Here is Fred’s email reporting on his firm’s progress since our meeting:
I hope that you are well.
You may recall we met at a UK conference a year or so ago and exchanged e-mails after this.
I was enthused by your presentation and by your book, The Firm of the Future and implemented some changes to our practice after reading this. You asked if I could send you an update after 6 months or so and let you know how things are going, so here goes:
Broadly, things have gone quite well. We are a relatively small practice having only started a few years ago. In the last financial year we grew revenues and profits by about 35% and a good proportion of this growth was due to “Value Pricing” measures we implemented.
We scrapped timesheets about 6 months ago now and I don’t think we have missed them. We set work completion targets every month and track these every week so as practice manager I have a good feel for how work is progressing. Being less hung up about hours has meant that we focus on quality even more and ensuring that we do a first rate job.
I mentioned in my previous e-mail that we had secured a contract with one customer and I had followed value pricing principles and priced this 2 or 3 times higher than if I had used my normal “hourly rate” method. I am so pleased that we did this as the work has been problematic. Nevertheless we have made a good profit on the contract and have done what we said we would do. On our old pricing methodology it would have been very hard slog for very little (if any) return which would have been demoralising for the whole team.
My conversion rate for signing up new customers has dropped from around 70% to nearer 25%. The prospective customers we have not signed up have not been prepared to pay the higher prices I have quoted. By and large I am satisfied that they would not have been the right customers for us. In a tough market, we are finding it more difficult to pick up new customers but for now I am holding my nerve and looking to compete on value and not price.
I have been a bit less tolerant with customers who do not fit our ideal profile. Again it is a tough call but I expect to give notice to a couple of customers shortly who have repeatedly ignored our advice and do not seem to appreciate the work we do for them. This will mean a short term hit on revenues but will hopefully will be for the longer term good
I have taken on board the views in your book about building capacity before taking on new business. We have invested in training, systems and a bit more space so feel ready to expand with the right customers. We are only a small team and I am hoping that I can retain my key team members for the immediate future. If I can do this, I think the prospects for growth are very good.
One of the biggest changes in my own attitude has been self belief and confidence that what we offer is good value and we don’t need to be apologetic about this.
So to summarise the progress report. It’s so far, so good. Our target is to grow profits by another 30% or so this year. I will let you know how it goes..
Thank you again for your advice and support.
Fred makes many excellent points here, probably the most important being that you’ll never be paid more than you think you’re worth.
Also, it’s nearly impossible to implement Value Pricing with the wrong customers. I’m a bit concerned, Fred, about your acquisition rate dropping from 70% to 25%. This may be just a temporary drop given your new pricing strategy.
If it persists, however, it may be a indicator that you are not effectively communicating value to prospective customers, since customers aren’t as price sensitive as they are value conscious. If this continues, you may want to develop a “stripped down” version of your services at a competitive price (pricers call this a “flanking product”), which will allow you to acquire some of these customers and then as time goes on they will purchase more from your firm.
But I don’t want to take away from your incredible accomplishments in the past ten months.
Congratulations again, and please keep us posted on your progress.