Value Pricing’s Telltale BFO

We at VeraSage do not think of ourselves as “trainers.” Dogs are trained, humans are educated. As Senior Fellow Paul O’Byrne wryly points out, “When my daughters were 12 years old, I was very happy that they had sex education…but training would have been a different thing!”

Education is not simply a matter of someone pouring knowledge into another’s head. The root of educate, educere, means “to draw out,” not to stuff in, and the ultimate responsibility rests with the willing student, not the educator. We try to always follow the Law of the Lesson: The truth to be taught must be learned through truth already known.

Value Pricing education is a challenge. Sure, we can teach the economic theory, and provide literally hundreds of examples from people’s everyday lives to illustrate how ubiquitously this practice is utilized in the great majority of businesses, from airlines to Starbucks.

We can even show them case studies from other successful Professional Knowledge Firms that have successfully implemented the concepts, along with the forms, checklists and processes they utilize. Sometimes, we have practitioners who tell “war stories” about their implementation, the struggles they encountered, and how they overcame them.

But I’ve learned, after approximately one decade of providing education on this topic, that none of the above makes a fraction of the impact on someone as when they successfully implement their first Value Pricing engagement.

It’s similar to the little boy having expressed surprise at the shape of the earth when he was shown a globe. The boy was asked, “Did you not learn that in school?” To which the boy replied, “Yes, I learned it, but I never knew it.”

How can you tell when someone really understands—at a deep and meaningful level—something as complex and multifaceted as Value Pricing? I struggled with this question for years, since professionals follow radically different learning curves, with some “getting it” almost immediately, others take years, while others never understand it at all.

Is there one telltale sign? What’s the common BFO—that Blinding Flash of the Obvious nearly everyone experiences once they finally see the light?

I finally have an answer to this question. Until we hear our colleagues utter these immortal words, we know they truly don’t understand Value Pricing. It’s best illustrated by an E-mail I received yesterday from an accountant who attended the Sole Proprietor Retreat taught by Dan Morris, Daryl Golemb, and myself this past November for the California CPA Education Foundation. See if you can spot the telltale sign that proves he truly internalized his education:

I had my first FPA (Fixed Price Agreement) closing meeting today. Went well. I was really in my head in advance of the meeting worrying about all of the possible objections the client may have. When I gave it to him with the engagement letter, he said “Oh yeah, I was expecting this” and asked if the amount listed (about $6,000 for tax returns, tax planning, and a couple of strategic planning/budgeting meetings) was for the whole year (versus per month). Then he signed it. He looked at the agreement for 5 seconds. Looking back, maybe I should have asked for more, but I am very happy with the price and since it was my first one, I let myself off the hook. Thanks again for all of your support.

[name withheld by request]

“Looking back, maybe I should have asked for more…” That’s it! The dreadful feeling you left money on the table. All pricers should feel this, all the time. It never goes away. It can’t. If it did, you’ll never truly understand the value you create for your customers. That’s precisely the BFO we look for, and it’s music to our ears.

There’s also another important lesson from his E-mail, and that’s the “Looking back” comment. We are strong advocates of the U.S. Army’s practice of conducting After Action Reviews (AARs), so we can learn from our experiences.

In today’s frenetic firms, demanding more and more output with less and less inputs, this type of activity is too little rewarded. The average professional is so busy doing they do not have the time to reflect on what they have done, let alone discover major breakthroughs. But action without reflection is meaningless, as the T.S. Eliot poem expresses well: “We had the experience but missed the meaning.” In Latin, reflect means to refold, implying the action of turning things inward in order to see them in a different way.

Is there any doubt he learned by reflecting on what he did right, and wrong, in this pricing encounter with his customer? Does anyone doubt that his second Fixed Price Agreement will be better, and his third better still, and so on? Pricing isn’t a science, it’s an art. But it’s also a skill—the more you do it, the better you get.

How often do you ask yourself: “How much money are we leaving on the table?” Until you’re asking yourself that question—and trying to answer it—every single day, you are not Value Pricing. You are simply using hourly billing—the Sisyphus of morons. We congratulate our colleague for his personal BFO and for now beginning his journey of getting better at pricing, not just costing.

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