Value Pricing Isn’t Easy, But Neither is Writing off a Bill

I was writing to Bay Street Consultant Rick Telberg today on another matter and mentioned that I’ve been enjoying conversations with Ron Baker and our other VeraSage colleagues about this recent reply submitted to Rick about his CPA Trendlines blog post “You Are What You Charge” about value pricing.

(Hopefully you’re still with me after checking all those links!)

Personally, my suspicion is that the gentleman didn’t implement value pricing (VP) properly. Or fully (which he openly states). First, it is really hard to see it work if you don’t implement fully. I can say this with conviction because of my own personal experience.

I started implementing a couple years ago and just went “all the way” (i.e. no timesheets) very recently. I can really see both sides of the pro/con argument when it comes to operational barriers to implementing VP.

I implemented VP in my practice for ethical, practical, and customer satisfaction reasons. It is the right thing to do both with regard to customers and employees. And if I believe that, and believe it is best for other professional service firms, then I absolutely have to practice what I preach.

HERE IS WHAT I LEARNED:

It IS a lot more work up front to thoughtfully consider the scope and document it before just jumping into the work. But on the back end, there are NO ugly fee discoveries (we spent HOW MUCH time on it??) or those horrible conversations with the client (after the fact and when pricing leverage is completely gone) about why the bill is so high (meaning “time got away from me”).

This is really the way it should be…respecting the customer’s choice to buy or not buy at a price you are comfortable with.

If the customer isn’t willing to pay a price at or above what you’re willing to do the work for (your lowest walk-away price) both you and the customer know it up-front. No time invested or written off, no hard feelings. Better expectation management, more enjoyable doing the work because you don’t need to fret over the growing WIP.

And when Baker says your “gut” knows what to charge, he is absolutely right. Anyone who’s been in business for any length of time knows roughly where to start in discussions with clients about what “it takes” and what it is “worth” from a value standpoint to the client. I maintain that the biggest hurdle to overcome is the temptation to equate your past “hourly” price with the current “value” price. Big mistake. Easy to do and I’ve fallen victim to it myself, but it IS curable!

The thing is, this level of thinking about the scope should be done ANYWAY in order to provide excellent service and properly understand/manage customer expectations. But this usually isn’t done. Instead, we delve into the work living in this false sense of security that the customer will pay us that hourly rate “because that’s how long it took to do it” — it being whatever we thought the customer wanted but we never really took the time to define.

THE IMPORTANCE OF SCOPE

On April 9, professional service firm management guru David Maister shared an excellent blog post called “What Do You Want From Me.” His post addresses what should occur no matter how you price. It is excellent advice:

Whether you are being given work to do by a client or a boss, it’s common that people will assign work to you badly, and that will cause you problems.

How can you do what they want if they don’t tell you clearly what they want? The key is to take responsibility and ask permission to ask questions.

When someone gives you a task to do, say something like ‘I really want to do a great job for you, so can I clarify a few things?’ Most people will say ‘Yes.’ You can then be sure you understand the following details about your assignment —

1) The context of the assignment — ‘Please could you tell me what you are going to do with this when I get it done, tell me who is it for, and where does it fit with other things going on?’

2) Deadline — When would you like it, and when is it really due?

3) Scope — Would you like me to do the thorough job and take a little longer, or the quick and dirty version?

4) Format — How would you like to see the output of my work presented? What would make your life easier?

5) Time budget — Roughly how long would you expect this to take (so I can tell whether I’m on track or not?)

6) Relative priority — What’s the importance of this task relative to the other things you have asked me to do?

7) Available resources — Is there anything available to help me get the job done? For example, have we done one of these before?

8) Success criteria — How will the work be judged? Is it more important to be fast, cheap or perfect?

9) Monitoring and scheduled check points — Can we, please, schedule now a meeting, say, halfway through so I can show you what I’ve got and ensure that I’m on track for your needs?

10) Understanding — can I just read back to you what you’ve asked me to do, to confirm that I got it down right?

11) Concerns — before I get started can I just share with you any concerns about getting this done (e.g., other demands on my time) so that I don’t surprise you later?

Yes, your client…should be good at delegating or assigning work and giving you this information anyway. But the truth is that many people won’t have thought through what they really want from you until you guide them through their ‘either-or’ choices.

If you have not received answers to these questions, you don’t yet know what to do, and the risk of being judged a failure is high!

Don’t rely on your…external client…to give you all this information. Pull it out of him or her.

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