Geoff Richmond of 2IC Management Pty Ltd. sent us this e–mail to share…
Thank you very much to Ric & Kerry Payne, Paul O’Byrne & “The Value Guru” Ron Baker.
As you know we left the 2020 Conference and jumped in boots and all to tear up timesheets and operate on Value Pricing on all assignments. So far after three full months the results have been fantastic. Obviously there have been some teething problems as would be expected with any major revamp but the pluses have far outweighed these minor hurdles. As a thank you to you all I thought I would give a brief summary of our encounters for you to pass on to the unconverted. Once we have experienced a full year I will be happy to give a more comprehensive report if you’re interested.
- A few clients were a little sceptical and suggested they did not want to pay for the unlimited phone calls and meetings. However when we explained the fee set did not include any allowance for these freebies they signed up.
- A couple of clients also mentioned we are getting out of their league and they don’t really need this level of service ( these are borderline clients in terms of “the type we want”) but most agreed to stay on.
- We did loose several clients based on the upfront quote. It probably gave them a chance to make a decision before the event rather than not doing anything about shopping around, bringing in their work late and not being happy with the fee ( as has probably been the case in past years). These were definitely clients that we were not worried about losing and they never utilised our services as we want anyway.
One significant client who has never queried our fees and with whom we have a great relationship has felt uncomfortable with a fixed fee that includes a lot of unknown variables. We have agreed to bill them quarterly but explained to them that we will only be able to assess the fee based on the value we bring to them as we do not have timesheets. We will be using the costings of previous years to determine the value of compliance work and assess on an ongoing basis the value brought to them from ongoing assistance.
We have proposed four different payment structures:
- Prepay before 30th June to get a tax deduction in the previous financial year. We did get in a few thousand dollars under this proposal, and probably a chance to get more next year once clients are familiar with the system.
- For those previously on monthly instalments over 12 months they remain the same. No problems here.
- The option to pay the fee in equal instalments from July to December. We had several that tried to get it payable past December but in the main we were successful.
- For once off annual clients 50% when bringing in their work and 50% upon completion. There are still a few who are not convinced they should pay anything before we do the work but we don’t see them as critical amounts , nor do we see them as being a problem.
Trying to get every fee set and out to clients in the first couple of months of the year has been a lot of hard work by our Admin team and added additional responsibility on our professional team but they have all got right behind it because of the long term benefits.
- For the three months to 30th September this year we have banked $375k compared to $206k. Based on a turnover of approximately $1.0m this is a much improved result and we are still bedding down some of the fixed fees that opted for the six month payment plan that will be catching up over the next three months.
- Our team feel that rather than having pressure on them to produce chargeable hours the pressure is to get the compliance work out the door so we can develop value add strategies for our clients.
- I personally have found that rather than worrying how much time a team member is spending on a job I am more concerned about the quality of the job produced. This has to be a better outcome for all in the long run.
- On the one off assignments we have quoted so far we are finding it much easier to quote a higher hourly rate if there is value in the job. In fact I had one project we quoted $7000 for a report for two partners starting up a new business. I was a bit worried when I did not here back from them that they thought I was too dear. When they finally got back to me they questioned whether our quote was $7000 each rather than in total.
- The psychological difference between asking a client if they are happy to spend $x before you commence a project has really stood out. Beforehand the client has a need and is willing to invest to get it. After the work has been done he has nothing to gain when receiving a bill and in fact if the project turns out not to be as attractive as he had hoped there is even more downward pressure on the billing. We know that if we had invoiced after the event based on time sheets we would have marked some of these jobs up but may have made an additional $20 to $50 per hour. I believe we are consistently making an additional $100 per hour plus on one off projects.
- We have discussed within the team whether we are ripping anyone off and all have the same opinion that we are offering a service with a price tag and the client is buying on a well informed basis. Having said that some of our VPA clients have asked us to do some work outside free phone calls and free meetings and we have performed these tasks at no charge because we couldn’t see that there would be any tangible value for the client. We even had a client ask are we going to bill them and we won’t—this should also build goodwill.
- We have also made it our policy that we will perform work at below normal rates for clients that need some assistance but could not justify a fee based on normal hourly rates. This will keep us involved with the client and ensure they turn to us when they need some more valuable work.
- We are setting up a “Value Register” for every client which is supposed to be updated as we do some work for clients—especially for benefits we bring to them from the compliance, free calls and meetings input. This will help us in justifying next years proposed fee by pointing out all we have helped them achieve over the previous 12 months.
- Moving forward, timesheets we are keeping really only monitor such things as sick leave, staff training, promotional time and overtime. The time saved and therefore increased productivity is very significant.
- We no longer have an admin team compiling WIP reports for professionals to raise invoices and no more angst between team members because they are holding up closing off debtors or wip.
- We haven’t yet finalised our internal reporting to establish our efficiencies but this is well on the way. I am confident that any inefficiencies in our billings will be outweighed by the extra time available to do real work rather than timesheets and the improved hourly rates on projects and the improved cashflows.
Thanks again, give me a call if you would like to discuss.