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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.

Value and Pricing in the Enterprise with Matthew Habuda – 094

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After discussing the limitations of hourly rates in a Facebook group, Matthew Habuda decided to give value pricing a chance. He started with a small project and progressed to a Fortune 500 opportunity. Along the way, he had to convince the customer and subcontractors it was the right decision. He shares his results and why he will never bill by the hour again.

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Top of Show Resources

The Switch to Value Pricing

  • What is the most important thing you can share about pricing?
    • Embrace what you are worth.
    • Give yourself credit for what you bring to the table; do not devalue it.
    • Most people tend to price themselves below market value.
    • You are more likely to be accepted and engaged by your clientele if you put the real value on the table.
  • What is the story of your switch to value pricing?
    • He came from traditional consulting firms where everything was done by the hour.
    • He adopted it because he saw it as the industry standard.
    • His potential customers always led with, “What is your hourly rate?”
    • He hit the top end of the hours he had available to trade.
    • He was getting faster and his product was getting cheaper every day.
    • The projects were getting bigger and that raised the question.
    • The size of a new initiative was completely out of his pricing model.
    • He could not do all the work alone and the client did not want to accept the hourly rate for the subcontractors because they were not as experienced.
    • A bundle of services was required to offer the real value.
    • It is more challenging to use an hourly model with a virtual business than an onsite model.
  • Did the customer embrace or resist the switch to value pricing?
    • Initially, the customer was hesitant because of hidden costs.
    • The conversation naturally moved from people to deliverables.
    • The customer was glad he didn't have to track hours. It saved the accounting team a lot effort to review the invoices.
    • His invoice was reduced to 6 line items with a fixed fee.
    • The support work was simplified for both.
    • A results-based compensation model was added to the deal based on reaching a specific due date.
    • Value pricing incentivizes finding wins for the customer.
    • The ongoing relationship is one of the biggest benefits.
    • The customer understood he wants to take care of their needs and his team.
    • It has led to a lot of referrals.
    • His take home was about 7% higher than it would have been otherwise.
    • The real win was the fact that his subcontractors made 15% more.
    • Each sub had a fixed dollar figure they were awarded based on the number of courses they facilitated ahead of schedule.
  • Did your subcontractors embrace or resist value pricing?
    • Tracking hours is the biggest nightmare when you are a consultant.
    • It turns into 3-5 extra hours of work at the end of each week.
    • The subs enjoyed the change and asked if they could work on more projects like this in the future.
    • Nobody went to college to learn to fill out a timesheet.
    • Some firms allocate 5 hours per person per week to fill in timesheets and expense reports.
    • In a consulting world where 70-80 hours per week are common, giving those hours back makes it easier to retain good employees.
    • By 2025, it is expected that 50% of the employment base in the accounting industry will be contract-based employees.
    • Gen 20/20 is playing by a different set of rules. They want to be rewarded based on the quality of the work, not the number of hours.
  • How has your business evolved since the switch to value pricing?
    • After 18 months, it has been a huge success for the larger projects.
    • Smaller customers struggle to make the mental transition of value for money.
    • He explained to customers who wanted the hourly model, that it would take longer and cost more to deliver the same thing.
    • Some of the smaller companies feel they need “control” by monitoring the hours.
    • Customers have embraced the upfront payment because they feel they are invested together.
    • Once customers see his vision and values being aligned with their objectives, they are comfortable paying 100% up front.
    • They understand he can operate at the highest level efficiencies by not waiting for a check.
    • It is OK to negotiate payment terms based on the budgetary constraints of a customer.

Using Performance-Based Compensation

  • Do you use results or performance-based compensation?
    • 90% of his contracts have a results component.
    • For new developments, reward-based compensation kicks in when they achieve the goal of the customer being fundable.
    • Additionally, by reducing a company's overhead, they are rewarded based on a percent of the savings.
    • You are willing to work very hard to achieve reward-based compensation.
    • Selling into organizations, who want you to be as invested as they are, opens the door for this type of compensation.
    • Competitors are still using fixed time and materials compensation with no guaranteed results.
    • Deliverables and scope are clearly defined in the proposal.
    • Objectives can be beyond the control of the consultant, so they require metrics to measure  the results.
    • Cultural adoption and other objectives are harder to develop metrics for compensation.
  • What pricing experiments have you tried that worked or not?
    • Post-implementation surveys gave vague numbers so it was hard to tie compensation to it.
    • Working with supervisors to capture champion moments worked better, allowing them to earn a certain percent based on each moment.
    • You have to trust the customer to pay with that method.
    • To implement the champion moments, they had to work closely with the front-line supervisors, who are learning how to participate in and supervise it.
    • They are able to highlight their personnel, putting both in a positive spotlight on a weekly basis.
    • There are also rewards given to the manager and the employee to incent them to report it.
    • This method allows you to develop a long-term relationship.
  • What changes have you made to your project management style?
    • They needed a little more flexibility.
    • Deliverables with deadlines drive where they put the efforts, allowing for more flexibility, as opposed to how many hours are worked.
    • The whole team might work late when necessary, but they can leave early on Friday if they want.
    • The team appreciates it and has become a unifying goal among the members.
    • The unity demonstrates to the customer when can happen in their organization.
  • What is one of your best stories about creating value for a customer?
    • A non-profit organization runs conferences for adopting or fostering mothers.
    • Not one penny was earned – their success was his success.
    • The faith they put in Matt allowed them to completely fill their conference.
    • Since he had structured other deals to make his company financially stable, he was able to do pro-bono work to achieve something significant.

About Matthew Habuda

Matthew Habuda is the founder of Habuda Consulting, specializing in strategic planning, culture and effectiveness for executives and middle management. He was previously a consultant at one of the Big Four accounting firms. He is a graduate of Oral Roberts University.

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.

The Value of Telling A Story with Michael Hudson – 081

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Michael Hudson is an idea junkie–he is educated far beyond his intelligence. He is a recovering college professor, which means he is a teacher at heart. He has consulted with over 3,000 businesses on strategy, culture and leadership, and has given over 8,000 public presentations, including keynotes.

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Shifting from Time to Value

  • What is the most important thing you can share about pricing?
    • It starts in your brain.
    • Most people assume that whenever you quote a price the customer will want a lower price.
    • Get in your head the value you bring and the price it is worth, and then you do not have to explain it.
    • Initially, he wondered how he could get people to pay him and spent a lot of time figuring out the justification for his price.
    • He changed his perspective to focus on value, rather than cost.
    • Use “investment” rather than “cost” when you discuss price with your customer.
    • Before his perspective change, he underpriced his services.
    • Think about the things that create additional value in the engagement to help develop the price.
  • What was your first exposure to value pricing?
    • A customer discussed a major project to build his culture and improve his leadership.
    • He wanted to know how he was going to get value if he invested in Michael's services.
    • Michael laid out the cost of the customer's current mistakes and helped him discover a 10X return on the investment.
    • No one had ever asked what the ROI would be on the investment.
    • If you are a technician who loves what you are doing, you can easily fall into the trap of undervaluing your services. (The E-Myth, by Michael Gerber.)
    • When you begin to focus on the objectives that you are trying to achieve, you begin to figure out how to save the customer money.
    • If you do not show your customer additional things beyond the price, you are doing the customer a disservice.
    • Get yourself out of trading time for dollars.
    • Once you stop thinking about dollars and start thinking about the impact, you realize you can create a lot of value in small periods of time.
    • Shift your perspective to what your contribution is to the company rather than how many days you are there.
    • A little nugget of information can produce most of the value from an engagement.
    • “I do not get paid for what I do; I get paid for what I know.”
    • “I get paid to show you how to implement what I know” is what truly creates an impact.
    • Recognize that your contribution that far exceeds the time involved.
    • If you have confidence in your ideas and mastery of your trade, you can create extraordinary value.
    • The best ideas will never go far if you cannot communicate them.

[clickToTweet tweet=”‘I get paid to show you how to implement what I know' is what truly creates an impact.” quote=”‘I get paid to show you how to implement what I know' is what truly creates an impact.”]

Storytelling Matters

  • What is your background as a public speaker?
    • It started with him being the scared kid, where he heard, “sit still and shut up” from his teachers.
    • He withdrew and became petrified to speak in front of others.
    • It changed when he watched a speaker in 2nd-3rd grade who told stories as he sat and listened, engrossed.
    • He learned that “storytelling mattered.”
    • His speaking philosophy is “tell them a story and then teach them a lesson.”
  • How do you create value for the audience, the host and yourself?
    • You have to believe that you can deliver in a way they have not heard or have not seen how they can apply it before.
    • Have the guts to focus, narrow and target on the specific objective.
    • The speakers who are effective have hundreds of things they can talk about, but they limit it to the 2-3 for that specific audience.
    • Practice. Rehearse in front of the mirror.
    • Get into the audience's head to figure out how the message can connect with them.
    • Only then, can you get the audience to where you want them to go.
    • You will impact the host after you impact the audience.
    • The host will see the light bulb moments, and they will understand that is why you were hired.
    • The lesson is about equipping the audience to go where you want them to go.
    • There needs to be a call to action in the lesson to get the audience to try it.
    • Your signature message comes from you and your experience.
    • It may not be the experience the audience has, but in your sharing, you bring your vulnerability.
    • Show where you faced a similar problem and how you solved it or how the audience can avoid what you did.
    • Jim Rohn, Zig Zigler, and Tony Robbins all share their personal stories and experiences that are used to set the stage and share their lessons.

[clickToTweet tweet=”Ask, ‘What are people going to do differently as a result of me being there?'” quote=”Ask, ‘What are people going to do differently as a result of me being there?'”]

Pricing for Public Speaking

  • What is the typical compensation model for speaking?
    • Industries tend to have ranges of standard fees.
    • Fees for a keynote vs. 1/2-day workshop vs. 1-day workshop vary all over the board.
    • It boils down to what are you bringing to the table and how will it affect the people in the room.
    • If you do not have personal stories to share, you are just a textbook speaking from the front of the room.
    • When you use stories, you connect authentically with the audience to show them how they can do it.
    • You equip them with something that becomes memorable and easy to share, giving the message a greater impact.
    • The greater the impact, the more value you will receive for delivering the message.
    • As a speaker, the value starts with you.
    • The take-home materials that you provide should enable the audience to implement your message.
    • Be sure to think through the whole process for the audience member, including what happens after.
    • Think about your pricing in the terms of what you teach someone to do and then do the math.
    • The math can change the perspective of the meeting planner.
    • The speaking message is more important than the delivery, but delivery still matter.
    • You should first ask, “What are people going to do differently as a result of me being there?”
    • Do the preparation for the result first.
    • Think about what stories you have to tell, based who the audience is, to connect with them.
  • What is one of your best stories about creating value for a customer?
    • Strategic planning is a nebulous idea for most.
    • It is hard to measure the value of strategic planning, as the result might be 5 years down the road.
    • He structured the process in a table:
      • The event itself
      • The event's time/date
      • The participants
      • What we will realize if we do it
    • The conversation was then changed in the mind of the customer.
    • He defined what the outcomes were and moved the conversation away from price.
    • Then, he offered options, based on the outcomes the organization would receive.
    • They chose the most expensive option.

About Michael Hudson

A Second Chance at Value Pricing with Tim Dietrich – 073

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Tim Dietrich is a mobile application consultant and the developer evangelist for Airtable. He was formerly a database consultant in the FileMaker space, creating several open source projects for the community. He majored in computer science at Towson University. Tim's first appearance on the Art of Value was episode #28, A Contrary View to Value Pricing.

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It Is Not Too Late

  • What is the most important thing you can share about pricing?
    • It is never too late to change your mind and give value pricing a shot.
    • Tim started using value pricing over the summer, and it is working for him.
    • He decided to go all-in with value pricing.
  • What are the positive changes from switching to value pricing?
    • Recording episode #28 in October 2014 got Tim thinking.
    • Tim had a nagging feeling about value pricing that was similar to how Kirk felt after the panel discussion at DevCon.
    • Tim thought he might work up to it.
    • He started to charge differently, based on a light-bulb moment from his conversation with Kirk about charging for the requirements phase of the development process.
    • He published prices on his site as package deals, but that was a way of saying, “this is my hourly rate,” which felt horrible.
    • In the spring, he pulled the plug on database development and moved to mobile development.
    • This time around, he wanted to do things right.
    • He went through Paul Jarvis' Creative Class, which is like a boot camp for freelancers.
    • At that point, Tim realized that the new line of business gave him an opportunity to give value pricing another try.
    • He had three defining moments:
      1. The interview with Susan Fennema in August, A Live After Action Review, was like seeing behind the scenes of MightyData, and it clicked for him.
      2. Double Your Freelancing Conference with Brennan Dunn included a presentation by Jonathan Stark, which made Tim realize that he needed to do it.
      3. He realized that his best month ever almost killed him due to the number of hours he worked while balancing his other customers and family.
        • That whole year was good because he was mixing hourly billing with fixed bid work and, without realizing it, he was doing projects based on value.
        • He would stop and think what it was worth to the customer and bid it that way.
        • The results were phenomenal, but he did not realize he could maintain it exclusively.
    • His long-time customers have noticed that he is happier.
    • Value pricing changed the way he worked significantly.
    • He loves what he does now and is anxious to get to work.

The Switch to Value Pricing

  • What did you have to overcome to make the switch?
    • He had a fresh start, so it was easier.
    • It required a leap of faith.
    • It can be a challenge to serve your previous customers by the hour while you start to value price with new ones.
    • Over the next few months, he is going to convert some of those older customers.
    • Those conversion customers:
      • Make the switch and like it.
      • Do not make the switch, and you can refer them.
      • Try to make the switch, but ultimately stall and want to revert.
    • The relationship-challenged customers usually fall into the latter categories.
    • Value pricing helps you weed out the bad customers.
    • Tim learned to say no, which has had a major impact on what he does.
    • When you are saying no to one thing, you are saying yes to another.
    • Fear is a healthy indicator that you are stretching and growing.
    • Dave Ramsey does a great video on saying “no.”
    • When you hear the alarm bells ringing and still say yes, you regret it when a better opportunity comes along.
    • By saying no, you get better at what you want to say yes to.
    • Philip Morgan's book, The Positioning Manual for Technical Firms, has helped Tim with his positioning.
    • Describing your avatar can help you with your positioning by refining who you want to work with.
    • You can pre-qualify your customers if your site is written better for your well-defined customer.
    • Having a financial runway helps a lot.
    • Marketing can be a challenge because Tim is an introvert, but when he is providing value, it never feels awkward.
    • Once you start focusing on value, it permeates everything and becomes a lifestyle.
  • What are the unexpected benefits from value pricing?
    • Personally and professionally, everything clicks because he is doing what he loves.
    • He no longer feels like he has to have the meter running.
    • He can pick up his son from school without feeling he is losing revenue.
    • The proposals are easier now as they do not have to be complicated.
    • The projects he is working on are better.
    • He has fewer customers, but the relationships are significantly better.
    • His customers are more loyal.
    • Scope creep was a fear, but it just does not happen.
    • Creating a wish list can help you manage change by not saying no, but saying not now.
    • When the customer comes and asks for something unexpected, Tim does not feel like he is watching the clock.
    • The quality of work being completed is much better than before because he is not running out of time.
    • He is much more relaxed.
    • He is doing work he truly loves.

Creating Your Best Work

  • Why is hourly billing unethical?
    • Tim is a hold out on the idea that hourly billing is unethical because he wants to have faith that people will not abuse it.
    • Ed Kless and Jonathan Stark both say that it is unethical.
    • The History of the Billable Hour addresses the question of ethics.
    • It creates a conflict of interest with the customer.
      • It is in the customer's best interest to have fewer hours with a lower price.
      • It is in the provider's best interested to have more hours with a higher price.
    • In The Firm, the lawyers were caught because they were padding their hours.
    • It is virtually impossible to track accurately your hours, whether you have good intentions or not.
    • As an employee at a consulting firm, Tim remembers the pressure he was under to bill a certain number of hours and submit them on time.
    • In his hourly-billing work, delivered lower quality work because the hours were limited.
    • Since your margins are higher with value pricing, you have the leeway to do better work for your customer.
    • To make something better, you do not have to negotiate more time to make it happen.
  • How do you approach a value conversation with a customer?
    • In finding out what your customer's goals are, you can start to discern the value they are going to get out of it.
    • You can also say no to a project that is not going to add any value to the business.
    • To price, Tim looks at it from the point of value from what the customer will get out of it and what he will get out of it.
  • What is one of your best stories about creating value for a customer?
    • For a recent iOS project, he implemented a map to help first responders, especially firefighters.
    • The map was not part of the scope but was just obvious that it should be.
    • The customer loved it, and he could not have done it if he had been billing by the hour.

About Tim Dietrich

Learning to Value Price Is A Process with Marty Thomasson – 015

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Gearbox Solutions is switching to value pricing. In this episode, owner Marty Thomasson discusses his experience during the transition and the impact on the business.

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

  • Moving to value pricing requires a full commitment.
  • It requires changing the way you think, including new soft skills.
  • Changing your business to value pricing is a philosophical change.
  • Value pricing is a technique to create a win-win for the customer and the business.

How has your conversation with your customer changed?

  • Talking about value more quickly, not just talking about features.
  • We want the customer to know that we are going to guide, consult, identify the problems and the why behind them.
  • Discussing value earlier in the conversation, the customer sees a different approach than our competitors.
  • Once we learned we were not building a commodity, it led to value pricing.
  • Your interests become the customer's interests.
  • Focusing on hours ignores the results. It focuses on minimizing or maximizing the time spent.
  • You can make more money through value pricing, but it is not gouging the customer.
  • Knowing you have made a dramatic difference in someone's life is what drives Marty.

Why are you an entrepreneur?

  • Marty enjoys seeing opportunities and going after them.
  • He likes to constantly learn and value pricing is a new area of learning.
  • The value pricing process allows Marty to take one step back and discuss the value the customer will receive.
  • That conversation increases his value to the customer.

About Marty Thomasson

  • Founder of Gearbox Solutions
  • Has been in business for 15 years
  • Had a screen printing company in college
  • First business was mowing lawns at age 13
  • Twitter: @gearboxatl

Believe You Create Value with Cliff Ravenscraft – 010

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Cliff Ravenscraft started podcasting as a hobby in December 2005. Within 2 years, he turned it into a full-time career. Since, he has created over 30 podcast shows with over 3200 episodes and is considered the leading authority on learning how to podcast. His customers include Michael Hyatt, Michael Stelzner, Dan Miller, Pat Flynn and John Lee Dumas. Overall, tens of thousands of people have learned to launch podcasts through his free and paid courses.

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Pricing for Success

  • What is the most important thing you can share about pricing?
    • Price your products and services for the type of customer you most want to do business with.
    • People do life with people who are around their same socio-economic level.
    • If you price yourself low and deal with people squeezing value out of you, you will get similar referrals from them.
    • Jim Rohn says that if you give him the tax returns of the 5 people you do life with, he can predict your income.
    • Cliff prices high to put himself on the line for delivering great value, above and beyond the call of duty.
    • When he is referred by the people who can afford those services, they refer people who see him as an investment.
    • Why People Want to Pay You More: 7 Reasons Doubling Your Rates Doubles Success, by Peter Shallard, inspired Cliff's perspective on pressuring himself to deliver value.
      • Higher prices increase customer focus.
      • Big transactions will ignite your motivation.
      • Being expensive cultivates an aura of an expert or elite status.
      • Making more money by doing less – margin is everything!
      • Big figures attract big spenders.
      • As prices go up, customer issues and complaints go down.
      • Big rates motivate you to overdeliver and your customers will thank you for it.
    • If you want to increase your income, increase your prices.
    • It increases the margin in your life as well.
    • Cliff increased his prices from $800 to $2000 for his course and positively changed his demographics.
    • At $800, he was hoping to get 20-30 students but was getting close to 40 instead, many of whom could barely afford it.
    • He guaranteed that he will answer all questions. With 20-30 questions per day from his students, it was a struggle to manage his family life.
    • Your customer's demographics will reflect their respect for your time.
    • Payment upfront gets the money out of the way and creates a motivation for you to deliver.
    • Do not underestimate the value in the access to your knowledge.
    • Cliff does not offer consultations or emails for free; he offers only pre-generated information for free.
    • Say “yes” based on what it is worth to you if today was your last day.
    • Margin is making sure you have time for the things that matter most.
    • Create margin in your life, not only in your business.

Pricing by Value Takes Courage

  • Which is harder to price, products or services?
    • Cliff believes pricing products is easier than pricing services.
    • Set a price for the product where the person will actually act after purchase.
    • WordPress for Podcasters will cover what most people want to know and it is his lowest price tutorial.
    • You can get a podcast in iTunes by following the $100 tutorial.
    • The price was chosen for two reasons:
      • It was 1/3 the price of hiring him one-on-one.
      • He wanted to avoid the reputation that people purchased it but did not use it.
    • His Podcast Equipment Package is an example of value pricing a product to influence your reputation.
    • Tony Robbins said, Whatever you want to achieve, find people who are already successful in that area and learn from them.
    • Watch successful people and mimic them for success.
    • In retrospect, Cliff would not change anything because he learned so much from his experiences.
    • You can become an expert just by reading 2-3 books on the same subject.
    • Malcolm Gladwell‘s 10,000-hour rule says that to become freakishly awesome where people would know you by the mention of your first name, just practice for 10,000 hours.

Learning from Mentors

  • What are some lessons you have learned from your mentors?
    • Dan Miller taught Cliff that it is OK to generate income from doing something that you love.
    • Cliff loves the book, Thou Shall Prosper, by Rabbi Daniel Lapin, which helped him understand that it was OK to charge a lot of money if you are exchanging it for greater value.
    • Michael Hyatt taught Cliff to start with Wow!
    • Ray Edwards taught Cliff that it is OK to be a man of faith and to prosper financially.
    • Kirk's mentor, Ed Kless, says entrepreneurs continue the work of creation.
  • What is one of your best stories about creating value for a customer?
    • A man hired Cliff to help him figure out an opportunity to launch a new podcast.
    • The show was extremely popular. He wanted help to figure out how to make more money on the podcast.
    • In their first hour together, they talked more about how his wife was not fully on board for the podcast, which was a side job.
    • Cliff told him that the possibility to make money was real.
    • They spent their time making sure that he could work toward success with the podcast and his marriage.
    • They talked more about investing in his wife and his kids and the guy ended up cancelling his podcast.
    • The man was diagnosed with Stage 3 Cancer and realized that the conversation with Cliff made the last few months the best of his life.

About Cliff Ravenscraft

The Impact of Strategic Pricing with Jim Medema – 008

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Jim Medema is a software consultant and trainer with over 20 years of experience, specializing in the FileMaker platform. He went to school to get an English degree at Westmont College. However, he got into technology when he started selling Macs to schools.

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Pricing With Confidence

  • What is the most important thing you can share about pricing?
    • Learn how to talk about your pricing, and validate it confidently and clearly to your customer.
    • If you cannot articulate it clearly, you are lost.
    • Validate that what you are providing and how you are providing it will be worth every penny they will pay.
    • People can smell fear.
  • What did you do to build your confidence with pricing?
    • It took a customer asking why in regard to pricing to figure out how that they needed to provide validation upfront.
    • Because an IT department resisted a solution, they identified how much money each feature would save them.
    • After that experience, they learned to deliver an ROI statement with each estimate.
    • Make your price look like a bargain.
    • Always talk about the value of what you are doing vs. the desired outcome.
    • Customers need to hear the benefit they will receive, rather than what the cost is.
    • When they present an estimate, it tells the customer what they need to budget, rather than what it will cost.
  • What questions do you like to ask during a value conversation?
    • A developer can listen to a customer and know how to reduce a situation from 3 hours to 3 clicks if you ask the right question.
    • Examples of questions to reduce cost or increase profit:
      • How many sales quotes do you generate per week?
      • How many employees are generating quotes?
      • How many quotes does the best employee generate per week?
      • How many quotes does your least experienced employee generate per week?
      • How much vacation do the employees get?
      • Do the math.
      • How much time per week do you spend looking for paper in file cabinets because you do not have it electronically?
      • Is there stuff you cannot find?
    • Examples of questions to reduce risk and minimize loss:
      • What is in an employee's head vs. what is documented?
      • How can you mitigate training time?
      • How can you document to prevent loss?
      • Is the lack of communication causing lost work?
    • What is the value of the customer's company, should the customer choose to sell?
      • Do not own a job, own a business.
      • The E-Myth Revisited is a great read for creating processes in a small business.

Managing Software Projects

  • How do you price your software projects?
    • They work hourly on very small projects.
    • If there is a larger project, they create a scoping document.
    • The scoping document is billed at 25-35 hours and delivers a 30-page report, including:
      • Executive summary of business
      • ROI statement
      • ERD (entity relationship diagram)
      • Documentation of tables, layouts and reports
      • Integration with other software
    • Because there is a blueprint, they can plan different phases and stay in scope.
  • How do you avoid scope creep in a software project?
    • The scoping document is used as a reference throughout the project.
    • If something unanticipated arises, you can weigh it against the value it would create.
    • Then, you can provide the price and the customer can weigh the cost vs. the value being created.
    • Create a scope change document that reflects the outcome of the discussion.
    • Make it easy for the customer to say yes.
  • Why is pricing so hard for software developers?
    • Pricing is extremely difficult for creatives because establishing the value of a logo or a piece of art is a challenge.
    • For non-creatives, you can look at time and risk.
    • Hourly billing, especially for new developers, is a pricing challenge because you try to think of the whole thing at once and it is impossible.
    • You need to know what kind of questions to ask and have the experience to ask them.
  • How has strategic pricing impacted your business?
    • He had to figure out how to talk to two customers about working together to create a product. They were in the same industry and needed the same thing.
    • Jim experienced a 35% increase in one year due to strong pricing, following to Kirk's advice.
    • If you have an idea of where you fall within your field, you can explain and justify the value you bring to your customer.
    • If you are just competing on price, your customer can find someone else cheaper.
    • If you are looking for bigger projects and customers who have money to spend with you, you have to be able to speak knowledgeably about value.

Business Tips for Developers

  • What was the subject of your business session at FileMaker DevCon?
    • The session was called Starting and Growing Your Business as an Independent Consultant (Requires paid membership to access).
    • The purpose was to explain to developers on how to run a business.
    • The developers at the conference are great developers, but not experienced business owners.
    • Passion is not all needed to start a business.
    • Do not quit your day job until you have a structure in place.
    • Make sure that you have sales coming; build lead generators to drive sales your way.
  • What did you learn from your research for that session?
    • He was surprised by how many businesses fail in year one (37%) and year two (25%), specifically in the IT industry.
    • People, who were well-known in the community, have also struggled.
    • Build your own community: Accountant, attorney, insurance agent, mastermind group.
  • What is one of your best stories about creating value for a customer?
    • The largest system he built was $250,000.
    • The business requirements were massive and it is an enterprise system.
    • It became the poster child for the sales conversations that he now has.
    • They cross trained fifteen staff and prevented hiring another 3 people because of the solution.
    • One of the employees had not taken a vacation in a decade due to her workloads.
    • Whenever she left, her desk would get so piled high that she chose not to take any vacation.
    • After running for a month side by side with the new system, she took a 3-week vacation and she came back to only that one morning's work.
    • The Company A/Company B project previously mentioned was the best price he ever got paid.

About Jim Medema

Why I Switched to Value Pricing with Kirk Bowman – 001

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In 2009, I participated in a panel discussion on estimating and billing practices for software developers. I took the position that hourly billing is the only way to charge customers for custom work. At the same time, another panelist suggested that billing by the hour places an arbitrary limit on your income. This planted the seed to change my business model forever.

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The Story Behind My Switch

  • Value pricing is a business model that determines the value to the customer and then sets a price to create a fair return on investment.
  • I read Value-Based Fees by Alan Weids and several blog articles.
  • I made a public commitment to switch within 12 months on the FileMaker Talk podcast.

If you bill by the hour, there's an artificial limit on your income. – Jonathan Stark

The Principles of Value Pricing

  • Value pricing is a way to better serve the customer and make more money.
  • With hourly billing, it is in the customer's best interest to take as few hours as possible for a lower price.
  • It is the professional's best interest to take as many hours as possible for higher revenue.
  • Hourly billing creates a conflict of interest between the professional and the customer.
  • Value pricing aligns the interests of the professional with the customer by focusing on the value created.
  • There should be high value and high ROI for the customer.

If You Want to Learn, Teach

  • I decided to teach value pricing to learn it. I gave my first presentation at PauseOnError.
  • VeraSage is a think tank dedicated to eliminating the billable hour in professional services.
  • I sought out Ed Kless after reading his biography on the VeraSage website.
  • The first time I used value pricing, I quoted a price twice what I normally would, based on value.

The Results of My Switch

  • There are three outcomes for a customer when switching to value pricing:
    • Embrace the change
    • Refuse the change
    • Make the switch and then stall
  • You will lose some customers.
  • It is better to start with new customers when switching to value pricing. Start with a small one.
  • In the first year, gross revenue increased by 56%.
  • In the second year, gross revenue increased by 79%.

The Disadvantages of Hourly Billing

  • The professional is paid less for working faster with hourly billing.
  • The faster you create value, the more it is worth.
  • Hourly billing focuses on the wrong thing: inputs instead of outputs (results).
  • Customers ask about hours because that is how we have trained them. (The History of the Billable Hour)
  • The customer should focus on the results – only doing work that matters.
  • If you can shift the conversation to value, there will be substantial work that matters to the business.
  • Determining value and setting a price is more art than science.
  • We learn better through conversation and story.

About Kirk Bowman

Kirk Bowman is the founder and Visionary of Value at MightyData, a custom software company in Dallas. After successfully switching to value pricing at MightyData, Kirk started Art of Value to help other professionals learn to price for success. He is also a Practicing Fellow at VeraSage Institute.