Art Of Value

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Discover Impact, Meaning and Feeling with Matthew Tol – 098

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At times, value pricing can seem complex. However, if you boil it down to the core elements it is listening to the customer, discovering the impact and then creating options. Matthew Tol is passionate about the fundamentals and believes you should expand discovery to include the meaning and feeling to the customer to fully understand the value landscape.

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Listen to the Customer

  • What is the most important thing you can share about pricing?
    • You are never going to get it right.
      • Be approximately right, rather than precisely wrong. – Ron Baker
    • It's about the customer and what he values.
      • If you can articulate that, then he will get more involved in the engagement.
    • There is a different price for everyone.
    • You have to help the customer discover the value, letting him put it into his day-to-day work.
    • Accounting looks backward telling you what happened.
      • Value pricing looks forward.
    • Be less prescriptive and more open to variables when you are pricing.
    • It is a future-based process, to help the customer discover the value.
  • How do you help a customer see the hidden value?
    • The questions that you ask that start with “what” and “why” help the customer reframe the problem.
    • Prescription without diagnosis is malpractice.
    • Many times the customer doesn't know what the problem is.
    • You are a guide to help the customer diagnose, which is when you can help them discover the value.
    • Challenge the customer's answers to your questions and reframe them in a different context to take the conversation to a higher level.
      • If you aren't challenging a customer's thinking, you are just a robot.
    • Listen to what the customer is really saying.
      • Stop rushing to conclusions.
    • It's better to have the humility to tell a customer that you will work with them to solve the problem, rather than being a solutionist.
    • Listen to respond, rather than listen to react.
  • Can a professional learn to ask probing questions?
    • Recruit specifically for people who have the potential to learn the skill and then train them.
    • Each person has to develop his own style, but it is about the outcome you want to deliver.
    • Don't forget to allow for silence.
      • In a vacant space, most people will start blurting out the real issue.
      • You get a far better outcome by letting silence be your friend.

Discover Impact, Meaning, and Feeling

  • How did you make the transition to value pricing?
    • In 2006, he made the switch, after discovering Ron Baker.
    • In a traditional accounting firm, you have to record your life in 6-minute increments.
    • He was always the last to do his time sheets, even though he was a partner.
      • He felt recording your time and multiplying by an arbitrary rate was a waste of time.
    • One thing that he found offensive about time-based billing system is the flashes fo brilliance you get are not billed.
      • When you get the 30-second flash of brilliance in the shower or while fishing, and how do you charge that customer?
    • It doesn't value the professional.
    • They no longer have toxic relationships with their customers since unexpected bills are no longer sent.
    • Engineers and accountants created the billable hour system, trying to make everyone extra efficient, without considering effectiveness.
    • Adding value makes a difference.
    • Recording time you spend on a file doesn't matter; the decision you make as a consequence is what matters.
    • Pricing on the result rewards the professional if he can do it faster.
    • You can only flourish if you have time to “chase the rabbit down the hall”, which a time-based business does not allow.
  • How do you approach having a value conversation with a customer?
    • First, discover the real issue the customer needs to solve.
    • Take the customer through questions in 3 major areas:
      • Impact
      • Meaning
      • Feeling
    • Take the conversation from external to internal to understand the value of undertaking the project.
    • Once the value is discovered, the price doesn't matter as much.
    • It's not about you; it's about the customer.
    • If you've walked them through this process correctly, you will leave them wanting the value you are planning to create.

Create Your Best Option First

  • What is one of your favorite ways to offer options to a customer?
    • Start with the Works Burger – everything.
    • Pare things out from that starting point.
    • Place the highest value option first and then strip things out until you get to the base model, understanding what is missing.
    • Try to repeat back to the customer what he wanted through the options, using his language.
    • Communicate with the customer the way he wants to communicate.
  • How can a counselor who helps men overcome porn addiction offer options?
    • The Art of Value Society has a member who coaches men to overcome their porn addictions.
    • He asked how to price it, and we made a commitment to discuss the question on the show.
    • You're dealing with people on a personal level who understand they have an issue.
    • You might need to go through a discovery process with them, to root out the deep-seeded issues.
    • Take them through the impact/meaning/feeling steps before putting them into the program.
    • The highest value should be shown first, rather than last.
    • Talk to them about what the value is to get rid of their addiction, working with them to set the price.
    • If you are using the same price for everyone, you are not making it about the individual.
    • Some of the prices will be social service, and some will be far more profitable.
    • Spend more time with the customer before you engage them.
    • The quicker you engage the customer, the more likely you will have a toxic relationship.
    • Putting the top package first should be the focus of what you're doing; if you aren't willing to go with it first, ask yourself why.
    • Not having prices on the website is good.
    • It is arrogant to productize knowledge-based, high-value items by putting a standard price on them.
    • Don't be average: The average is where the best of the worst meets the worst of the best.
  • What is one of your best stories about creating value for a customer?
    • From a quantitative point of view, in reviewing a customer's tax return they discovered they could get $125K plus interest back from the government.
      • The customer was happy, and they got a percentage of the refund.
      • On an hourly rate, the customer's bill would have been about $300, but this enabled them to get substantially more.
    • From a qualitative point of view, there was a company ready to fire two people with 40 years of experience between them, due to staffing issues.
      • Once the problem was solved, they were able to keep the people.
      • One was promoted into management and was able to create a substantial 6-figure product.
      • It was a huge turnaround based on how to identify the person to put in charge of the project.
    • Consider that the value you add isn't only quantitative.

About Matthew Tol

Matthew is the founder of MTA Optima. He's a chartered accountant and a fellow Fellow at VeraSage. His most proud accomplishment is that he is a husband and the father of a pre-teen daughter. He loves competitive rowing, competing when he was younger and is now a coach. He is also a sports car enthusiast.

A Value Conversation for the Solopreneur with Eric Davis – 095

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Having a value conversation with the customer is important regardless of the size of your business. However, as a solopreneur, it is essential for survival. You have to determine what type of customer is necessary to operate your business profitably. Then use the value conversation to identify and educate customers that you can serve and with whom you enjoy working.

What Is the Customer's Perception of Value?

  • What is the most important thing you can share about pricing?
    • There is more to pricing than the cost.
    • Pricing is not just what someone is going to pay for it.
    • Your perception, expertise, and abilities are part of it.
    • Price is a component of the relationship with your customer.
    • If you undercharge to win an engagement, you have colored yourself in a bad light.
    • If you use pricing as part of your positioning strategy, it changes the perception to your customers.
    • Is the customer looking at hiring a pair of hands or your brain?
    • Once you state your price, it is very hard to change it.
    •  If you have a relationship with your customer as an expert, you can engage in other areas.
    • A customer was willing to train Eric because they wanted him to build it.
  • How do you educate your customer about software development?
    • If a customer is pursuing custom software development for the first time, you have to educate them about what is possible.
    • Usually, they need to customize something that exists, but they do not know what they can do with it.
    • Talk with the customer about the problems they are having and how you can help them gain greater benefits.
    • A lot of the pre-sales education is identifying pain points and why the customer came to Eric.
    • He educates not only on the value for what they asked but looks for opportunities to create more value.
    • Often, they start with the original idea for a trial project to make sure it is a good fit. Then they book as much time as possible to continue working with him.
  • How do you handle the high demand for your services as a solopreneur?
    • His wife is in human resources, and he has heard the bad side of having employees. He felt like he could control the interaction with one customer each week.
    • He pushes things back or helps the customer hire its own team to go faster if necessary.
    • If there is a huge gap in the business, doing something minimal can cover the gap.
    • He works with them on a schedule, budget, and value to prioritize work.
    • Once you unlock the value that custom software can deliver, the customer sometimes feels like it is Christmas and asks for more.
    • Constraints empower creativity.
    • It is the consultant's job to help determine what is the biggest return at the moment.
    • The list of features is prioritized based on the client's perception of value.
    • His clients need to trust him for the software development, but he has to trust them in their unique business.
    • Value, as a dollar amount only, is short sighted.
    • When the customer admits there is no value and they still want him to do the code, he will engage the customer.

Creating Value Through a Conversation

  • What is one of your favorite questions to ask during a value conversation?
    • He starts the conversation via email.
    • Asking questions by email lets Eric know if can communicate via email, which is necessary for his business model.
    • He will ask them to tell him a bit about the problem to start a narrative with them.
    • Once he gets them to open up, he starts to talk about the budget to set expectations.
    • “Why did you come to me now?” is a question to unlock the urgency of the project.
    • You will learn about the budget, decision maker, and demand for the project from that one question.
    • He had a prospect who had a senior developer leave while they were already understaffed and they urgently needed help.
      • It was then easier to go into how long they have been looking and what the transition plan is.
      • The customer came to him looking for help, and it turned into a staffing augmentation need, giving him the opportunity to train a full-time employee.
    • He tries to make the value conversation fluid: timing, budget, narrative, and basic technology needs.
    • He asks about the long-term goals of the project, “Where would you like to see this project 12 months after launch?”
  • How do you create value for the customer through the sales process?
    • The value conversation is before the project starts, which gives the customer value even if they choose another developer.
    • He tries to provide alternative resources when the customer is not a good fit.
    • The way you have a conversation (sell) with a customer is an indication of how you work (serve).
    • Eric's sales process helps identify yellow flags regarding how they will work together.
    • One year, he worked only with past customers, since none of the new prospects was a good fit.
    • He makes it a priority not to work with people or projects that he dreads.

Managing Projects as a Solopreneur

  • Is working with a small number of customers a risk for a solopreneur?
    • The biggest risk is getting stuck with a customer that jeopardizes you legally.
    • But, if he works with a “yellow” customer, he cannot work with a “green” one that comes along.
    • Bad customers drive out good customers. – Ron Baker
    • Saying yes means you are saying no to something else.
    • Pricing plays a part of getting the best customers.
    • When you engage several with small, low-price customers, you will have a hard time raising your prices.
    • Those customers are not going to give you good referrals.
    • Price in a way where you do not have to sell every waking minute to pay your bills.
    • If you are selling all your capacity, you do not have any availability.
    • If he sells only one week per month, he is still comfortable because he uses pricing a tool to make that happen.

How you sell is indicative as to how you solve. – Mahan Khalsa

  • How do you handle scope creep during a software project?
    • He welcomes scope creep, as long as they go back to reprioritizing.
    • He follows the chaos model to make a list of everything to get done and then work on the most valuable thing first.
    • Eric wrote a blog post on his project management.
    • When a customer comes with multiple documents to scope the first phase, often you cannot do everything at once.
    • You can deliver the minimal, most valuable items first and then build over time.
    • Slowing down helps with project management.
    • Every Monday, he reviews the list of priorities with the customer, and they reprioritize what can be accomplished that week since he works week-to-week.
    • He likes that process because it shows that the customer thinks about the value they are receiving.
    • He guides their priorities but lets them make the decisions.
  • What is one of your best stories about creating value for a customer?
    • One customer because of a blog post on technology.
    • The company was a decent size start up and needed his help.
    • They had a hard launch date in less than a month, due to government regulation.
    • He started to finish features but then started to question what they were doing and why.
    • Early the next year, they solved a lot of the additional issues, and people started becoming productive, rather than in crazy start-up mode.
    • He probably brought several million dollars of value and set them up for long-term success with just a couple of months of work.

About Eric Davis

Eric is the founder of Little Stream Software. He has made a conscious choice to start and remain a solo developer, even though he has made over six figures developing for Redmine, an open source software project. He is now making a pivot to developing web apps for Shopify.  He shares his knowledge about pricing nad marketing through his curated newsletter, Freelancing Digest.

Singing the Praises of Value Pricing with BJ Lee – 090

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Making money as a music teacher is tough, especially if you charge by the hour. That is why BJ Lee and his wife Sylvia decided to use a different business model in their vocal coaching practice. They wanted to price their services based on the results their student would achieve rather than the time for the instruction. They took the first step by offering a single customer 3 options. In fact, to hear BJ tell the story, he suggested to Sylvia that she provide options as he was walking out the door to run an errand. This single experiment has led to an 180-degree turnaround in their business. And BJ is willing to share the good, the bad and the ugly so others can learn from his experience.

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The Start of Value Pricing

  • What is the most important thing you can share about pricing?
    • If you take a risk by offering multiple packages and prices, you create the chance to be blown away… or a chance to be mocked.
    • Creating three packages gives you confidence.
    • The middle package is what you know people want from you.
    • The lowest package is the basic scope to get the job done.
    • The highest package is an opportunity to offer the customer something he does not know is possible.
    • To start, BJ and his wife offered something they had never offered before (create a studio recording in 6 weeks).
    • The new customer took the highest option, which was 2 times more than what they would have been paid at their hourly rate.
  • What was your first exposure to value pricing?
    • BJ was interested in offering three options.
    • The Basic, Premium and VIP Packages that they originally sold were based on time.
    • Since they were selling “future time”, they felt trapped.
    • The problem was that it was not results based. If the session was an hour and they reached the goal in 15 minutes, what do you with the rest of the time?
    • Other students did not take advantage of all their paid sessions.
    • Ron Baker calls fixed pricing based on hours, “hourly billing in drag.”
  • What is one of your favorite questions to ask during a value conversation?
    • BJ sees the power of questions and how they can guide a conversation.
    • They open up the relationship between two people, conveying that you are genuinely interested.
    • The customer discovers value through the questions, even if they do not hire them.
    • You are human, not a commodity, with this method.
    • Look at the value conversation as a way to create value for the customer.
    • BJ started to convince his wife by offering options, which forced her to think in terms of what would be valuable to the student.
    • It is a growing process, and they still make mistakes, but it is one of the most practical and effective things they have experienced in their business.

[clickToTweet tweet=”The highest option is an opportunity to offer something the customer does not know is possible.” quote=”The highest option is an opportunity to offer something the customer does not know is possible.”]

The Impact of Pricing on Results

  • How has value pricing helped your wife improve her craft?
    • When a student arrived at the studio, they connected via Skype. Then Sylvia became the remote producer of the track.
    • She did not know she could be a producer, let alone virtually.
    • Value pricing allowed innovation in the business.
    • The student moved to another goal, to sing for her mother, which is priceless.
  • What change was necessary to stop selling your time?
    • Value pricing made them focus on objectives and results instead of selling time.
    • It was amazingly freeing as they started to develop partnerships with their customers, rather than work as a commodity.
    • Framing results can be somewhat intangible with vocal coaching.
    • They take it as a project where the person has to perform a song in some specific way.
    • There are also online courses where they can learn to sing on their own.
    • They can say no to opportunities now because they are results-oriented.
    • It is more fun to work toward something that is exciting, for all parties.
    • With a flexible amount of time (15 minutes to 2 hours) for each lesson, you have the margin to prevent lessons being stacked on top of each other.
    • Each student is assigned practice for home.
    • If the student has not practiced, she sends him away to practice because his time with her is for assessment, not practice.
    • They have been using this model for about 6 months and achieving higher results.
  • What was a challenge you pushed through to make the switch?
    • He was blamed for usury by a customer.
    • He was having a value conversation about creating a website for the company.
    • It is typical to get paid by the hour or on delivery in the film industry.
    • He offered a value price based on a percentage.
    • The company said it could not pay upfront, so he offered two equal payments at a 10% increase.
    • He dug a deeper hole in trying to explain it to the customer.
    • It was a referral from a friend. Otherwise, he would have walked away.
    • The friend became the intermediary (and still is).
    • They eventually agreed to pay and the customer loves the website.
    • Not having to play debt collector is a huge a stress relief.

[clickToTweet tweet=”Price each option three ways, resulting in nine prices to help you choose per your intuition.” quote=”Price each option three ways, resulting in nine prices to help you choose per your intuition.”]

How to Create Three Options

  • What is one of your favorite ways to offer options?
    • There is no routine, yet.
    • Recently a woman wanted training to sing at church with her husband in the worship band.
    • BJ read Let's Get Real or Let's Not Play, and then asked about the customer's resources including:
      • Time
      • Who else is involved
      • Money
    • BJ discovered her husband was very involved and created a top package to included him, which the couple chose.
    • They thought that it might even be something the couple needed for their marriage, based on the value conversation.
  • How do you determine your prices?
    • They are training themselves to use a grid; silver, gold and platinum with a price sensitivity scale (Neinbach model).
    • You price each option three ways, resulting in nine prices to help you choose per your intuition.
    • He knew once he heard about value pricing that it was an inner yes that he had to explore.
    • He thought his problem met a solution that made sense of what was happening.
  • How do you face your fear to implement value pricing?
    • They are in a situation where if they did not try something, they would have problems paying the bills.
    • Since they are in that position, they have to take risks.
    • You cannot lose by offering three options.
    • Do something to get started down the path.
    • He recommends the following resources:
    • It is a life-long learning process.
    • Through immersion, value pricing becomes what you are.
    • Being real, authentic and human toward other people is harder with hourly billing.
    • Seeing the world in terms of value lets you serve them better.
    • Value is in the stories that Jesus tells, including the poor woman who gave more spiritually (2 coins, which is all she had) than the wealthy man who gave a larger amount.
    • Another Bibilical story, referenced in Today is Value-Pricing Sunday by Ed Kless, talks about a vineyard owner who hires people to harvest throughout the day. It demonstrates that time does not matter; it is the result.
  • What is one of your best stories about creating value for a customer?
    • A discovery conversation that did go well.
    • A website needed to be redone, but the customer's long-time colleague died over the weekend.
    • She did not want to delay the conversation, though.
    • He had named the packages after one of her passions, James Bond actors.
    • It made her smile, and she tried to guess them in order:
      • Sean Connery
      • Daniel Craig
      • Pierce Bronson
    • It was powerful to make her smile in the middle of a tragedy.

About BJ Lee

BJ Lee is a member of the Art of Value Society on Facebook. He and his wife, Sylvia, live in Hamburg, Germany. They started a vocal coaching company in 2013. She is the talent, and he is the business manager. Previously, he taught English for 10 years and has a Masters of Arts in Biblical Interpretation. He has learned the art of persuasion by parenting his 3 daughters.

Creating Proposals That Win Business with Curtis McHale – 087

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The traditional view of the proposal is that the professional must wow the customer with his expertise. A contrary view is the proposal is a collaboration between the professional and the customer. A collaboration that explores the value they can create, the value they should create, and the most valuable way to do it. WordPress developer and business coach, Curtis McHale, has achieved a high closing rate with his proposals by focusing on the results for the customer. His entire sales process, from the first email to the proposal presentation, is an inquiry into why the customer needs what he can provide. In this episode, Curtis explains what a good proposal is, and is not, and how focus on what really matters to the customer.

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A Proposal Is…

  • What is the most important thing you can share about pricing?
    • Find the value for the customer and then relate the price to that value.
    • Not finding the value is the worst mistake people make with proposals.
    • If you do not discover the value and tie it to your price, you will guess whether it is a good price for the customer.
    • Software developers tend to jump into the technical requirement too early.
    • Going slower allows you to build trust over time so you can learn the real value of the project.
    • He does not usually accept “rush” customers.
  • What is a proposal?
    • As Alan Weiss defines it, a proposal is a summary of the agreements that you have already made in your conversations.
    • As you talk to prospects, you can get to the real value by asking a series of why questions.
    • Ask why five times.
    • The customer is not an expert in your profession.
    • Slowing down helps to establish you as an expert.
    • As Tim Williams said, it is part logic and part magic. The customer will pay for the magic.

[clickToTweet tweet=”Not finding the value is the worst mistake with a proposal. #pricing #software #sales” quote=”Not finding the value is the worst mistake with a proposal.”]

Components of a Proposal

  • What should you exclude from a proposal?
    • A proposal is not a summary of every task you are going to do in a project.
    • You do not want to appear tactical, rather than strategic.
    • It is not to establish credibility or to win work over someone else.
    • For the scope, Curtis and the customer write a Google Doc without prices or timing.
    • The objectives are different from the scope/task list; objectives define the project's success.
    • By making it a collaborative effort with the customer, it creates an opportunity to identify problems and create more value, and thus improve your bottom line.
    • Not taking the time to build the relationship will create a desire to put your company's history in the proposal, which is a mistake.
  • What are the 6 key elements of a proposal?
    1. Define the current problem.
    2. List the objectives– high level focusing on the desired outcome.
    3. Gauging success statement.
    4. Three options, with option 1 fulfilling all the requirements of the project.
    5. Timeline, based on the options.
    6. Accountabilities for the customer and the provider.
  • Defining the elements:
    • Objectives are about the bright future, e.g., “to get more sales by driving more traffic” – like a sales letter to a specific customer.
    • Gauging success through metrics demonstrates that you are not just dreaming.
    • You can usually pull that information from your notes.
    • Gauging success needs to be something you can control; e.g., “we will be ready for responsive on mobile devices.”
    • Require action of your customer to help them succeed, when necessary.
    • To push through the fear of making requirements, take the time to think and say what is most accurate.
    • Do not forget the customer is paying you for your expertise.
    • Experience will teach you how to be confident in your expertise.
    • Putting the customer's bad idea in a proposal is the equivalent of malpractice.
  • What is a common reason a customer says “No” to a proposal?
    • You do not find their true budget.
    • Not making time to build the relationship with the customer.
    • In rare situations, something else takes precedence (and should), like a death in the family.
    • You realize that you did not talk to the real decision makers.

[clickToTweet tweet=”Putting a customer's bad idea in a proposal is malpractice. #value #pricing #sales” quote=”Putting a customer's bad idea in a proposal is malpractice.”]

Retainers and Requests for Proposal (RFPs)

  • What is a retainer?
    • A retainer is essentially an access agreement.
    • A fixed price is paid for access to professional to help with problems.
    • The rate varies depending on the need for the access.
    • Having access to the knowledge and experience creates value.
    • Individual access should be your most expensive offering.
  • Why is an RFP a waste of time?
    • There is typically a preferred provider.
    • If you do no know it is you, then it is not.
    • It is created by a committee and lays out everything for you.
    • Curtis declines RFPs and occasionally gets business because he is contrarian.
    • Usually, you will interact a committee in a large organization.
    • To establish creditability, you need to be intentional with your positioning (speaking to the right audiences, write guest posts for the top 5 sites in the industry, create a short white paper).
  • Why is it important to talk directly with the buyer?
    • Most often with RFPs, you are only speaking with the tactical person.
    • You want to speak with the person who, if he says yes, the project will happen.
    • Slow down, take time, and ask strategic questions to ensure that you are speaking with the right person.
    • No one can represent you better than you.
    • The decision maker will get the best information by directly talking to you.
    • 50% of projects fail in the software industry; 2/3rd are over time and budget.
    • Part of being a professional is not being part of the statistics.
    • The expert should have processes that are required to prevent failure.
    • Look for customers who want quality over a hard end date.
    • Sometimes, doing the right thing can be frustrating.
  • What is one of your best stories about creating value for a customer?
    • A nonprofit has been able to hire its first full-time employee, rather than just people who are volunteering, due to his work.
    • He will reap a reward from the long-run performance.
    • He has a lot of skin in the game and believes in what they are doing.

About Curtis McHale

Curtis McHale is an entrepreneur with 10 years experience and wins 90% of his proposals. He is a WordPress developer, specializing in membership sites. He is the author of two books, including his latest, Writing Proposals that Win Work. He is also a contributing writer to the Huffington Post, LifeHack.org, and Addicted2Success.

To enter to win a copy of Curtis' book, answer this question in the comments: What is the one thing that has helped you be more successful with your proposals?

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.

Selling Value to Corporate Purchasing with Jennifer Kinson – 074

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Jennifer Kinson sells professional services to Fortune 100 customers in information technology. She typically manages 6- to 7-figure deals. Because of the size of the engagements, Jennifer has to put together ROI statements for her customers. She does not have a traditional sales background, and that works to her advantage. Her husband, James Kinson, is the host of The Cash Car Convert.

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Talking About Price Is NOT Slimey

  • What is the most important thing you can share about pricing?
    • Talking about pricing does not have to be uncomfortable.
    • It is about establishing the value of your product or service.
    • If you are not having that value conversation, you are not very credible.
    • Talking pricing is not unethical or slimy.
    • During her first 10 years of selling, she went through the entire sales process, disclosed the price at the end and then took the objections. It was not a comfortable situation.
    • Customers are looking at products and services because they already see value in them; these are not cold calls.
    • Sales is about customer service and solving problems.
    • The pricing discussion is about understanding how much value they see and what it is going to mean to them.
  • Why is a professional more valuable to an existing customer?
    • You are more valuable to your customer the longer you have been in a relationship with them.
    • A transactional customer relationship, where you engage and disengage, loses momentum.
    • Having a partnership with your customer gives you confidence that there is value in the relationship. The conversation is not about price.
    • Fortune 100 customers have purchasing departments that do not care about the value.
    • They are a disconnected organization, which takes each engagement down to the lowest common denominator.
    • When you can deliver value that no one else can because of your long-term relationship, your price can be higher.

The Mindset of Corporate Purchasing

  • How can you counter the typical mindset of corporate purchasing?
    • There is an organizational discord between the customer-facing people and the people in the back.
    • As a seller, by design, she is not going to be working from the same agenda as procurement, whose mission in life is to take cost out of a contract.
    • She does not like to provide a high price, knowing they will knock it down, as she negotiates in good faith with her business stakeholder.
    • She tells procurement that she has already worked with the stakeholders and has provided a good price for the value they need.
    • If they think that the business stakeholder missed something or a remix is needed, she will work with them.
    • You increase the cost to the stakeholders if you hire someone who does not do as good of a job.
    • If you have not internalized your value, then you are vulnerable to those kinds of arguments.
    • If you have done a good job, your stakeholder is prepared to be your advocate with procurement.
    • The stakeholder has to do his due diligence before procurement ever sees the proposal.
    • Procurement's tactic is to say to competitors, “This is the business outcome I need – can you do it for less?”
    • You are exposed to these tactics if you have not worked with your stakeholder throughout the process to make them understand why you are uniquely qualified for that project.
    • You must be able to explain that you are not only providing the value required but that you are eliminating risk.
    • Some procurement people come with a win-win approach; others approach it as a boxing match.
    • Procurement is a reflection of the company culture.
    • Financial consulting and professional service firms have a better grasp of assigning value to risk than manufacturing companies.
    • You have to prioritize the procurement battles you are going to fight, due to high demand and limited resources.
    • Careers and livelihoods are at stake – there is a right way to do it and a cheap way to do it.
    •  Your poker skills are not what you want to bring to the negotiation table.
  • Can you sell on value to corporate procurement?
    • You can, as a qualified yes.
    • It depends on the corporate culture.
    • If you are just talking to procurement, your odds of having a value conversation is lower.
    • If you are at a strategic level and you are actively working with the stakeholder and they bring procurement in as a partner, you are more likely to have a value conversation.
    • You have to be judicious about involving procurement earlier in the conversation.
    • Keeping your business stakeholder in the conversation is more beneficial than bringing procurement in early.
    • In one situation, by working with procurement early, she was able to a structure to fit their business and win the proposal.
    • They helped her re-architect and reframe the deal to something that worked for her team and theirs.
    • Positioning yourself as a partner is the best way to work with procurement, but it is very nuanced to each company.
    • It is relationship-driven. Navigating the corporate politics of each organization requires a champion or sponsor to help you with procurement.
    • The sponsors are usually executives, but not always. They are always key influencers.
    • You have to put effort into the relationship to earn the sponsor's trust before you engage procurement.

Creating ROI Statements

  • How do you create an ROI statement for a customer?
    • If you are selling to a business, whether you are stating the ROI or not, the case is being made.
    • Your stakeholder is going to have to justify why he wants that product or service.
    • The need has a value associated with it, and your product or service has a price associated with it.
    • By doing the math and including the long-term value, you can set up a slam dunk.
    • Work with the stakeholder to determine the value and include it in each piece of documentation you send.
    • It takes an investment of time to get the data together; otherwise, you are taking it on faith that the stakeholder will handle it.
    • You have to help them understand what the value is to go beyond the cost mentality of “the budget.”
    • Understand the way your customer perceives the offer you bring to the table, especially if you are creating new value.
    • Salespeople have to be experts at discovering and explaining value.
    • To operate as a partner, you have to be able to align to the risks and the business initiative.
    • If a customer is trying to solve a strategic problem with a tactical discussion, you can hand it off to someone else.
  • What is one of your best stories about creating value for a customer?
    • In working with a customer who is re-engineering how they interface with their customers, every percent she increases their efficiency saves them $50 million.
    • The value associated has a direct correlation to the number of jobs they can maintain and value they can bring to their shareholders.

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The Impact of Really Smart People with Kirk Bowman – 071

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This episode is a summary of two conferences Kirk Bowman attended this quarter. The ideas from these events challenged his thinking and influenced how he will do business in the future. The conferences were the VeraSage Symposium in Boston and Regency Mastermind in Phoenix.

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VeraSage Symposium

Asking Great Questions – Ed Kless with Sage

  • Shut Up and Eat Your French Fries from The Soul of Enterprise
  • To be great consultants, we have to ask great questions.
  • Examples of great questions include:
    • Would it be appropriate at this time to ask you a few questions?
    • What is the story that you keep telling yourself about the problems you face?
    • MOAQ (mother of all questions, from Peter Drucker) – What is the question, that if you had the answer to it, would set you free?

High Value Software Projects – Kirk Bowman with Art of Value

  • Software projects for efficiency only are low value and not worth doing.
    • Conversations with customers were not having the enough impact.
    • What question can you ask in the first conversation that would bring the impact to light?
    • How does this impact revenue? Profit? Income?
      • The person will know the information and share it.
      • The person will not know; you will need to talk to someone else.
      • The person is not willing to have the conversation because of lack of trust or relevancy.
      • Revenue without an impact on profit is not worth it.
      • Profit seems more private.
      • For a small business, an increase in revenue can translate to a rise in profit, leading to a boost in personal income.
    • What is the MOAQ for each customer segment?
    • If your business is based on value pricing, you cannot make a living from low-impact projects.
    • Developing and implementing custom software must have a substantial impact on the organization.

Value Compensation – Chris Marston with Exemplar

  • Internal value culture or value economy says that if you are going to price customers on value, you should compensate employees based on value.
  • Art of Value Society on Facebook had a discussion on this topic recently.
  • Identify 5 key roles that create value in the organization:
    • Opener – Begins a conversation with a customer and connects them with the company.
    • Closer – Continues that relationship and reaches a signed agreement, so the company makes revenue from that relationship.
    • Relationship Manager – Maintains the relationship between the customer and the company.
    • Project Manager – Is required for successful value pricing.
    • Do-er – The person that does the work (writes the contract, designs the software, etc.)
    • A percentage is assigned to each role, and it changes depending on the project lifecycle.

Fire Each Customer Every Year – Paul Kennedy with O'Byrne & Kennedy

  • This idea resonated with the attendees.
  • Traditionally, in accounting, every 4th quarter, accountants are focused on renewing business for the next year.
  • Paul wants to customers who every year make the choice to do business with him.
  • They earn their business again, every year.
  • When he tries to pull away from his customers, they pull closer.
  • For customers who have been through the process for 4-5 years, the process becomes a very quick conversation at the end of the year.
  • Products and services are available to help firms implement value pricing.
    • Timeless Legal Network by Beth Carmichael offers products for lawyers to increase their revenue and improve their profitability.

Baker's Dozen: Best Books – Ron Baker with VeraSage

Regency Mastermind

  • Regency Mastermind was founded by Ray Edwards.
  • Focus on your customer avatar, making it as specific as you can.
  • Refine the language you use with your customer; eliminating jargon so your market can understand what you are saying.
    • For example, watch Shark Tank to better understand business language.
  • Learn how to write great copy (copywriting) to improve your communication skills.
  • The power of the Mastermind has changed the way business will be conducted in 2016.

Transfarency by Southwest Airlines

  • Transfarency – Philosophy created by Southwest Airlines in which Customers are treated honestly and fairly, and low fares actually stay low – no unexpected bag fees, change fees, or hidden fees. Created and practiced exclusively by Southwest Airlines.
  • Be unique to be perceived as the expert.

VeraSage State of the Union 2015 with Baker, Kless & Chisholm – 069

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This episode of the Art of Value Show is a live recording from the bi-annual VeraSage Symposium, which was in Boston, MA. The distinguished panelists or VeraSagi are Ron Baker, Ed Kless, John Chisholm and Kirk Bowman. This episode will be rebroadcast on The Soul of Enterprise with Ron & Ed and Pricing Power by Steve Major.

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  • What is the future of value pricing?
    • Ron Baker – It is incredibly bright and optimistic.
    • Pricing is now a profession and a C-Suite function.
    • Professional Pricing Society conferences are global with the US leading the way.
    • Because pricing is becoming so specialized, it is too focused.
    • The death of the billable hour is not within reach, but it is within sight.
    • Hourly billing has no enemies but is intensely disliked by its friends.
    • Ed Kless – There are a lot of people trying to make pricing too much science, rather than art.
    • John Chisholm – Pricing has to be a core competency in business school.
    • Law firms are still challenged by value pricing and it is the exception rather than the rule.
    • Value pricing changes everything about your business.
    • It is a management innovation, not a just a business model.
    • In technology, there is a group that is ready for something different, but they do not think business should be that hard.
    • Change is occurring with the firms who are receptive.
    • Ed Kless – Value pricing can end project management as it is known today.
    • Earned value is a 9-step process to compute value that is being taught to project managers.
    • The predictive market is an idea where people “gamble” on when a project ends.
    • Project management is being made too complex.
    • ROWE is a results-only work environment: Every position in an organization is defined by the results that are expected to be achieved.
    • Leaders do not want to define roles by results because it is too hard.
    • Measuring the input is an illusion of control.
  • Thomas Bowden – Is pricing art or science?
    • Tim's Vermeer used scientific techniques to create art.
    • Ed Kless – The real concern is that once you input numbers, people believe then that it must be scientific.
    • Ron Baker – It is not 100% art. You need some numbers behind it, but you still need judgment.
  • Wes Higbee – What is the connection between price and purpose?
    • There is a level of competitiveness involving purpose.
    • John Chisholm – There is something more important than money.
    • The big corporations are starting to tap into social responsibility.
    • Ron Baker –  Wealth gives us the freedom to be more purpose driven.
    • It is more prevalent for knowledge workers to look for a purpose now.
    • Conscious Capitalism, by John Mackey, CEO of Whole Foods, has an analogy for profit: it is like red blood cells in your body.
    • Ed Kless – Corporate responsibility seems to be more marketing hype rather than reality.
    • In the professional sector, most people come to their profession for a purpose, not for profit.
    • Ed Kless – It is astrology to measure profit per year and offer discounts at the end of a month.
    • The market pays you what you think you are worth.
  • Andrew Belack – How can we price complex financial planning?
    • He is going to offer more robust financial pricing and asked for help.
    • Ed Kless – Be sure to offer choices.
    • Kirk Bowman – Show his pricing to others and get their feedback.
    • You never get paid a price you did not quote.
    • Ron Baker – Everyone sucks at pricing themselves.
  • Chris Farmand – How can we recruit the next generation of knowledge workers?
    • Ed Kless – The nay-sayers cannot be ignored to save the next generation.
    • John Chisholm – Asks his trainees why they did law in the first place; half answer that they do it for justice and the other half do it for profit.
    • He sees them being manipulated by the system, but if their sole purpose is to make money, probably no one can help them.
    • If they want something greater, then they can be helped.
    • Ron Baker – The generalization by age is bunk; it is not an age thing.
    • The Millenials understand they are knowledge workers, not service workers and see no connection between inputs and value.
    • Do not discount laziness as a reason not to embrace value pricing.
    • Once someone experiences a value pricing firm, the employee is not going to want to leave.
  • Andrew Robertson – What are some misconceptions about value pricing?
    • Many believe that value pricing is about charging more, or is about a fixed-price agreement.
    • Now is the time to look for new ways because of the disruption that is happening in Australia.
    • Technology, automation, and outsourcing are hammering future profits.
  • What is your favorite takeaway from the VeraSage Symposium?
    • John Chisholm – Aligning compensation models with the value you are creating.
    • Do not complain about being shackled by the billable hour, while enabling the behavior by continuing to accept bills that exceed the estimate or fixed fees that are not fixed.
    • Ed Kless – The only thing he underlined in his notes is the word, flourishment: we want people to live their dreams.
    • Ed Kless – Time is not money, but money is time: it represents our discretionary time and how we can choose to use it.
    • Ron Baker – Proud that you can have a discussion about the link between digestive problems and time sheets.
    • Kirk Bowman – The idea of how your business is a value economy; i.e., how do you compensate your team when they see how you price your customers?

Pursuing of the Economic Buyer with Higbee & Riopelle – 065

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Wes Higbee is a software consultant from New York. He has been interviewed on the AOV Show before about software consulting, agile development, and customer value. Matt Riopelle is a creative consultant from Austin. He was a guest on the AOV Show previously to discuss the importance of pricing. Wes and Matt practice value pricing in their businesses and frequently teach others how to implement it.

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Defining the Economic Buyer

  • What is the economic buyer?
    • Matt – It is someone who has the intent, the authority and the ability to purchase.
    • Wes – It is the person with authority and accountability.
      • Authority means that someone can make the decision to move forward and can get the money.
      • Accountability means that the person is responsible ultimately for the result of the project.
    • Kirk – It is an operational and a financial decision maker, and the same person could be both.
    • Wes – You need to understand why you need to speak to the economic buyer to stick to the rules.
  • What is a typical job title for the economic buyer?
    • Wes – Job title is a good way to gauge but do not dismiss someone as not being a buyer, especially in a small company.
    • Sometimes a President or a Vice President in a large company might not have the authority or accountability you would expect.
    • Ask “who will approve the project” to uncover the final buyer.
    • The title can be helpful, but it can be deceptive.
    • In an organization under 50 people, you usually want to talk to the owner.
    • In a large organization, there can be more than one buyer with different titles that have the authority and a budget.
    • Matt – Knowing titles and organizational charts is much more important in outbound sales.
    • For inbound sales, you are usually only one person removed from the final buyer.
    • Listen to the name and titles of others who might be involved.

The Importance of the Economic Buyer

  • Why is it important to talk to the economic buyer?
    • Wes worked with the wrong person, only to discover that the decision maker did not have the project on his radar.
    • If he had pressed, he might have been able to get to the person setting the priorities so that he could help with the actual priorities.
    • Kirk – Why is it was in the best interest of the customer for a provider to speak to the economic buyer.
    • Matt – If you are trying to offer the maximum amount of value to the customer, you have to talk to the people to whom it matters the most.
    • If you cannot talk to the people it impacts the most and understand their motivation, then it is a waste of time.
    • If the customer is going to trust you to create value, you cannot effectively do it without talking to the decision maker.
    • Matt said that he would talk to as many people in the organization as possible during the discovery process.
    • If you come in at the wrong place, someone may be able to articulate the value, but that person might not have the authority to help the people who ultimately need help.
    • Kirk – It is a waste of time, energy, effort, resource, etc. if you do not talk to the right person.
    • It is easy to go to an organization with an hourly rate and enter the company at any level.
    • As a result when the organization changes, the customer relationship gets pushed down to lower levels.
  • What are some questions to determine if you are talking to the economic buyer?
    • Wes has four questions from Alan Weiss:
      1. Whose idea was this project?
      2. Whose budget will support this?
      3. Who will you turn to for approval?
      4. Who can veto this process?
        • The authority to say no does not mean they can say yes.
    • Matt – Listen for queues in addition to those questions.
    • If someone brings up another person in the organization, then you can ask about that person.
    • Matt – Is this something you would bring up during the first call?
    • Kirk – Simply ask, “Where are you in your decision-making process?”
    • Talking to the wrong person can lead you astray because the objectives you get are not the same as the decision maker.
    • Matt – As you look to provide value, spending time with the right person becomes more crucial.
    • With a small business, you should be able to define the person (economic buyer) within 30 minutes; a larger business might take 15 minutes more.
    • If it takes longer than that, it is probably being resisted.
    • Wes – If you are talking to multiple people, you have a problem.
    • Individuals make a decision, not a committee.

Resistance and the Economic Buyer

  • How do you handle resistance to talking to the economic buyer?
    • Kirk – First you need to determine if you are the person who can help them.
    • If the person resists, their reason is usually emotional.
    • With resistance, Wes throws it back to them with a simple “why.”
    • Helping people is not pleasing people.
    • By asking why, rather than answering questions, you can get to the root of what the objection is.
    • Kirk – For example, “Can you tell me why prior experience in your industry is important?”
    • Blair Enns in Win Without Pitching Manifesto says our job is not to convince the customer to work with us, but to see if we are a good fit.
    • You can break the ice with a gatekeeper, but Matt sees these obstacles as red flags.
    • If there is resistance, it is probably not a fit.
    • Trust is important. If it starts with a fight to get to the right person, it is a bad sign.
    • Wes – It is imperative to plow through the gatekeeper to help people.
    • Remember that you might be dealing with one bad apple in an organization. Keep looking for the good apples.
    • If the buyer is not open to conversation, then the company by not be the right fit.
    • You can give people options when you want to talk to someone else to get them talking about when or how rather than “if”.
    • Try to talk to the person making the decision alone.
    • Determine if the gatekeeper perceives you as a threat.
    • If you can get someone to uncover his fears or threats, you can often assuage his issues.
    • Matt – If your position is that you want to make the people you work for look good, it can do a lot for the relationship.
  • Should you ask about the budget when talking to the economic buyer?
    • Matt does not have a great answer and has done it both ways.
    • The inherent problem can be how you position yourself.
    • Kirk – It helps to ask about the budget.
    • Wes – Wait for a signal to see if the person is price sensitive before asking about the budget.
    • If someone has not even thought about the budget, he likely has not thought about the true need.
    • Psychologically, when you hear a number, even if it has nothing to do with the conversation, it can anchor the price.
    • Matt is concerned that he might undervalue himself based on their budget.
    • If he exceeds the budget, then it appears as though he has not listened.
    • Value the investment that both parties make in putting together a proposal.
    • Always clarify if the person has no budget at all.
    • There is no basis to talk about a price until the value has been identified.
    • A stated budget is rarely the exact amount of money they have to spend on a project.
  • What is the risk of submitting a proposal if you do not talk to the economic buyer?
    • Wes speaks to the perspective of the risk of submitting a proposal if you have not spoken to the buyer.
      • The buyer can be blindsided.
      • The buyer does not care because it is not a priority.
      • You are being hired as a set of hands rather than a brain.
      • The conversation will focus on price rather than value, the further you are from the buyer.
      • 90% of the time you submit a proposal, you will be told no or will not get a response.
    • Matt – Decide if you want to be a proposal writer or if you want to get paid to do the actual work.
    • Work on the problem, not the proposal.
    • You do not want to shock someone with a proposal.
    • Matt speaks to the risk if you get a “yes”, and you have not spoken to the buyer.
      • The project is moving forward without the buy-in from people who will have the most influence on the project.
      • You have been hired to do something that:
        • was not valuable to the company
        • solves the wrong problem
        • solves a surface problem
        • leaves money on the table
        • misses other opportunities, solutions and problems.
    • The risk to the provider is the lack of ROI.
    • The risk to the customer is larger because they are not going to create value to obtain the ROI they want.
    • Hope is not a strategy.
    • Wes – The ultimate damage is done to the customer.
    • The buyer needs to be committed to his success, and you might need to remind him how he said it would look.
    • It is bad for your reputation if you are not doing the work a buyer values – you can get pigeonholed.
    • Scope creep happens when you do not work with the buyer.
    • If your contact leaves, who will continue the project?
    • When you help someone, you have to be on a “mountain” to help bring him “up”.
    • You want to get permission to help someone, so you do not put someone “down.”

About Wes Higbee & Matt Riopelle

The Ethics of Price Discrimination with Rags Srinivasan – 064

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Rags Srinivasan is an engineer, turned pricing consultant. His epiphany came when he realized it is not about costs. Nowadays, he leverages an analytical approach on pricing. He has an MBA from the Haas School of Business at Berkeley, where he studied with Teck-Hua Ho. He is an avid hiker and said that if it is not longer than 8 miles, it is not worth doing.

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The Customer's Value Perception

  • What is the most important thing you can share about pricing?
    • There are no pricing problems; only segmentation problems.
    • Think about your end-customer first.
    • Value is in the perspective of the person with whom you are talking.
    • The value changes in context as well.
  • How does “list price” communication value?
    • Price is the method to capture value added by a product. The most common way to indicate prices to the customer is the list price, be it price tags in retail or invoice price in B2B transactions. – What is Price Realization?
    • When you purchase a mattress, you do not do the math on how much you are going to sleep and how much per hour you are willing to pay.
    • The list price is the high watermark that a customer needs to put in their mind.
    • Demonstrating different choices at different prices helps to educate the customer on the value.
  • How does a price war destroy value?
    • War results in destruction and casualties and price war leads to value destruction. – Dropped Mobile Profits
    • There is a misconception of success when you capture market share.
    • The causation effect is lost in the minds of people during a price war.
    • Market share at any cost is chasing the wrong target.
    • Which comes first, market share or profit?
    • Profit comes first as it creates value for the customer; value comes first.

Price Discrimination: Good and Bad

  • How does price discrimination help the customer?
    • Our Global economy depends on practicing price discrimination, in fact, it is arguable that without price discrimination some of us won’t be able to avail ourselves of certain products, including life-saving prescription drugs. – Aligning Price with Value Received
    • Price discrimination should be rebranded as price homogenization.
    • Almost every customer values a product differently.
    • If you provide a product that is the same price to all customers, 90% of them will not see the first for their needs.
    • In India, if you want to buy a name-brand drug, almost none of the people can afford it.
    • If it is a generic, it appeals to more people.
    • The ones who can afford it can still purchase the name-brand.
    • Price discrimination is not about squeezing every bit of consumer surplus from every customer (in one model it is). It is about getting customers to willingly pay the price they can pay and still feel happy about it. – Price Discrimination At The Altar of God – Revisited
    • If you take away the customer's choice, you are not practicing good pricing discrimination.
    • Let your customers self-select.
    • It is a $25 flat fee to have a Lexus or Corolla blessed at a Hindu temple.
    • The value of the ceremony is different to each owner.
    • The temple should offer the car owners three blessing options at different prices and let them decide.
    • You can light a candle at Notre Dame Cathedral for $0, but you are encouraged to leave donations.
    • Good price discrimination is practiced by providing small, medium and large decorated versions of the candles with price suggestions, setting an anchor for a donation.
  • Is charging difference prices for a haircut by gender good or bad?
    • Good and Bad Price Discrimination sites a bad example as setting prices for haircuts by gender.
    • The provider is looking at it from a cost perspective because cutting a woman's hair takes longer.
    • Providing different levels allows the customers to self-select.
    • While a “buzz and saw” will likely appeal to men, you are not taking the choice from any customer.
    • When you set a forced price for a woman, you are setting a price boundary that a man cannot cross.
    • Any time you take away from the choice of the customer you are practicing bad price discrimination.

Versioning: A Price Discrimination Tool

  • Can you explain the ethics of price discrimination?
    • Therein lies the tyranny of versioning. If one price is good, two are better but how you do it may not always be right. A versioning strategy that is profitable is not enough. – The Tyranny of Versioning
    • What can you do to prevent adverse self-selection for passengers on a train choosing between second- and third-class cars?
    • Removing the roof or chairs from the third-class cars raised an ethical question because the trains were maximizing their profit at the expense of delivering fair value to customers.
    • One size does not fit all – pricing is a practice.
  • Why did Telsa choose to omit a price (option) for a car?
    • Simple Price-Value Math from Tesla shows how vehicles with different features can provide options.
    • You do not want to have offer too many combinations.
    • Standard vs. all-wheel drive vs. battery life are the two options offered, to see where the customer gravitates.
    • 4 Costs of Versioning explains how being able to offer an option does not mean you should.
    • Offering too many options can be a mental drain on the customer.
    • Do not offer a version at the cost of ethics.
  • Debbie Hudson – What is the difference between a $1 coffee mug and a $15 coffee mug?
    • The difference is in the mind of the customer and the context of the offering.
    • When you are paying $15 for a school fundraiser, you are paying for more than the mug.
    • Products do not stand in isolation.
  • What is one of your best stories about creating value for a customer?
    • Five years ago, he was working with a customer to help decide how to price a SaaS product.
    • The challenge was that there was no product like it on the market, so everyone gravitated to things that already existed.
    • He suggested defining the segmentation first and then asking the customer what value they were going to get from it.
    • Once he helped with value mapping, there was a clear option of what the price should be.
    • He reframed the story and helped them get a better customer focus to determine the right price.

About Rags Srinivasan