Ask VeraSage: How does a firm implement Value Pricing?

I received this email from Jeff on January 30, 2008:

Mr. Baker,

I am halfway through your Pricing on Purpose book and am thoroughly enjoying it. However I must admit I was sold on the concept before I started reading. It is the main reason why I left the engineering consulting industry (cost plus profit business model) in favor of the software industry (value based pricing). After looking ahead at the remaining chapters in the table of contents and jumping ahead to the final chapter, I’m concerned the book is not going to provide the answer to the “holy grail”—how does a firm implement value based pricing?

Two questions for you:

  1. Do any of your previous books focus on implementing value based pricing at professional services firms? I was recommended to a title of yours that seemed to fit this description written in 2000, but the large internet book retailers I checked listed it as out of print.

  2. I currently am product manager for an ERP product focused towards project based businesses. Are you aware of any software tool that has been created to help drive firms through the change to value based pricing? On the surface it seems there is an opportunity for this.

Thanks for the great book and any answers you can provide.

I remember my first conversation with Ed Kless. He told me he had read two books that changed his life: Professional’s Guide to Value Pricing and The Answer to How is Yes, by Peter Block.

I immediately purchased the book to see what type of company Ed was lumping me in with. After reading it, I was humbled to be included next to Peter Block’s book. It has become a bible of sorts around VeraSage, precisely because we receive so many “how to” questions.

(By the way, now you know why Ed is a Senior Fellow, though he still has the annoying habit of using HKTs).

I can’t do Block justice in a short space; suffice to say he thinks starting out with “how to” questions is the wrong the approach. That’s why he says the answer to how is “yes.” If you’re willing to pay the price to get something done, the “how to” questions tend to answer themselves. Block argues that people who ask “how to” questions are actually against the change.

Now, I’m not saying that’s the case with Jeff’s question here. There is a time and place for “how to” questions, and perhaps Jeff is at that point. But when I shared his question with Ed, here is how Ed suggested I reply to Jeff’s email:


It is actually a very simple reply.


Thanks for your email. Unfortunately, you are asking the wrong question. The only answer to a “How to” question is another, deeper question, “What are you refusing to do in order to begin pricing with purpose?” Once you answer this question you can begin to implement.

Take care,
Ron Baker

Seriously, I think we have to begin to respond this way. I strongly feel that once we begin to answer the how, we are sunk. They have won the battle of words. Hope this helps.

I think Ed’s right. My book is actually full of illustrations of how other companies price. It even has a chapter on establishing a pricing cartel and appointing a Chief Value Officer, along with plenty of resources for further guidance. Aren’t those answers to “how to?”

I was reminded by Jeff’s email of something I wrote in the last chapter of Measure What Matters to Customers: Using Key Predictive Indicators.

Imagine after Thomas Jefferson wrote the Declaration of Independence. Now he has to convince others to sign it, at great peril to their life and liberty. Using the six questions Peter Block uses in his book, here’s the questions that would most likely be posed to Jefferson—that is, if our Founding Framers thought like today’s businesspeople:

  • How do you do it?

  • How long will it take?
  • How much does it cost?
  • How do you get those [other] people to change?
  • How do we measure it?
  • How have other people done it successfully?

How would Thomas Jefferson have answered these six questions?

  • I don’t know.

  • I don’t know.
  • Possibly your life.
  • I don’t know.
  • I don’t think you can measure Life, Liberty and the Pursuit of Happiness.
  • No country has ever done it successfully the way we are proposing. Sign here.

Block suggests two better starting questions:

  1. “What [type of future] do we want to create together?”

  2. “What is the price [we are] willing to pay to achieve it?”

It is simply impossible to know “how to” do something until you attempt it. In a free market system, it is the leap, not the look, which generates the indispensable understanding and the necessary knowledge to generate wealth.

This is why VeraSage recoils at “how to” questions, especially when people want to dive right into them without first understanding the “why to” questions. Tiger Woods didn’t ask “how to” become a professional golfer. He just went out everyday and paid the price because that’s the future he wanted. Once you decide to do that, the “how tos” are just plumbing.

I know this is a somewhat heretical view, which is why I urge you to read Block’s book. “How to” questions are barriers that people who don’t want to change use as hurdles, since once you tell them how you do it, they can easily reject your answer as not relevant to their situation, company, customers, etc.

We at VeraSage hear and see this behavior all the time. It’s why we find Block’s argument so compelling and his book so profound.

So, Jeff, the answer to “how to” implement Value Pricing is, truly, Yes. Just like Ed asks, “What are you willing to do to make it happen in your company?”

It’s a not a software tool, it’s a mindset change. And it’s not a just a pricing strategy, it’s a business model change—from selling time to selling intellectual capital.

You will also find many resources right here on this Web site, especially in the Trailblazers section, from firms that have made the transition. No two firms followed the same path to the “holy grail.” They blazed their own trail.

As will you, if, that is, you’re willing to pay the price.


  1. But Tiger did ask: “How do I grip the 1 wood to tee-off?”
    “How do I use my feet to lift the ball out of the bunker?”
    “How do I hit the ball to get back-spin?”

    From there, after he had the basics he began to add his prsonal intellect, expriential knowledge, and flair.

    Ric Willmot

  2. Ron Baker says:

    Hi Ric,

    No doubt Tiger asked those questions, at some point.

    But my point (and Peter Block’s point), is this: he didn’t start with those questions. They were simply the plumbing.

    You’re a consultant, test it. When people are confronted with change, they go right to Block’s list of six “how to” questions, almost every time.

    If they start there, they really have no intention of changing. They first have to ask if they’re willing to pay the price of change. In our experience, most aren’t, especially in the arena of pricing.

  3. In response to Ric. I propose that Tiger wanted (wants) to win and he wants it badly. That is his WHY. After that the HOW became asking questions and practice, practice, practice. As Dan Morris would say, work life balance is for slackers! I wonder if Tiger would say he has a balanced life? What about Michael Jordan, or Jack Welch? Or if you want a real streach…what about Ric Willmot or Ron Baker or Tim McKey??? How big is our WHY?

  4. You’ve missed my point.
    Jeff, like all of us, has bought your book and is an advocate of VBP. (Tiger gets excited and wants to play.)
    He agrees with the premise and has agreed to implement. (Tiger decides to hit the range, whack some balls around and then go play 9 holes.)
    Jeff is looking for some practical, useable and valuable techniques to make the concept a reality in his firm. (Tiger needs some clubs, balls, and a bag – which type should he buy? I’m sure Tiger was given this advice and didn’t just buy the first set in the shop.)
    I have read Block, I have read you, Marston, Maister, Weiss et al.
    I am in agreement that a lot of the time, the answer is the problem.
    But I don’t think Jeff’s question was such a particularly difficult one that could not have received greater benefit of your wisdom, Ron.
    You have a lot to offer, share it with the guy, charge him for it if that’s the stumbling block, but Ron you, far better than most can give useful guidance. To quote your mate Block: “If our goal as consultants is learning and change, we need to act as if all are responsible for it. This simple shift in thinking leads us to be more inclusive and to see that learning needs to come from all directions.” Flawless Consulting Pg 339.
    You may not want to be his coach out on the range (and I don’t think Jeff was asking for that in any case) but you can tell Jeff that he needs to buy steel shaft clubs not graphite’s; to hit below and behind the ball not on top of it; and when to use an eight-iron and leave the six in the bag.
    Ron, it’s all good, I am certain Jeff will take up the challenge of VBP.
    And, Jeff, do be aware that VBP is art and science, not just science which is why I won’t consult to engineers on VBP.
    Thanks for the continuing good work, Ron.
    Ric Willmot

    PS I noticed my keyboard skills were lacking in the original post, my apologies for the keyboard mistakes – really annoying.

  5. Thanks for the reply, Ric. Believe me, I understand what you are saying.

    What I’m not sure of is if Jeff is as excited as Tiger and really, truly, wants to play. I can’t tell from his question.

    To say there is nothing practical in any of my books is beyond belief to me. It’s all practical, not only the examples but the theory.

    If he’s looking for hand-holding coaching that’s another matter. I remain totally unconvinced of the value of coaching (not sports coaching, that’s different). Besides, VeraSage is a think tank, not a consulting firm.

    The “how tos” are all over the book–establish a pricing cartel, appoint a CVO, perform AARs and BARs, develop project management skills, menu pricing, minimum pricing, scoping, Change Orders, etc. I even have checklists!

    How much more practical can one be? We hear this so much that perhaps I’m over-sensitive to the charge. But the charge is not grounded in reality, it’s grounded in fear.

    I’m not arguing with you, Ric. I’m making a bigger point. These “how to” questions, most of the time, are an excuse. We see it across all sectors (I’m experiencing it right now in Spain). People simply aren’t willing to pay the price of change.

    [And isn’t funny that the USA’s democratic presidential contenders are all about “change.” If they knew how hard it was to change something as endemic as the billable hour, they’d realize that change is a losing battle].

  6. Tim,
    That is excellent and I agree with your post.
    It does take an enormous amount of practice.
    It is art as well as science and it is not perfect. When it comes to value-based pricing we have to be comfortable with ambiguity.
    Ric Willmot

  7. Ron,
    I am with you and now I see your point.
    My mistake.
    Ric Willmot

  8. Eric Fetterolf says:


    Looking at your last response, I am at a bit of odds at your line “I remain totally unconvinced of the value of coaching”.

    The Value of coaching is the value of all education – using someone else’s previous experience and knowledge to accelerate my learning and my advancement along the curve.

    I am a huge believer that no one can teach me anything. They can only show me different ways to teach myself. That is where coaching helps the most. It isn’t a cookie cutter approach to education (everyone learns the same).

    That is where coaching comes into play. Indeed, you and Kless and others have “coached” our firm from afar via the, granted, impersonal method of the written word. Perhaps there is opportunity to coach on a more personal level.

    Indeed, the person/firm that looks for caoching has already answered the Why and How much to Pay questions……

  9. Is there a simple answer to the question at the head of this post? One step at a time.

    When I am coaching ambitious professionals I often raise the idea of value based billing and moving away from the constraints of time sheet related billing.

    I suggest that if they remain unconvinced that they start by discussing fixed fees with one or two new clients. They don’t need to make a massive leap or change in one go before they’ve dipped their toe in the water.
    It’s often less daunting to acclimatise yourself slowly than to jump straight in.

  10. Hi Eric,

    You’ve opened a can of the worms with this coaching issue! My skepticism is around its effectiveness, given the enormous amount of charlatans that practice it, claiming expertise because of their life experience or their age.

    No doubt that authors educate us. Educate comes from the Latin, to draw out, not to stuff in, so I agree that no one can teach you anything.

    And I must say, that some of our Fellows in VeraSage use coaches and swear by them.

    But I remain skeptical because I see a lot of idiots offering that service who I wouldn’t let walk my dog.

    I’ll take a mentor any day over a coach, which is why I started VeraSage in the first place!

    Hi Mark,

    Yes, one step at a time. That’s what we preach. Stick your toe in the water, don’t cannon ball.

    Experiment with some FPAs with good customers, build confidence, learn from success (and mistakes). I make all these points in my work, and indeed this is how I made the transition in my own firm back in the late 1980s.

  11. Eric Fetterolf says:

    Hi Mark

    I would greatly disagree with the idea of a slow transition. Had we done that, well, I would not be writing to you from Aries.

    We made the decision to implement Pricing on Purpose. We executed. Nothing half-way, no looking back. We jumped head first into the deep end and we were willing to learn to breathe water if that is what it took.

    The basic, fundamental idea is that the billable hour model is at best an inferior business model and at worst an unethical business model. Once you agree with that perspective, why would you continue at all with that model?

    In our experience, we interviewed several of our customers face to face and told them our intention to change our model. We then informed all customers that in three months we would no longer offer services without a fixed price engagement. Did we lose a few customers? Yes. Did we strengthen our relationship with those that voluntarily chose to remain as our customer? Yes. Bad customers drive away good ones. Our experience was those that left, disagreeing with our new pricing strategies, were essentially bottom feeders that were looking strictly to commoditize our company’s services. The very Definition of a Bad Customer.

    At the end of the day, you have to be able to look yourself in the eye. If you believe that the only value you have to your customers is the time you put in, by all means, continue with the billable time model. You will not be able to lie to them nor yourself that you have anything more to offer. If you believe you have more and can offer more, then by all means communicate it and ask to be compensated for it.

  12. Jeff,

    First, I agree with Ron that the roadmap is laid out very clearly in his books and in the articles on the Verasage website. The website is a veritable treasure chest of “how to” information. You’ve seen all of the templates, checklists, etc. in the books and the website… go use them!

    Second, I think you should refine the method of posing questions to the community. Ron, the Verasage Fellows and the community at-large is much more willing to answer questions when you have put in the very hard work of thinking through and implementing the “how”. In other words, don’t just ask “how do I get started” but rather say “I’ve tested a few variations on fixed price support agreements with my customers and received the following comments and would like to know the community’s opinion on interpreting those comments”.

    Post your FPAs, scope documents, support agreements, pricing proposals, etc. to the community and ask for comments. A huge part of the Verasage philosophy is sharing of knowledge. I routinely send our actual documents to Ron for his knowledge and have told Ron that he is free to post anything he believes will help the community.

    Keep in mind that I’m not implying that you asked the “wrong” question, I’m just saying that it is time to do the how. There are absolutely no “wrong” questions around here!

  13. Eric,

    Great reply. What I meant by incremental transition perhaps needs to be explained. I do think you can experiment on one or two existing customers and then roll it out to the rest.

    All new customers can be put on it immediately.

    When we first started teaching this 12 years ago, it seems everyone moved very slowly. Since then, our knowledge and experience has grown, and we are seeing firms, like yours, make the transition faster.

    That said, it still takes time to get 100% under FPAs and to trash timesheets. We’ve seen as fast as one month and some have taken years.

    But I love how you guys did it! Nike: Just do it!

    John, I couldn’t have said it better. I did write back to Jeff privately to clarify my response. He was asking a very different question, as it turns out.

  14. James Mason says:

    Sorry to be a nuisance, but this topic just captivates me. I was reminded of a posting I read on another blog, and I thought you might enjoy it as well. I repost part of it here, with permission, of course. The entire text may be found at

    . . . . . .

    But here’s the thing that’s really up Joe’s nose (ah ha! I KNEW some of you would perk up right then. Joe should have said this HOURS ago!) What is WITH you punks and your fear of Straight Billing, by which Joe means, getting off the Hourly Billing Carousel? Joe does NOT get it. It’s easy. Just stop. In Honour of Miz Nancy Reagan, Just Say No. Don’t Do It.

    Abandon The Hourly Billing Model. It’s stupid. It sucks. It’s mythic. It’s phony. It doesn’t even frickin’ work. And no true professional does it anyway. Think about it. Does your Surgeon bill by the hour? Oh, HELL no. If you asked her to, would she? Oh HELL no. If you said “Do it, or else I’m getting another Surgeon!” what would she do? She’d say “I understand completely. Please let me know where to send your records,” and she’d turn on her very stylish heel and disappear back into her office, and call you a stupid, well, it rhymes with duck.

    Does your Dentist charge by the hour? Not on your by the hour, six-minute incremented life. When you call his assistant Fred, you find out that it’s going to cost $27,000 to restore that smile you let go to hell back to even the most BASIC level of decency, and as you write that check to deplete your bank account, you say to yourself, “Well, that represents X number of hours of extra work for me, dammit!”

    But not your Dentist. He says “Well, that’s one case. A toughie, yes indeedy. Thank God these Beagles spend their lives in six-minute increments, and won’t spend six minutes a day brushing, flossing, and irrigating their nasty mouths. Paradise Island, here I come.”

    Now, Joe, you might be saying, there are LOTS of professions that charge by the hour. And, Joe would have to agree that there are. Plumbers. Electricians. HVAC people. People who can charge triple time when you call them at 2 a.m. on Sunday morning because your house blew all the circuits and you’re standing there with NO power, and in three hours, you have to jump YOUR skanky butt in the shower, in order to catch a red-eye to Boston, where you ABSOLUTELY CAN NOT charge triple-time to a client who’s dragging you in to do a dog-and-pony show for a client who cares not a bit about the fact that your kid is in the play on Monday afternoon at 3:30, his first ever, and YOU won’t be there, because YOU are stuck in an hourly billing cycle, and all that matters is frickin’ face time, because if your skanky butt isn’t there in front of the client, you can’t BILL the client.

    Because YOU don’t bill for value, YOU bill for, I don’t know, RESEARCH, or Court Time, or Dog-and-Pony shows, or something. YOU don’t bill for results. . .you only get to bill the client when you’re DOING something.

    Your Surgeon, on the other hand, is billing for her knowledge, skill, and ability. That operation may only take her 2, 3, 4 hours. MAYBE, if there are complications, it might take more. But, that’s okay with you. In fact, you’re VERY hopeful she’s in and out. You would, IN FACT, prefer that she be in and out. You’d LOVE the hell out of that. Her fee is $15,000.00, no matter how long it takes. She said so. Fine, you said.

    And, if she comes back and tells you, “Hey, Mikey, the surgery went SO smoothly. . .we were in and out in about 75 minutes. . .your recovery was lightning fast. . .you’re like a GENIUS patient. From induction to clearance out of Recovery, I think you were, I don’t know, maybe four hours tops. You’re the shortest case ever!” you’ll probably kiss her, if you’re not too groggy.

    Not YOU boy. The hourly billing model PUNISHES you for being a genius lawyer. It’s completely f’ed up. And, if you’re really REALLY good, you get punished even more. What if you’re not only a genius effing lawyer, but a LUCKY genius lawyer. You’re freakin’ broke!

    And, if you’re a lucky genius lawyer that juries, or judges, or BOTH, love Love LOVE, you don’t even have enough money for the bus, and you probably live with your mom. Trust Joe. Joe knows.

    So. Change the freakin model. Charge for value. If your client doesn’t like it, find another client. Explain it to them. If you’re any good. If you are, then it doesn’t have to be a problem. If you’re not, then the hourly billing model was MADE for you.

    Joe thinks it was lame-ass lawyers who came UP with the hourly model in the first place. And the corporate boneheads (pushed by equally lame-ass accountants, who ALSO sucked, for the same damn reasons; genius accountants are GOOD and FAST; Joe’s accountant is so good, Joe would . . .well, Joe can’t say, but the guy is a freakin’ Rock Star!) went for it hard and fast. Joe appreciates the hard and fast, but, seriously.

    Charge for value. Charge for what you CAN do. Don’t be a wuss. If your clients aren’t with it, GET NEW CLIENTS. By the way, can ANYBODY tell Joe when lawyers started becoming cowards? There WAS a time when Lawyers freakin’ ROCKED! Joe dug that. Joe misses that.


    I have nothing more to say.

    Warm Regards,


    James E. Mason
    Managing Partner
    Mason|McRight Legal Recruiting

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