourself.
    • For a more detailed explanation, you can read Blumer CPAs Coaching Guide.
    • Firms need to proactively add services that are of higher value, to sell their brains again.
    • Technology can manage the tax code better than the brains of tax managers.
  • How is a mastermind group different from coaching?
    • A mastermind is similar to group coaching.
    • One-on-one coaching is about transforming the individual.
    • For a group coaching, the coach is a facilitator.
    • The attendees go through materials, which spark thoughts.
    • The group then meets to talk through what they learned from the materials.
    • A mastermind is a group of 4-5 people who are at a similar place in the business life cycle to share challenges and hold each other accountable.
    • In group coaching, the coach pours into the group.
    • In a mastermind, they all have equal weight and it allows for iron to sharpen iron.
  • How can a business add coaching as a new service?
    • The first thing you need to do is sell something you don't know how to deliver.
    • Once you sell a coaching session, then you figure out how to deliver it.
    • Jason follows a coach, David Rock, who wrote Quiet Leadership.
    • To come up with the right questions, rather than the right answers, Jason suggests reading books by Peter Block.
  • What is one of your best stories about creating value for a customer?
    • The greatest stories are when you are able to put a price on the transformation of a human through coaching services.
    • After 6-9 months, sometimes they don't need the service anymore as they are more aware of how they deal with issues.
    • If you are not in the mindset of value pricing, you can take great risks with your pricing.
    • Jason based his pricing on how the customer's revenue and profit changed over the next year, but they didn't choose that option.
    • When you see the value and go after those risks, you can request a substantially higher price.

About Jason Blumer

Value Is Subjective, Pricing Is Contextual with Ron Baker – 013

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Ron Baker is the author of six books, including Implementing Value Pricing. He's the founder of the VeraSage Institute and a Graduate of Disney Institute. He's on the faculty of the Professional Pricing Society and a host on a talk radio show, The Soul of Enterprise. He's a LinkedIn Influencer blogger and a recovering CPA.

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All Value Is Subjective

  • What is the most important thing you can share about pricing?
    • Prices are ultimately set by value, not by the competition or supply/demand, but by value.
    • Value is subjective. It is a feeling, not a number.
    • The technical definition of value is the maximum price a consumer will pay for an item.
    • If you willingly pay a certain amount for something, it is worth more than that to you.
    • The customer has to make a profit too.
    • The value graph:
      • Customers don't care about the cost to the business.
      • The price set has to be above the cost or the business makes no profit.
      • The value has to exceed the price or the customer makes no profit.
    • Both the seller and the buy want to maximize value and that's the one area where our interests are aligned.
    • Inputs are irrelevant; the results are what matter.
  • What was your first exposure to value pricing?
    • He left his Big 8 firm and started his own firm with Justin Barnett.
    • He learned quickly that his customers were not buying his time.
    • Ron switched to value pricing to enhance the customer experience.
    • The billable hour is a lousy customer experience.
    • Offer the customer a money-back guarantee to assure the customer you aren't gouging them.
    • If any customer complains loudly enough, you are going to write it off anyway.

Learning to Discover Value

  • How long should the consultant talk during a value conversation?
    • The customer should talk 80% of the time; consultant only 20%.
    • Usually, the professional ends up talking 60-70% of the time.
    • The purpose is to determine the customer's desired need.
    • Ask open-ended questions and let the customer talk, while you take notes.
    • When someone sees you taking notes, they tend to provide you with more detail.
    • Ask open-ended questions such as:
      • Why do you get out of bed in the morning?
      • What are your biggest challenges?
      • How do you feel about that?
    • The way you sell is indicative of the way you solve.
    • The art of questioning can differentiate you from the competition.
    • If your customer won't talk to you to help you understand the value, they are probably not a good fit.
    • When you take a step back from a customer, they usually take 3 steps toward you.
    • The customer's needs must be met.
    • A customer's wants set an anchor price to allow the price of his needs to rise a bit.
  • What is your favorite question to ask during a value conversation?
    • Ron's favorite opening question is, “We will only undertake this engagement if we can agree, to our mutual satisfaction, that the value we are creating is greater than the price we are charging you. Is that acceptable?”
    • Now the conversation can go off on a value quest.
    • Every customer wants reassurance that the value they are receiving is greater than the price they are paying.
    • The awkward feeling of asking the question comes from not being used to having a value conversation, taking you out of your comfort zone.
    • The art comes in as to where and how you work the question in.
    • What art means is that it is also a skill – the more you do it, the better you will get at it.
    • Ron's question is plagiarized from McKinsey & Company, one of the most successful professional firms ever.
  • What is the distinction between pricing the customer vs. the service?
    • Since value is subjective, different customers will place different value on the same product.
    • Airlines, hotels and rental cars price based on the price sensitivity of the customer.
    • Price the customer, not the service.
    • Airlines are a great example of pricing the customer.
    • The airlines changed their prices based on yield management and did it within 2 years.
    • You can't wait on customers to innovate your business model.
    • Your business model is how your firm creates its value for the customers and how it captures that value.
    • Every business model change comes with a pricing change.
    • Never has a customer changed the business model.

All Pricing Is Contextual

  • What are some questions to ask internally before setting a price?
    • Think about the price sensitivity of the customer.
    • What would happen if the customer did nothing?
    • How will this project further them, their business goals, their job?
    • There are about 20 questions to go through to get to a price, trying to judge and assertain how price sensitive the customer is.
    • Ron explained setting three prices for a customer: Reservation, Hope For and Pump Fist
      • Reservation Price is the walkaway price, the minimum you will take to accept a customer. (You wouldn't cut this price a nickel for your own mother.) It will turn a normal profit.
      • Hope For Price is the “should get” price. It will turn a supernormal profit.
      • The Pump Fist Price will throw off a windfall profit. If a company never asks for this price, they'll never get it.
    • Consider what value a company has to create to get a Pump Fist Price.
    • Profit is an index of your company's altruism – how good you are at serving others.
    • The three prices make you look at your customers as a portfolio.
  • Why are options so powerful in pricing?
    • Empirical evidence shows that customers like having choices.
    • In his first book, Ron said that offering options was not the best for the customer.
    • But, once he saw the empirical evidence, he changed his mind.
    • Two laws of marketing (pricing):
      • All value is subjective.
      • All prices are contextual.
    • By giving the customers options, you get the customer to compare you to you: How should I work with you? vs. Should I work with you?
    • Options also take advantage of heuristic or mental shortcut to choose the middle choice.
  • What are some of your favorite options to offer?
    • The airline has to land safely whether you are a Priceline customer or first-class customer.
    • You have to deliver quality no matter what option your customer chooses.
    • You can differentiate on service, based on 6-8 Ts. For example:
      • Timing.
      • Payment terms.
      • Technology.
  • What is the concept of “concentric circles” by Chris Marston?
    • The concept was created to answer, “how do you price a law suit since there are so many unknown unknowns?”
    • Chris has a conversation with his customer, drawing a circle with a “YES” in it – this is work that must be done.
    • Another circle around it shows the work that is likely to be done.
    • A third circle shows the maybe work and the final circle is the “who the hell knows” work.
    • He provides options to work on each of the circles.
    • By presenting this concept to your customer, you convey that you know what you're talking about as a professional.
  • How do you price intangible or spiritual value?
    • Value is holistic.
    • You can't separate the person sweeping the floor and the person making the food in a 5-star restaurant.
    • Split value creation into materialist (can be measured or conjectured) vs. spiritual (can't be measured) value.
    • Spiritual value is about 2/3 of your total value, becuase it is impossible to replicate.
    • The materialist value can be easily replicated by a competitor.
  • What is The Soul of Enterprise radio show?
    • Voiceamerica.com has 7 different channels and the show is on the Business channel.
    • It runs live on Fridays at 4pm EST.
    • Ed & Ron have a conversation about one specific topic per episode.
    • Rory Sutherland, the Vice Chairman of Ogilvy & Mather in the UK, has done 2-3 Ted talks, but his Zeitgeist talk for Google is one of the most astounding talks Ron has ever seen. He was on Episode 9.
  • What is one of your best stories about creating value for a customer?
    • Ed & Ron worked with a law firm and were brought in to help them get rid of their timesheets.
    • They created enormous value because the firm was better able to retain and attract talent.
    • Plus, they created a legacy for the Managing Partner.
    • A good pricer lays in bed and asks how much money they left on the table that day – you'll never get the price right.
    • After the first phase of work with a customer where they chose the least expensive option, Ron presented 3 more options to the customer and they chose the highest priced option.

About Ron Baker