There are many things about Value Pricing that professionals continue to get wrong. In this blog, I wanted to share the methodology we use internally at Exemplar to train our professionals to execute on a Value Price model: The 4 C's of Value Pricing:
For the purposes of this blog, I will focus on the first 2, since these could be the subject of a book and the last C is particular to closing the sale on Value Priced work, which will only happen if you do the first 3 properly. Let me start out by explaining that the Price of work in a Value Price model has NOTHING to do with your time. Say it with me now " The Price of work has NOTHING to do with time." Write it on the board 50 times and say it out loud at least 3 times a day. Value Pricing is about Adding Value to the client and Charging for the value you add. . . . It is ENTIRELY based on Value to the client. Yes, I'm going to have to ask you to repeat that to: It is ENTIRELY based on Value to the client. Now for a lesson:
(Short Story: I recently learned that if you get stuck in a cave for several days in perfect darkness, you would actually go blind. . . .YES. . . blind for good! Did you know that the fish that swim in cave waters are completely blind? Who knew! Why is this relevant? What the heck do you think will happen to your skills if you fail to use them, particularly the ones that are relevant to the 4 C's. So, for your own good, make sure you use your skills lest you lose them!
Have you lost your ability to comprehend value as a result of decades of billing by the hour?
Perhaps the biggest challenge for professionals training in the billable hour model is to Comprehend Value to the client. Most professionals who try a fixed price model cannot help themselves but to try to estimate time in order to arrive at a price. This is almost a sure way to fail at pricing. The most profitable companies do no price products based on their costs, so why should you? They price their products based on the perceived value to the client! How do they determine value? First, they have to Comprehend Value to the client. In each field, there are certain things that clients value. In law, for instance, here are some of them:
-- Getting the job done quickly or at least on schedule
-- Great Service
-- High-Quality Work
-- A Relationship with their attorney
-- An attorney who understands their business
-- A professional who respects them
-- An attorney who returns phone calls
They go on and on. Many value drivers are specific to each engagement. For instance, some clients value being educated on each clause of their contracts, while others are so busy that they value a professional who can do a great job while requiring a little time as possible of the client's time. The key to comprehending value is to ask questions. You might say "I already ask many questions, so I must already get it". Listen up: If it were that simple smarty pants I would not have to be writing this to you. Clearly, it is about asking the RIGHT questions. Right now, you ask questions so that you can understand the substantive work that needs to be done. . . you are trying to understand your mandate. . . . not your VALUE to the client. You need to ask them what they are looking for in a professional relationship. What would the engagement look like to them in an "ideal" world and what would their customer experience be like. What "outcome" are they looking for and how much had-holding or education do they want. In order to value price you need to Comprehend Value by asking smart questions designed to uncover their desires, goals, deadlines, and business strategy. Without this information, you cannot effectively serve your clients no matter what billing model you use!
Have you lost your ability to be creative by being a drone in the billable hour system for years?
This one is simply my favorite one, because this is where Exemplar is so different from most professionals. Remember, we price based on Value and we charge for the Value we add. So, check this out. . . . where are the incentives for your firm and where are the incentives for Exemplar? What do you think is right?
INCENTIVE (You make more money when you. . . )
Bill More Hours, Drag it out, take your time, pad your bill, be inefficient)
INCENTIVE (You make more money when you. . . )
Are more effective, efficient, add more value, get the JOB DONE!
Are you getting my drift? In a billable hour model you do no spend any non-billable time thinking with the client about what the best strategy is to approach the case. In a Value Pricing model, we have every incentive to partner with our clients, put our business thinking caps on with them, and think up the most creative ways to approach the problem in order to solve it. It is a strategic process, and often a creative process, which is what is so rewarding about it. At Exemplar, we have an incentive to find new ways to solve old problems. Put incentives in the right place. . . no more hourly bull! No more bill padding and hamster wheeling. . . . put your timepiece down and do the Value Pricing dance! Look at the Incentive chart above again. . . what would you rather do the rest of your professional life?
This is only a short sample of what needs to happen on each of the first 2 C's. The other 2 are critical as well and are worthy of another discussion or blog post. The point here is that Value Pricing is not just a different pricing model. . . It is a different State of Mind and requires different Skills! So, you need to ask yourself if you are a fish in a cave or if you have the skills to pull it off. Be patient with yourself while you learn and develop. You will not become an expert in any of these in a day, but you will notice a significant difference in your lifestyle and in the happiness of your clients as you embark on the journey!