Value Pricing for Professionals who are committed to building great client relationships.
Many
small business owners are stuck in the outmoded approach of time based
billing, undercharging and setting fees based on what the competition is
charging; a situation where the client and the market is driving your
rates and not you.
Value Based fees was pioneered by Alan Weiss,
and he advocates that the customer is the ultimate arbiter of value. He
goes on to say that 'there is no law, nor any ethical imperative, which
says that you must charge two clients the same exact amount for the same
services. First, the services are rarely identical, second, the value
to their respective clients will always be different.' I am inclined to
share this view, and in this article, I intend to take you through the 7
steps to pricing by value and increase profitability in your firm.
1)
Be clear on who you work with: Jeff Bezos, the founder of Amazon is
famous for saying "start with the customer first and work backwards."
This is an excellent approach, and it begins with getting as clear as
possible about your ideal client - what they look like, their needs,
wants and desires. Business owners are frequently unclear about their
ideal clients. Clarity is power, and working with everyone who comes
through the door just leads to frustration, tiredness and takes you away
from providing an excellent service to your top customers.
2)
Develop a healthy self-esteem: Having a strong sense of self-worth and
self-confidence prevents under-pricing, offering discounts at the first
objection and having to chase for payment after the work is complete.
Nathaniel Branded in Self Esteem at Work, says that "self-esteem is the
reputation we acquire with ourselves". It is difficult to quote a fee
which is outside of your comfort zone, especially if you do not believe
in yourself, or have the confidence in the difference you can make to
the client's end result. Your mind set and self-esteem is a critical
factor when it comes to setting fees. Spend some time looking at your
mind-set and self-worth.
3) Create packages for your services:
American Express have green, gold, platinum and black cards. Each are
valued in price based upon the value and services they deliver. Break
your service offering into packages. Think about your customer and offer
different entry points for them to use your services.
4) Set
clear objectives, measurements and value: A key aspect of value pricing
is relationship building and helping the client to see how much they
will benefit at the end. It is not about your process or methodology.
The first steps it to be clear about their objectives. To start to
understand their objectives you could ask questions like - what are you
looking to achieve here or, where are you now?
Measurements or
some form of it are a great way to assess progress against agreed
objectives. A useful approach would be to get the prospective client to
explain how they would measure that the project or intervention is a
success. This can take some doing but it important to get them to state
what success would look like if achieved?
Values are the real
drivers behind our decisions. These are the intangible 'soft attributes'
which help to understand what is really important. To understand what
it all means to them you could ask questions like: - if you were to
achieve this goal, what would that do for you?
5) What makes you
unique? Imagine that you have left a meeting, feeling rather confident,
but unclear as to how you can make your business stand out amongst the
competition. Think about what sets your business and services apart. Is
it your reputation, knowledge, experience, or are you in the right place
at the right time? Take a moment to answer these questions.
6)
Pricing: Setting fees can cause a great degree of anxiety. There is
always the fear that they could be too low, or too high and you price
yourself out of work.
Self-esteem plays a huge part here also. However,
it is perfectly legitimate to price your services above the range the
customer is willing to pay, and also below the range. Do what feels
comfortable, and for each opportunity, answer these questions to assign a
price for your services:
• What price would be so expensive that the customer would not buy?
• What price would be expensive, but the customer would still buy?
• What price would the service be seen as cheap and inexpensive?
• What is the lowest price that we would not go beyond and be prepared to walk away from this business?
• What is our ideal price - a price that would give us excellent profit?
• What would be the price that if we were to get it would mean fantastic profitability for the firm?
7)
Writing a successful proposal: The proposal should be summation and not
an exploration of their needs. It should be a clear explanation of what
you understand their requirements to be, how they will be measured and
the value to the business. Submit a draft copy before submitting the
final version and do this without including the fees. In the proposal,
give them a range of fee options and not just one fee. When you present
only one fee, there is nowhere for them to go, but yes or no. Options
are a set of 'yesses.'
Value pricing is the way forward for
service based business. The time based billing model does not help
anyone - you nor your clients - and most of all the focus is in the
wrong place how much you will cost as opposed to the end result. If you
patiently apply these steps, your self-esteem will increase, clients
will be happier and most of all profitability will increase in your
firm.