In this episode, Wes McClure interviews Kirk on his path to value pricing, the challenges with hourly billing, and the process he uses now with his customers.
What was your path to value pricing?
- Life-long entrepreneur.
- Custom software developer “by the hour” for the 15 years.
- Switched to value pricing for 5 years ago.
- Kirk shares his “conversion” story.
- Getting to the point you are willing to say no if you can't help the customer becomes an integrity issue.
- Billing by the hour ends up being an estimate due to how time sheets are filled out.
- Hourly billing is a misalignment between the customer and the provider.
- It's easier to succeed with smaller phases than one big one.
- With hourly billing, on-boarding a customer was trying to dazzle him with technical expertise.
- Now there is a formal process that takes 2-3 weeks.
- Good software bakes in the oven for a while, so speed is not usually the priority.
- The higher the value, the more patient a person is going to be to get there.
- Discovery is a paid engagement.
- The biggest value that the customer gets out of discovery is that they will know the value.
- The second benefit to discovery is education, better understanding of what they really need.
How did you switch existing customers to value pricing?
- Start with new customers.
- Then start with smaller projects where the investment isn't that big.
- Lastly, deal with the existing customer-base.
- Give them a heads up.
- Customers will either embrace, try it and not like it, or will not try it.
- You have to be ready to clean house.
- When you start to charge for value, the customers might still want that value for free.
- Say no by offering a choice.
- Whatever discovery can be completed in a day is about as much as can be tackled in a project.
- 2-3 phone calls happen before a discovery project is suggested.
- After discovery, we offer 3 options in a development proposal.
- If there is a substantial change in scope, we present a Change Request.
- Be reasonable with your value conversation and look at the bigger picture.
- How to handle ongoing support:
- By individual request
- With change bucket
- How to handle emergency situations:
- Preventive approach to avoid emergencies
- Provide premium price to solve the problem and do it immediately
- Don't keep customers who won't follow best practices
How has boldly discussing value helped?
- All profit comes from taking on risk.
- By being bold, there are bigger opportunities to create bigger value.
- By being bold, the customers who really aren't a good fit will screen themselves out sooner.
- To a customer, bringing in an outside consultant is taking a risk.
Thanks to Wes McClure for conducting this interview, wesmcclure.com.