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.
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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.
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