Do you want fries with that?

Trailblazers

Apr 24

By Karen Smart

There are many things that people do instinctively. One is to look for patterns. Our eyes are constantly searching for patterns. Think of those posters we use to see in the shopping malls in the late 80's. If you stared at it long enough, an image would emerge. Remember those? Well, I was staring at those 'motivational' posters waiting to get excited about their message and beautiful images until Ed Kless womped me over the head. By the way, if you're tired of the motivational posters, there are also fun non-motivational posters. http://www.demotivators.com/. Another thing we do instinctively is choose. Options are in front of us everyday. We even give our children options. Do you want the red fire truck or the Sit-n-SpinT? You can't have both. Do you want fries with that? Himalayan Pink Salt or regular table salt? What size? I think the entire value model probably goes back to Adam & Eve. They had a choice too. But, I don't have time to do all of that research because I'm so busy having fun at work these days trying to figure out what options I want to offer my customers on proposals. And yes, they 'see' a pattern in my options and I can generally alter the text to have a specific pattern that is more pleasing to the eye. Read on.

I'd like to start off by presenting the first proposal I fashioned after coming back from an intense two day training course that our company hired Ed Kless to do especially for our group (WAC Consulting Group, L.L.C.). It was sort of like a mini consulting and leadership academy wedged in between two beautiful Florida sunrises and Ocean sunsets.

I had previously submitted to our client, an hourly based contract, which you will also see later. When I first submitted the hourly proposal, the client didn't purchase the upgrade due to some economic struggles and staff changes. A few months later (after Ed's training) the client wanted me to send over the proposal again because they lost the first one. Bless their little heart! What a great opportunity to try this new 'Value Pricing' model. I was skeptical at first, and my business partner actually thought the idea was ludicrous and wanted no part of 'ripping off our clients' as he deemed it. I looked him in the eye and said, "The customer now expects me to upgrade their system, install the new modules, train people and work with their bank all within a two week time frame". That meant I had to shift around my schedule and call other clients to move their scheduled updates, just to make this customer's deadline when we could have worked this in nicely three months ago. So, I endeavored into the 'uncomfortable zone' by myself and with people scowling over my shoulder, mumbling something about hours and time tracking and losing customers.

I think it's important that you see an example of what options look like. Please keep in mind, this was my first time walking and it was hard to be creative. After looking at my first proposal, I am then going to show you how I previously went about doing this task. Seeing is believing.

Okay, as promised, below is my first value priced proposal to upgrade a customer who was on a very old system. This customer also wanted to add the ability to do direct deposits.

New Proposal for Client

What will be needed to configure EFT:

Client to authorize their banking representative to talk directly with Karen Smart
Karen Smart to obtain ACH file formatting specifications/sample from bank.
Configure EFT to generate ACH file in accounting/payroll software.
Generate sample ACH file
Transmit sample file to Bank for testing and make changes as necessary to form and or database structure.

(This section imparts a skill level that will be required to do the EFT work. Most clients would not want to do this and that's the reason I put it in the beginning, before the pricing options.)

Option 1

Project to be completed by January 31, 2009
Obtain product activations for new version of software from Sage
Download software and all available service packs to client server
EFT software installation and installation of accounting software
Accounting software conversion, install all current service packs
Configuring EFT (above steps) will be up to client
$3,800

Option 2

Project to be completed by January 16, 2009
All of Option 1 above plus
Adjust check stock forms and invoice forms after upgrade
Half-day of training on new product features
Configuration of EFT as stated above by Karen Smart
$4,900

Option 3

Completed by January 8, 2009
Includes Option 1 & 2 above
Create direct deposit form
Full Day of training (8 hours)
Casual product use calls for one month
$5,900

Option 4

Completed by December 31, 2009
All of Option 1, 2, & 3 above
Pre-conversion testing performed at Smart e-Solutions Inc, off business hours
Transfer converted and service packed system to client server, reducing impact of system downtime.
Database repair on data if needed
$7,000

Previous Proposal for Client

What you are about to see next is how we previously worked up our proposals.

Performing MS SQL backup of all databases

Description	Done by	Consulting Hours	Programming Hours
Project Management and documentation	Karen Smart	1.50
Analysis (Pre-conversion)	Karen Smart	4.00
Check writing to be ported over to new version	Programming		1
Invoice form to be ported over to new version	Programming		0.5
Training on new features & Direct Deposit (EFT)	Karen Smart	4.00
Karen Smart	2.50
Installation & Conversion of accounting data to new version (For all company databases at Client site)	Karen Smart & Programming	4.00	1.25
Workstation Setups	Karen Smart	.75
Configuration of EFT	Karen Smart	1
Total		17.75	2.75

Note: This is not a fixed cost quotation. We work on a "Time and Material" basis. If the above quote goes under the amount actually worked, we only bill for the time worked. Same holds true for any time above the estimated hours.

Rates

Charges for Programming hours: $150.00 per hour

Charges for Karen Smart hours: $150.00 per hour

Notice that if you calculate the total estimated hours it only adds up to $3,075. My value pricing proposal started out at $3,800.

You want to know what option they chose? I'll get there, but let's talk about your business for a minute. If you're like me, you've been in business for a few years, you are experienced in your field of work and you probably consider yourself to be among the best at whatever it is that you do. I had forgotten all of that. I was looking at things from an hourly standpoint and not from an experience level. Tasks that took me 30 minutes to complete ten years ago, now only take 10 minutes. That is experience and knowledge and folks, it shouldn't be defined by an hourly rate. If it is, I can guarantee your clients loathe getting bills from you. I also woke up to the fact that when people call me for help, it's because they seriously can't do the task themselves and my experience becomes invaluable to the customer, whether it takes 10 minutes or 10 hours.

As a result of my look back and more bonks on the head by our sales person, Dennis Bock, we are in the process of on-boarding all clients to software license agreements, (SLA) which is a whole story in and of itself. We have consultants and programmers in our group that have been applying their experience and knowledge to our customers for over 20 years. I started asking employees and contractors, what do you want out of life, what do you want to do in this position, what are your goals at work? Many came back with things like, "I want to earn over the yearly Social Security maximum taxable wage just once in my life", "Pay off my mortgage", "Go on a vacation without taking out a loan" and the list went on. I started off by looking at what bacon I was bringing home in a year. I took into consideration my college degree and the many years of being in this field and what knowledge I have as a result of those years of work. My yearly wage has never been where I want it to be. So, let's do the math. 40 hours x $150 = $6,000.00 x 52 weeks = $312,000.00. Now start calculating how many ACTUAL billable hours you have over a year, and it's no where near $312,000.00 per year. In fact, when you start putting a pencil to it, maybe you're lucky you're still in business. A good economy masks a poor business. If you're struggling in today's economy, maybe it's time for that change?

You know how much people despise looking at bills from lawyers, so you can imagine that your customers probably feel the same way about getting hourly bills from you. In fact, I know the customers abhor this because one of our clients, that is on plan (SLA), actually told me one day, during a technical support call, "I hated getting bills from you, even though the support was great. I didn't want to call you unless it was a real emergency". Reason: Hours = Pain. For the customer and for you. The conversation with my customer led me, of course, to review our SLA billings. I guess it's just easier to pay a yearly amount because I'm doing just fine on margin. As a result, communications with my client have actually increased. I'm building reports for them and talking to them about other products. They feel they can call me anytime, without the pain of an hourly billing rate. In fact, there's a lot less stress in the office as a result of having our clients on plan.

For recurring revenue streams that are consistent, and that will allow you to concentrate on your business, start looking at implementing and enforcing SLA's. You'll soon be working on your business instead of in it. We have four different levels on our SLA's and one of those levels is "NO PLAN". No plan means a higher incident fee when they call in for any help. Sage has been doing maintenance and support contracts for years, and it's amazing that for most of us, the light bulbs didn't turn on to recurring revenues long ago. Sage depends upon those recurring revenues for over half their business. I did say half. And to be exact, 52%. Still don't believe me? http://www.investors.sage.com/reports_presentations/results_presentations/

Click on the 2008 tab Full Year 2008 Results.pdf and go to page 19.

I'm sure that there will be other methods developed in the future to woo us, but this plan is truly working for my company and we've never felt more secure in such a tough business environment. So when you're doing your next proposal, I encourage you to try the value pricing method. I've managed to work with two other companies on opposite ends of the nation and they were amazed at what options their customers chose on the proposals I created. They have now seen the light and how this really works! Implementing the SLA's, (WITH OPTIONS!!!) has also allowed me to relax and not worry about when the phone is going to ring, so that I can bill someone and make them feel horrible about using my services!

So, the client I did the quote for? They weren't as "HOT" to get the job done before December 31 as they thought they were, and I really didn't want to call my other clients and reschedule them. They chose the option I wanted them to: Option 3. That was $2,825 above what I originally quoted using the hourly rate syndrome! You know how people frame one dollar bills and proudly display them as their first money earned? I have my first value pricing option proposal taped next to my desk for all to see we did it!

I have yet to prove my theory on pattern searching within my proposals, but I'm starting to keep track of the choices and outcomes. If you want to seek out some interesting sites on pattern searching of the eyes. I might suggest the following websites.

Karen Smart