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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.

Compensating Your Team Based on Value with Christopher Marston – 089

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For over a decade, Chris Marston has been paying his team based on the value they create for the law firm. Each employee can choose how to serve a customer in an engagement from five different roles. The contribution of the role, the lifecycle of the project and the importance of the customer to the firm determine the compensation paid. His “value” model aligns how the company prices customers to how it compensates the team.

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Creating Authentic Relationships

  • What is the most important thing you can share about pricing?
    • Invest in authentic relationships.
    • Being able to price on value starts with caring, a mindset of being fully engaged with whom you are meeting.
    • If you walk in with that mindset, you are usually met with that same mindset.
    • It is one step beyond being present.
    • There are joys you cannot open up until you are fully there and invested in a prospect.
  • Why is it challenging for a lawyer to use his judgment to price?
    • Jay Shepherd talked about this idea.
    • Lawyers think they have the answers to everything.
    • There is a trust in one's abilities.
    • The billable hour can have people spend decades thinking of value as an internal metric, as the value of their time.
    • By mentoring professionals through this change, you learn that you have to take a leap.
    • Pessimists seem to perform the best in law, so the ability to identify value is a genuine challenge.

[clickToTweet tweet=”Being able to price on value starts with investing in authentic relationships.” quote=”Being able to price on value starts with investing in authentic relationships.”]

Pricing Models for Lawyers

  • What is the pricing model of concentric circles?
    • Ron Baker put this model in his book.
    • It is a pricing tool that helps professionals understand what the customer wants to buy.
    • Value pricing litigation does not mean you are not scoping.
    • The Four Circles:
      • The inner circle is the “Yes” work, that you will absolutely do.
      • There is “Likely” work, which is the next ring out of the circle, which the customer may or may not want to pay for today.
      • Outside of that circle is the work that is “Maybe”, which the customer could either include or is not interested in buying.
      • “Who the hell knows” (WHK) is the widest circle, which can be included in a price as an insurance policy.
    • Calling something a premium is gutsy because you are telling the customer to their face they are paying a premium price.
    • This tool becomes part of the relationship process with their customers.
    • A customer can buy peace of mind or can budget for the next 3 months.
    • You can determine which they want by showing up and giving a hoot.
    • Look for social queues and ask questions to understand where the customer fits into the tool.
  • What is the pricing model of the airline fuselage?
    • The concentric circles tool helps to define the amount of work that needs to be accomplished.
    • The airline fuselage is an excellent example of value pricing.
    • When you pass the first class cabin on your way to coach, you realize that many people paid up to 20 times more than what you paid for your ticket.
    • There is a margin of service improvement with each upgrade in cabin selection.
    • It raises the question of, “How do you act and serve better to create more value?”
    • Don't forget the reason you are here: to serve.
    • If you don't want to serve, get out of the market.
    • Think of how can you serve in ways that are unique to the specific customer.
    • Thousands of professionals dip their toe in the value pricing waters and fail because they only do fixed pricing.
    • Value pricing creates a win-win.
    • Create a disruption in your industry to stand out.

[clickToTweet tweet=”Calling something a ‘premium' is gutsy. It tells the customer it is a premium price. #pricing” quote=”Calling something a ‘premium' is gutsy. It tells the customer it is a premium price.”]

Compensation in a Value Economy

  • How do you compensate your employees on value?
    • Authenticity is really important.
    • Value pricing inherently means you understand value.
    • If you then have your employees paid on labor theory, you are not creating value alignment.
    • The employees are not, then, incented to create value.
    • Professional knowledge firms employ smart people who are able to increase the size of your pie.
    • In effect, Exemplar created an S&P Index of Value, which acknowledges the value contributions that every employee makes to the organization.
  • What are the roles in your value economy?
    • The roles are likely not that different in any business.
    • Good to Great doesn't have any law or accounting firms in it, for a reason.
    • The five roles (or hats) are:
      • Opener – an originator, who qualifies a new relationship
      • Closer – a knowledge expert, who is relevant to the particular prospect to turn him into a customer
      • Relationship Manager – an account executive
      • Project Managers – responsible for quality work and on time delivery
      • Delegatees – anyone who works under a project manager or who is delegated a task
    • Traditional firms do not differentiate roles and it creates:
      • Infighting
      • Failure to cross-sell
      • Hoarding
    • The employees can gravitate toward their strengths.
    • In a value economy, you tell the team what is valuable and ask them to maximize it.
    • The employees self-organize into their own categories, and they can cross roles when appropriate.
  • How can an owner apply value compensation to his company?
    • Value-based compensation applies to every organization.
    • Not all roles are created equally.
    • A dollar from an annoying customer is not equal to one that you love serving.
    • You can reward success for bringing excellence to the role.
    • A percentage is assigned to each of the roles, which might vary depending on the customer.
    • Understanding what you are worth to a customer is rewarding to an employee.
    • You can look in the mirror at the value you are creating for your customer over time.
  • How has value compensation impacted your company culture?
    • In value theory, you look at how the customer wants you to approach something.
    • Understand what the customer wants and execute on that.
    • You pay a premium for insurance, knowing that they make a bunch of money off you.
    • Routinely you pay for things you value that have no correlation to the cost of production.
    • Value pricing reflects the value in the price.
    • The increase in value reflects an increase in compensation to the team members who create the value.
    • Making more by doing less helps with innovation in your business.
  • What is one of the challenges of practicing value compensation?
    • Not everyone is good at creating value.
    • Self-confidence and your ability to form meaningful relationships are examples of character traits that can create challenges.
    • Sometimes you are right; sometimes you are wrong.
    • Jack Welch spoke about how at the height of his career he was only right 80% of the time.
    • In general, the best originators are not the best technicians and the best technicians are not the best salespeople.
    • You can still create tremendous value through teamwork.
    • Professionals get caught up in creating value and don't bother to communicate it, which is a fatal step regardless of your business model.
  • What was the reaction of your team to value compensation?
    • If an employee is coming to Exemplar from a traditional organization, they usually have read an innovation article and are interested in trying it.
    • The first 6 months, they take their queues by letting others guide them through the process.
    • They are offered training on the method, which helps with loyalty.
    • If they didn't understand that this method is the future, they probably would never be hired.
    • Chris believes it's the responsibility of Exemplar to change the industry.
    • Chris believes if he can change things, he must, because it is a calling.
    • They are in a broken profession (law) and people, who deserve to be happy, are miserable.
    • He is restoring a spiritual bottom line to an industry that has had the life sucked out of it.
    • You are not only creating value for innovative customers; you are creating a profession that honors and trains its people.
    • They can have meaningful long careers with a family they can keep close.
    • The human impact you make on your industry is stronger than any force.
  • What is one of your best stories about creating value for a customer?
    • A customer was scaling a private school model, taking the best curriculums and teaching methodologies from around the world, to a nationally branded concept, which was 50% more affordable than traditional private schools.
    • They engaged Exemplar for business consulting, where they explored the economic model the school needed to operate under to provide the most value to its investors.
    • The result was a deep authentic relationship with the founders and a price insensitivity that allowed the engagement to enter into 6-digits, which none of the peer firms would have been able to command.
    • It crossed all the different areas of the firm and allowed them to bring the whole picture, authentically.

About Christopher Marston

Christopher Marston is the founder and CEO of Exemplar, a holistic knowledge firm, specializing in law, tax, investment banking and business advisory. They have offices in Boston, New York, Chicago, Los Angeles and Silicon Valley. Chris also is a Practicing Fellow at the VeraSage Institute.

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?

The Funniest Thing About Value Pricing with Greg Kyte – 048

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Greg Kyte is a CPA and comedian. He teaches ethics and fraud courses for accountants with a comedic edge at ComedyCPE.com. He is also the G. Robert Newhart Non-Value-Added Fellow at Versage Institute.

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The Real Context of  Value

  • What is the most important thing you can share about pricing?
    • You need to price your services like you know magic.
    • The Labor Theory of Value says that the value of something is equal to the materials and labor it takes to create it. It is a fallacy.
    • Dan Ariely, the author of Predictably Irrational, says you have to realize that people will determine the value of your product/service by inserting their context.
    • All value is subjective.
    • When people have no context for the work you are doing, they will create a context for themselves.
    • You must talk to your customer upfront about what they need/want from a transaction before doing the work.
    • Collect the money upfront.
    • People are afraid of talking to their customers.
  • What is the funniest thing about value pricing?
    • When accountants talk to Greg about upfront payment plans, they worry about negative accounts receivable.
    • According to accounting theory, it is unearned revenue.
  • What is the funniest thing about hourly billing?
    • As an accountant in a firm, when you have to ask yourself, “Do I stop my time billing software when I have to go to the restroom?”
    • It raises an ethical question about going pee-pee.
    • What if it your bathroom visit was longer than 6 minutes?

Value Pricing in Accounting

  • What is the state of value pricing in the accounting profession?
    • By and large, the average person in the accounting profession would say, “That seems like a great thing, but we cannot do it.”
    • The billable hour has too much inertia.
    • Joe Manzelli was a partner in a firm and was left alone to do his value pricing “thing”.
    • His realization rates were off the charts compared to his colleagues.
    • Ask your customers if they like how you are billing.
    • Do some experiments; do not be a weenie!
    • Some people are angry about value pricing and seem to have a weird idea of what it is.
    • The fear of people “shopping” accountants is one of the arguments against value pricing.
    • Accountants are not selling a commodity.
    • Everyone hates the billable hour.
    • The customer has no idea what the bill is going to be.
    • The firm is “billing and ducking.”
    • The employee feels his subjective well-being is being torn down.
  • What was your first exposure to value pricing?
    • In a previous life, Greg was a middle school math teacher.
    • He knew he was 10 years behind the other CPAs.
    • He was working hard to catch up with everyone.
    • He read Pricing on Purpose by Ron Baker in the Journal of Accountancy.
    • Greg was shocked to learn it was even a possibility.
    • He hated the environment in which he worked.
  • What is the funniest thing the IRS did for the 2014 tax year?
    • They were dealing with budget cuts, and the Affordable Care Act added workload.
    • They understaffed their phone lines.
    • On the website, the IRS posted that a caller might be subject to a “courtesy disconnect“.
    • Greg went to a one-hour presentation for the Affordable Care Act to learn how to calculate the credit.
    • Even though he learned how to calculate it, he also knew he would never be able to remember the complex calculation.

Creating Comedy About Ethics

  • Can you explain the irony between comedy and ethics?
    • The things that are the driest and most mundane are the easiest source material.
    • He looks at ethics per the Code of Professional Conduct from the American Institute of CPAs.
    • Any legal document is easy to pick apart.
    • There is a code that says that there is an ethical responsibility to follow the Code of Professional Conduct.
    • Ethic-hacks (similar to Lifehack) combine behavioral psychology and economics to increase the level of professional ethics.
    • Cheating is contagious.
  • What is one of your best stories about creating value for a customer?
    • John Shaver from Aries Technology Group hired him to do a funny video to explain fixed pricing called Bob's Barbecue.
    • Performing comedy in a club or during a CE presentation, when all cylinders are hitting, and everyone is having a great time. He is creating value for the participants as well as for himself.

About Greg Kyte

Lawyers Can Switch to Value Pricing with John Chisholm – 042

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John Chisholm helps law firms move from hourly billing to value pricing. A 25-year lawyer turned business consultant, he says the problem with the cost of legal services is not the amount. It is the unpredictability. Customers prefer the experience of and will pay more for price certainty. John shares how this single change can inspire a spirit of innovation and entrepreneurship in lawyers.

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Value Pricing in Law Firms

  • What is the most important thing you can share about pricing?
    • No form of pricing is perfect. Pricing is an art.
    • Just do it – give it a crack.
    • There is no perfect price.
  • Why are attorneys reluctant to apply their judgment skills to pricing?
    • They are issues when it comes to negotiating their price.
    • They want it to be right and they fear having a pricing discussion.
    • They hide behind cost agreements and estimated hours.
  • Why is value pricing a better business model as the law becomes more complex?
    • Global financial crisis made customers more cost conscious.
    • The cost of legal services isn't the problem.
    • The unpredictability and bill shock are the issues.
    • Having more certainty around price is important to the customer.
    • The knowledge that lawyers used to sell is now available for free on the internet.
    • Making informed judgments adds value to their client's business.

Innovation in Legal Firms

  • What are some ways attorneys can create more value for the customer?
    • The better firms are not waiting for problems to arise, but are involved in the client's business.
    • They are helping them to avoid problems arising.
    • Innovation in the legal profession bears little resemblance to what occurs in other industries.
    • Customers do not want their law firms to be risk takers.
    • How you deliver the solution is where the innovation can occur.
    • The leaders of some Australian law firms are bringing more of an entrepreneurial spirit to the firm.
    • If you can get people with other skills involved in legal and medical, it helps the firms and their clients.
    • Legal firms in the States are one of the few professions where the business must be run by lawyers.
  • Is the practice of value pricing in law similar or different to other professions?
    • Many law firms benchmark against what other law firms are doing.
    • Firms say they want to be different, but in reality, they want safety in numbers.
    • The better firms now are looking at what other companies are doing to help them improve, rather than their competitors.
    • Lawyers are not entrepreneurs. The field did not traditionally attract that type of person.
    • The entrepreneurial spirit is now moving into law in Australia.
    • Right now, the most popular form of alternative fee arrangement is discounting.
    • Under the time billing model, you can give a discount, but it is illusionary. Time sheets will just show you have worked more hours.

Switching to Value Pricing

  • How do you start a conversation with someone who may switch to value pricing?
    • The firms who have experienced the most success have an internal champion.
    • He makes sure they are serious about the conversion by asking questions.
    • The firms who have been more successful have set a date to get rid of time sheets.
    • Time sheets alone are a huge limiter on innovation.
    • The obsession with efficiency and cost allocation leads to bad effects, including the lack of collaboration.
  • How do you have a value conversation with someone who is switching to value pricing?
    • What does the client want out of it?
    • How much involvement do they want from John?
    • John's why is to influence motivated professionals to make a difference.
    • He needs to find an internal champion who he can influence.
    • After Action Reviews are held with his clients.
    • John needs to be satisfied that the client's why and his why are aligned.
    • Many want to jump to the how; John brings them back to the why.
    • Changing people overnight is unrealistic.
    • The bigger firms are still improving their time-recording practices.
    • There are individuals who do not need a consultant to understand they want to change; John can help them with the how.
    • Jay Shepherd, Matthew Burgess and this interview make a good trilogy on value pricing in the legal industry.
  • What is one of your best stories about creating value for a customer?
    • A customer once paid him double his fee.
    • They said thank you, wrote a nice letter and paid him more.

About John Chisholm

John Chisholm is a recovering third generation lawyer. He billed by the hour for 25 years and then started his own consultancy, Chisholm Consulting, in 2005. He specializes in strategy and pricing, primarily for law firms. He is also a Senior Fellow at the VeraSage Institute.

The Journey from Time to Value with Matthew Burgess – 041

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Matthew Burgess is a lawyer who lost a customer when he sent an email at 4:30am on a Sunday. The customer said he wanted Matthew's best work not what remained after exhaustion. This incident started Matthew's quest to find a better way. For the last ten years, he has practicing value pricing at his own firm, View Legal. He shares why the switch is a journey instead of a destination.

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Value Pricing as a Journey

  • What is the most important thing you can share about pricing?
    • Value pricing is a journey.
    • Particularly in legal and accounting, a lot of the specialists are trying to understand that if you do enough work, you will get to the answer of how to value price.
  •  Why is value pricing a journey, not a destination?
    • There is not an answer to value pricing; it is a practice.
    • The transition can go from fixed price and hope, to abolishing time sheets to truly value pricing.
    • Value pricing can be life changing.
  • How did becoming a “firm of the future” change your life?
    • Matthew's first success was his ability to fill in a time sheet well at his law firm.
    • The Firm of the Future was a book he found for a presentation at the annual partners' retreat.
    • He lost a customer because he emailed him at 4:30am on a Sunday morning.
    • The customer wanted him to think strategically, not to be worn out all the time.
    • He tried to persuade his current firm to switch to a value pricing model.
    • The organization was not aligned and so he started his own firm.

Switching to Value Pricing

  • What is a reasonable timeframe to switch to value pricing?
    • It depends on the personal journey of the decision makers in the firm.
    • Examples:
      • In an accounting firm, 10 partners decided on a Friday to abolish time sheets and convert to value pricing. They started Monday with no time sheets. It  took a year to deal with the issues from it, but they jumped in feet first.
      • In a small legal firm, they are still filling in time sheets so they know their costs, but they are trying to value price. They wanted to pay Matthew's firm to price each project.
    • If you haven't abandoned the time sheet, you haven't embraced value pricing at all.
    • Under a time billing model, it is about the time recorded.
    • Under a value pricing model, it is all about the value that is created.
  •  How do you scope and price for uncertainty in the legal field?
    • Mergers and acquisitions are identical to how you should price litigation.
    • Scoping on a regular basis is necessary, breaking up the work in smaller increments.
    • It is a risk assessment.
    • Always offer different tiers of how the customer can engage you.
    • You can include access as one of the tiers.
    • Going from value pricing to giving options has made a big impact on Matthew's business.
    • He offers pricing using the concentric circle theory.
    • The options must reflect what is important to the customer.
  • What is the value of having someone review a proposal who is completely objective?
    • The biggest impact pricing well is self-esteem.
    • An objective party can understand when you are undervaluing what you are selling.
    • You need to speak with your spouse, your personal assistant, anyone who can provide an objective opinion. Create a pricing council.

Having a Value Conversation

  • What is one of your favorite questions to ask during a value conversation?
    • What is it that keeps you awake at night?
    • And then keep asking why – five times.
  • Do you insist on having direct access to the decision maker?
    • He tries to and pushes it.
    • The times where he doesn't take a strong stand on that, it ends poorly.
    • It requires courage to stand up and push to speak to the correct person.
  • What is one of your best stories about creating value for a customer?
    • In his book, there is a story where he saved the customer $50 million in tax with just a couple of hours of work, when he was billing by the hour.
    • An issue was sorted out over 6 months, and he asked the customer what it was worth to him. The customer gave a price that was 25% higher than what was on the clock.

About Matthew Burgess

Matthew Burgess spent 18 years at a commercial law firm in Australia before setting out on his own to found a “timeless” law firm. View Legal specializes in wealth planning for business owners. He has written a book, The Dream Enabler. He also is part of the VeraSage community.

The State of Value Pricing (Down Under) with Steve Major – 036

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Steve Major is a pricing and business consultant from Australia. He started out as a charted accountant (CPA) and then founded a consultancy for accountants called Pricing Power. He grew up on a sheep station (70,000 acres) in Texas, Queensland. He is the host of the Pricing Power podcast and enjoys landscape photography.

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Switching to Value Pricing

  • What is the most important thing you can share about pricing?
    • Pricing is the most important lever in your business.
    • It has more impact on your profit than anything else.
    • Pricing can change your life as well as your firm.
  • What was your first exposure to value pricing?
    • Twelve years ago, Steve built his home with a fixed-price contractor.
    • It made Steve wonder if he could price accounting services the same way.
  • Did you bill by the hour before you switched to value pricing?
    • Yes, in essence, but without accurate time sheets.
    • They used a rough guesstimate for time sheets.
    • Billing was done at the end of the job, not upfront.
  • What were some of the challenges when switching to value pricing?
    • Steve thought the challenge would be with his customers.
    • The biggest challenge was his own confidence.
    • He had to be certain in his own value.

The State of Value Pricing

  • What is the state of value pricing in Australia in 2015?
    • Australia is getting close to a tipping point in the accounting and legal professions.
    • It is widely believed that the billable hour is dead, but people are unsure what to do.
    • Some have moved from the billable hour to menu pricing.
    • In law, value pricing is starting to make headway.
    • The billable hour is still being used in consulting, IT and web development.
    • Starting to see firms in other industries adopt value pricing.
  • Why is a fixed price not the same as a value-based price?
    • A fixed price is a step on the way to a value price.
    • A value price is based on the customer's perception of the value of the engagement.
    • Fixed prices are not automatically connected to value.
  • Why has value pricing been more adopted in the accounting and legal fields?
    • It is reflective of the consultants to the industries.
    • The accounting environment has changed due to compliance work.
    • Accountants are working differently with customers due to technology.
    • The customer perspective of the value of accountants has changed.
    • There was a shortage of good talent in the both industries.
    • The speed of technology is turning some accounting work into a commodity.
  • Has value pricing made deeper penetration in Australia than in the US?
    • Yes, but only slightly.
    • Australia is closer to the tipping point than the US.
    • Particularly in accounting, several pricing consultants have great influence in Australia.
    • The economic imperative to change has not come to many industries yet.

Learning to Value Price

  • How can someone start learning to have a value conversation?
    • Start asking the questions to get to an understanding of what is happening in the customer's business.
    • Realize that you are not just selling a solution, but providing a significant change in the customer's business.
  • What are some of your favorite value questions to ask the customer?
    • What are the problems the customer has in the business?
    • What are the opportunities the customer would like leverage?
    • What are the strengths the customer should be embracing?
  • What should you do if you the customer is reluctant to answer value questions?
    • If a person is not willing to talk about the topics, then you cannot deliver value.
    • State that the purpose of the question is ensure that the solution is valuable to them.
    • If they still will not open up, it is red flag.
    • The core of value pricing is that you cannot be all things to all people.
    • Be willing to walk away.
  • What are some of your favorite ways to offer options to a customer?
    • Options are powerful.
    • Value pricing can change your business; value pricing plus options can change your life.
    • Payment terms is one of the most neglected options.
    • How you interact with the customer can be good option (technology, in-person, etc.)
    • Take the premium solution and then strip away elements create lesser other packages.
  • What is one of your best stories about creating value for a customer?
    • In his accounting firm, a manufacturing customer was struggling.
      • He discovered the key issue quickly and let the customer determine the price.
      • People's lives were hanging in the balance because the business was declining fast.
      • Three months later, the business was profitable and the customer wrote a check for $150K.
      • The customer said it had saved his life.
    • He helped an accountant with pricing. Her husband called later to say thank you for helping her.

About Steve Major

The Magic and Logic of Pricing with Tim Williams – 034

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Tim Williams is a marketing professional with over 20 years experience in large agencies. He is the founder of Ignition Consulting Group and author of Positioning for Professionals. Tim is also a Senior Fellow at the VeraSage Institute.

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Pricing Integrity

  • What is the most important thing you can share about pricing?
    • Stand your ground.
    • When you protect your pricing integrity, it makes the client want you more.
  • What is pricing integrity?
    • We only have our intellectual capital and integrity to sell.
    • If we violate that, it sends a strong message about how we work.
  • Is it lying to lower the price without lowering value?
    • Yes, then you are not providing your real price.
    • It is an issue of respect.
    • You can change the price if you remove things that contribute to the value.
  • Can you value price in China?
    • Everything is value priced in China, as you negotiate every price.
    • Some stores and markets have no price marked.
  • Do you recommend a trip to China to learn to value price?
    • It is an interesting wakeup call.
    • The jade craftsmen are paid per piece, so the more skilled they are at their craft, the more money they earn.
    • They price what the maximum value is to the customer.
    • Pricing principles and business practices can be cultural.

Value Pricing in Advertising

  • What is the status of value pricing in advertising?
    • After about 5 years of foot-dragging, the advertising agency business, finally, is aware that the billable hour model is sub-optimal.
    • Most firms are still pricing by the hour.
    • Marketing procurement folks are more enlightened on the customer side, but still purchase a staffing plan.
    • There is a 40-year decline in profitability in the agency business.
    • The client community (large advertisers) have been interested in value-based compensation for a long time.
  • Can value pricing scale in a larger agency?
    • There is a stronger imperative for a 700-person firm to abandon the practice as it eats up so much of their capacity.
    • Time sheet management accounts for 10-12% of the total energy of the organization.
  • Do you have to eliminate time sheets to value price?
    • You will be better at value pricing if you take away the time sheets.
  • How did you help Teehan+Lax switch to value pricing?
    • Tim showed Jon Lax examples of value pricing from agencies around the world.
    • As soon as you can change your mind, you can change your practices.
    • Time forecasting needs to be done in advance as a cost-accounting measure.
  • What is the first step for an agency to switch to value pricing?
    • Help them to understand how they create value for their customers, other than time, and how they can be compensated for that value.
    • You only get paid what you think you are worth.
  • What is the value of the Nike swoosh?
    • How would Wall Street value it? Billions?
    • It was created by a freelance college student for $35 and was almost overlooked as one of the options.
    • Real Beauty campaign for Dove by Ogilvy & Mather generated a 700% increase in sales in Europe.
    • When you decouple price from value, then you are unable to get paid for what you do.
    • Questions to ask:
      • What is the potential financial impact?
      • Is this about short-term or long-term value?
      • How uniquely qualified is our firm to complete this assignment?
    • Hourly rate assumes that everyone's talent and expertise is equal, which they are not.

Magic, Logic and Pricing

  • What is your concept of Magic and Logic?
    • Most professional firms are in two different businesses – magic and logic.
    • Magic is the high-level, strategic planning that a client cannot do for itself.
    • Logic is the execution – distribution, coordination, etc.
    • Logic is perceived as a commodity.
    • You can charge a premium price for Magic. It is better to unit price Logic.
  • Is it better for an agency to only do Magic?
    • Yes and that's what's happening. It is the ultimate solution.
    • Decouple your company. Create one Magic brand and one Logic brand. This is a trend.
    • Ideation vs. execution – companies are looking to hire separately.
    • Different pricing and cost structure for each company.
  • Why do you recommend using the word “value” instead of “cost”? (from Changing the Dialog)
    • Language is the precursor to behavior change.
    • Stop using the old language of cost and replace it with new terminology of value.
    • Replace “time” with resources.
    • Don't use the words estimate and cost with the customer.
  • How can you align economic incentives with the customer?
    • If you only have one thing in mind when pricing, it should be how to align the economic incentives.
    • To learn, take the concept of hours off the table with your next new client/assignment.
    • Engage your team to discuss how to create a win/win.
    • Creative agencies should be among the most creative pricers around.
  • What is the difference between “scope of value” and “scope of work”?
    • Scope of work outlines what is needed and when a proposal is requested.
    • It skips the expected outcomes, the scope of value.
    • Success workshop is a concept that has been adopted by some agencies as the first meeting with the client.
    • Don't charge for the success workshop, unless you are doing market research.
    • In the proposal, precede the scope of work section with a scope of value section.
  • What are a straight fee, a usage fee and a results fee?
    • Straight fee is a fixed price based on what it is worth to the customer.
    • Usage fee is being paid not for the creation of an idea, but for the use of the idea.
    • Results fee is a price based on outcomes.
  • What is your best story about creating value for a customer?
    • Full-service, integrated ad agency who didn't know what they stood for.
    • Helped them understand that they were great at digital lead generation.
    • Reconfigured their focus around that offering.
    • Since, they have a remarkable success story. They have grown to 300 employees, 5 offices and expanded beyond their local market to a national roster.
    • They decided to be best in class at something and that drove their success.

About Tim Williams

Price Communicates Your Value with Jay Shepherd – 029

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Price is more than a number. It is part of how a lawyer communicates value to the customer. To unpack this principle, Jay Shepherd, an employment litigation attorney, compares how a customer perceives an hourly rate vs. a fixed price. He says knowledge instead of activity is more valuable to the customer. Value pricing enables the customer to purchase what he wants in a manner he truly enjoys.

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Hourly Billing in the Legal Profession

  • What is the most important thing you can share about pricing?
    • Intentional pricing vs. accidental pricing.
    • You (the professional) and the customer intend to do the work at a certain price.
    • Hourly billing is the worst kind of accidental pricing.
  • What types of pricing are found in the legal profession?
    • Mostly hourly billing.
  • Why is hourly billing not good for the customer or the professional?
    • Customer – Hourly billing creates a conflict of interest between the lawyer and the client.
    • Professional – If you are good at what you do, you are leaving money on the table.
    • Three things determine hourly rates in the legal profession: Location, number of attorneys and years of experience
  • How do you answer the question, “What is your hourly rate?”
    • I do not have one. (An hourly rate is not a price.)
    • A price should answer the question, “How much is this going to cost?”
  • Why do you think hourly billing is insane?
    • Professionals use an hourly rate because of fear.
    • We suck at estimating how long something will take.
    • If you write off hours, then the value is not in the hour.

Practicing Value Pricing in Law

  • How do you price for the uncertainty in legal matters?
    • The subjectivity of setting a price requires experience.
    • The more experience you have, the better you price.
  • What are some practical steps to transition to value pricing?
    • Get comfortable with the concept of value by studying it (mental shift).
    • Do a pilot or trial program with new customers to gain experience.
    • Stop tracking time and set prices for everything (burn the ship).
    • Collaborate with others when setting a price (pricing council).
  • How do you approach having a value conversation with a customer?
    • I need to get information about the client, their business and the problem.
    • One, what is it worth to the customer to solve this problem? (You have to help the customer figure it out.)
    • Two, what is it worth to you (the professional) to do the work (profit, likable client, interesting work, etc.)?
  • What are some of the questions you consider during a value conversation?
    • Is this someone with whom I want to spend a lot of time?
    • Do they have experience working with lawyers or not?
    • How important is this matter to the customer?
    • How hard is it to find expertise in this matter?
    • Do I have previous experience with the customer?
    • How much do I want to do this work?

Subjectivity and Pricing

  • The price helps educate the value of your work to the customer.
    • Attorneys have to use judgement (subjectivity) to practice law. Apply the same skill to pricing.
    • Prices sell knowledge. Hourly rates sell activity.
    • Three types of legal knowledge: Substantiative, procedural, judgement
  • What is the best value you have created for a customer?
    • I was able to settle a non-compete case in three phone calls because of my knowledge, network and expertise.
    • You cannot capture the value of knowledge in any increment of time.

About Jay Shepherd

Jay Shepherd is a Senior Fellow at the VeraSage Institute and a recovering attorney (trade secret and employment litigation). He operated Shepherd Law Group for a 15 years, and “shepherded” the firm through a transition from hourly billing to value pricing. He is the author of Firing at Will.

How to Have a Value Conversation with Dan Morris – 023

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Dan Morris runs an accounting company and loves to ask, “What if?” He thinks of himself as the rudder to help his customers think strategically.

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

  • Always remember that whatever the price, the price to the customer has to be less than the value they receive.
  • The price received by the producer has to be more than the psychological and physical cost to the producer.
  • The basics for a good value conversation include three questions:
    • Why me?
    • Why now?
    • Why in this manner?

Why are professionals fearful about having a value conversation?

  • They are brow-beat by customers into believing they are a price-taker, not a price-maker.
  • They are unwilling to walk away from business.
  • Observe good pricers, for example airlines.
  • Review pricing with your spouse or a professional peer.

If a customer is reluctant to discuss value, how do you persuade them?

  • Try out pricing points to see how the customer reacts.
  • Talk about outcomes that they would want to see.
  • If you do not ask for the price, you will not receive it.
  • Premature pricing is a disease. Slow down.
  • What is VeraSage? A think-tank with a mission to “bury the billable hour” and create better lives for professional knowledge workers.
  • Speak in a language your customer will understand.
  • Hold employees accountable for the results not how the work gets done.

About Dan Morris