I recently read this letter to the editor by Ralph Heath, President, Ovation Marketing, in the September 2007 issue of Advertising Age:
We were recently invited to participate in an agency search (for a Fortune 500 company) complete with a 20-page RFP. The potential client shared no information about the company or its marketing goals and went on in the RFP to ask for price quotes. …They also refused to tell us the value or scope of the work being awarded. …We respectfully declined to participate in this pitch.
Apparently, many of my competitors will offer price quotes and solutions without doing the necessary preparation. My grandfather, who was born in 1887, was fond of telling me ‘a man ought to know what he is worth.’
This made me think about a topic we ignore too much here at VeraSage, which is this: You will never get paid more than you think you are worth. After all, if you don’t think you’re worth a price premium, why would your customers?
I have written about Value Pricing and self-esteem in the past. Even though I’ve come to have serious misgivings about the self-esteem movement, I do believe there is a causal relationship between self-respect and Value Pricing. Dan Morris says pricing is about ego, and I believe this is correct.
Since my book, Professional’s Guide to Value Pricing, has been discontinued by CCH, I thought it might be useful to reprint the chapter entitled “Value Pricing and Self-Esteem.” We get so caught up in the mechanics of pricing for value that we sometimes lose sight of the fact that there is great nobility in being paid what you’re worth, which only happens if you believe you are worthy. This was originally written in 1997, and published in July 1998.
A man had better overvalue than undervalue himself. Mankind in general will take his own word for his own merit. …know your own value, whatever it may be, and act upon that principal; but take great care to let nobody discover that you do know your own value. Whatever real merit you have, other people will discover; and people always magnify their own discoveries, as they lessen those of others.—Lord Chesterfield
The greatest danger is not that our aim is too high and we miss it but that our aim is too low and we reach it.—Michelangelo
I have been thinking about Value Pricing from a theoretical and practical point of view for almost a decade, but I never gave much thought to the psychological aspect of self-esteem from the professional’s perspective. As I am an avid student of human behavior I cannot adequately account for my neglect of self-esteem and how it directly effects the pricing of a professional’s services. Professionals tend to suffer more from write-downs than write-ups. Why this is so has always puzzled me.
Allan Boress, Editor of the CPA Profitability Monthly Newsletter, provided what I thought was a fairly good explanation. Boress says that CPA are “weenies” when it comes to pricing our services; here’s why:
- Not enough quality clients.
- The client doesn’t really want to deal with a CPA—tax compliance, for example.
- The client sees little value in what you do.
- The client beats us up because it’s a negotiation tactic.
- Fee arrangements are not discussed [up front].
These are all true and good explanations; however they don’t really get at the root of why professionals have been so reluctant to engage, wholeheartedly, in Value Pricing. For the deeper reasons, I have come to believe we must look at self-esteem. I first encountered this concept of lack of self-esteem effecting our prices from Timothy J. Beauchemin, a CPA, consultant, and Contributing Editor to the newsletter mentioned above. Tim passed away in February 1997, but he left his fellow colleagues a wonderful legacy of writings through his contributions to the newsletter.
In the August 1996 issue, he wrote an article entitled, “No More Begging for Work: Self Esteem Is the Key to a Better Practice.” This provided, in my opinion, a compelling answer as to why professionals are such “weenies” when it comes to pricing. Here is a portion of what Tim wrote:
I see too much of what I call “begging” in our industry—begging for work (especially by under pricing) and then begging to get paid. I have never really understood why this is, particularly when you consider the training, hard work, and risk that accountants go through. The only explanation I can see is that accountants tend to have rather low self images, unfairly and unreasonably low, but low just the same.
Eureka! I cannot recount the number of times that I’ve heard the comment from a participant in one of our seminars that they would “feel guilty” about charging a substantial multiple of their hourly rate. They say this as if they are taking advantage of the customer. At first, I was shocked by this attitude. Why else would they attend a course like The Shift From Hourly Billing to Value Pricing if they did not want to increase their net incomes? And how else did they expect to increase their net incomes without following David Maister’s aptly named Donkey Strategy (carrying a heavier load)? Low self-esteem does go right to the heart of why professionals question the value of the service they provide.
Do we truly believe that the benchmark of our value is the hours we spend? What about the years of experience that stand behind that 15 minute tax planning brainstorm that saves your customer thousands in taxes? Is the value really one-quarter your hourly rate?
We are so imprisoned by the hourly billing method that it has affected our own concept of self-worth, and, in my opinion, has lowered our self-esteem. Do you think other businesses “feel guilty” about pricing based upon value? Do the airlines feel guilty about charging the first-class passenger four to ten times the cost of coach, even though it doesn’t cost that much more to fly them? Does Cosmair feel guilty about charging seven times the cost of L’oréal cosmetics as it does for Lancôme, even though it’s essentially the same ingredients? Does General Motors feel guilty about charging a premium price for Cadillac over an Oldsmobile, even though they are churned out of the same factory with minimal cost difference?
The lesson is vital, and it is this: Before we can charge a premium price, we first have to believe, internally, that we are worth it. If we don’t think we’re worth multiples of our hourly rate, our customers never will believe it either.
Nathaniel Branden defines self-esteem in The Six Pillars of Self-Esteem:
- Confidence in our ability to think, confidence in our ability to cope with the basic challenges of life; and
- Confidence in our right to be successful and happy, the feeling of being worthy, deserving, entitled to assert our needs and wants, achieve our values, and enjoy the fruits of our efforts.
This relates to the guilty feelings of professionals with respect to Value Pricing.
Branden further points out:
[Self-esteem] is directly affected by how we act. Causation flows in both directions. There is a continuous feedback loop between our actions in the world and our self-esteem. The level of our self-esteem influences how we act, and how we act influences the level of our self-esteem.
And please do not think your level of self-esteem is set, once and for all, in childhood. It is not. You can increase it, and you can decrease it as well.
Pause for a moment and think about how you act with your customers. When they object to your price, what is your first reaction? In the majority of cases, the first thing a professional will do is to cut the price, in the hopes of pleasing the customer. Why? Not only are we loss adverse, but we’re not convinced we are worth what we are quoting. So rather than educating the customer as to the value we are providing, we capitulate and cut our price, which cuts the value of our service.
Quoting a premium price, and sticking to it, takes a positive self-image and sense of self-worth, and, as Tim pointed out in his article, most professionals don’t possess either, for a multitude of reasons. In the case of CPAs, for instance, Tim points out they tend to come from the middle-class and blue collar families; the profession deals with money, a useful skill if you come from a fairly poor background; the profession is relatively easy to enter compared to law and medicine and it doesn’t require an Ivy League school to get certified; the degree is quick to get compared to the other professions; the profession if fairly open in employment, with grades, not connections, being the primary determinate for getting hired; and it offers a good salary, even during the apprenticeship.
Most professionals take all customer complaints, defections, etc., personally. After all, what we sell is ourselves, so it’s only natural for us to take negative feedback from our customers personally. I’m not advocating that you detach yourself from your professional pride and sense of identity, but rather, that you understand your own role in determining your attitude and sense of self-worth. All actions start as thoughts in your mind.
In his article, Tim told of the changes he and his partner implemented to get over their “inferiority complex.” They enhanced their office, bought a Mercedes, increased their prices to near the top of the market and told prospects “If you want the best, you have to pay for it.”
Probably the biggest change they made was to grade their existing clients A, B, C, D, and F, firing all of the F clients, including one that was a large portion of their revenue. He recommended that you refer them to your competition. Also, refer to your competition clients that don’t pay, who are rude to your team, and who are not managing their business in an ethical manner. And, finally, he said:
Take any of your weak staff members who just aren’t cutting it, and send them to your competition. Two things will soon happen. First, the environment in your office will be so positive that the work will move quicker and the growth will come sooner as others are attracted to your wonderfully powerful firm karma. Second, your competition will soon be having severe operational problems—making you look even better! I’ve done all this. I know it works.
By taking these bold—some might even say drastic—actions, your self-esteem is bound to increase. By surrounding yourself with only A customers and excellent team members, you will begin to feel better about yourself and your firm.
Branden says “Self-esteem is the reputation we acquire with ourselves.” That is profound. Professionals are deeply concerned, and rightfully so, with our reputations: They care what their customers think of them, of their firm, of their integrity. But what about their reputations with themselves? Most professionals were never taught even to ask the question. According to Branden:
If low self-esteem correlates with resistance to change and clinging to the known and familiar then never in the history of the world has low self-esteem been as economically disadvantageous as it is today. If high self-esteem correlates with comfort in managing change and in letting go of yesterday’s attachments, then high self-esteem confers a competitive edge.
It’s obvious that in today’s world, intellectual capital is the source of all wealth, even the Pope recognizes this fact in his encyclical. And when the source of wealth shifts from matter to mind, then the mind becomes more important. And all that a professional possesses is his or her human capital and that of their associates. And if the mind is important, than self-esteem is critical, and will have a substantial impact on what price you can command in the marketplace.
When entertainment moguls Steven Spielberg, David Geffen, and Jeffrey Katzenberg formed DreamWorks SKG, they were willing to sell a one-third stake in their brand new company for $900 million. It doesn’t take a CPA to calculate that these three valued their new venture at $2.7 billion. That’s not bad for a startup with rented offices, copy machine leases and virtually no tangible capital. Do you think they utilized cost-plus/hourly rate accounting in setting their value?
In my courses, I often hear objections to Value Pricing from professionals such as, “It won’t work in my market, it’s too competitive.” Or, “I practice in a small town, and my customers talk with one another. I can’t engage in price discrimination without losing their trust and confidence in me.” These objections, and others, are known as the fallacy of the exception. Even after presenting empirical evidence that practically all businesses price discriminate, some CPAs remain unconvinced that it would work for them. When I hear they’re from a small town I ask them, “Do you pay less for a Mercedes Benz than someone, say, in San Francisco?
If you possess high self-esteem, you will earn higher profits. The correlation exists and is backed up by empirical evidence. And it is also true that customers prefer to associate with successful professionals, an opinion on which I have changed my mind. I always thought it would be bad business to show too much opulence in front of your customers—fancy car, nice home, furnishings, vacations, etc. And though I realize that some customers may resent this—mankind hasn’t found a way to eliminate envy just yet—I truly believe that the majority of customers want their professionals to be successful because they want to be successful. I’m not advocating conspicuous consumption in front of your customers, but only that you not feel guilty or ashamed of your success.
There is a wonderful story about Picasso told by Harry Beckwith in his book, Selling The Invisible. I’ve heard a few different versions of this, so the story is probably apocryphal, but it makes an important point:
A woman was strolling along a street in Paris when she spotted Picasso sketching at a sidewalk cafe. Not so thrilled that she could not be slightly presumptuous, the woman asked Picasso if he might sketch her, and charge accordingly.Picasso obliged. In just minutes, there she was: an original Picasso.
“And what do I owe you?” she asked.
“Five thousand francs,” he answered.
“But it only took you three minutes,” she politely reminded him.
“No, Madam,” Picasso said. “It took me all my life.”
Charge by the years, not the hour!
We at VeraSage aren’t known for our poetry, but here’s one of our favorites:
I bargained with Life for a penny,
And Life would pay no more,
However I begged at evening
When I counted my scanty store.
For Life is a just employer,
He gives you what you ask,
But once you have set the wages,
Why, you must bear the task.
I worked for a menial’s hire,
Only to learn, dismayed,
That any wage I had asked of Life,
Life would have willingly paid.
—Jessie B. Rittenhouse, “My Wage,” The Door of Dreams (1918)