My Photo

ACTION PLAN MARKETING

« Beyond Intentions | Main | Combatting Skepticism »

March 20, 2006

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Tiffany

The main priority for the http://www.pdfspirit.com/zwischenpr books search engine is the educational literature - the basis of scientific and technical knowledge

Greg George

Hello Robert,

I am a new subscriber to your newsletter - very good practical information to read for a change - and I seldom respond to articles, however the value priced services hit home with our firm. Thought if I shared our experience, might help a few others think about it - a few real life business examples.

For a good while we were struggling with a better pricing solution for our clients - and oursleves. The answer I found was value pricing most services we provide, instead of the usual hourly rate model we have used for many years, and as most of our competitors still use - although few have our credentials.

We provide solutions to some fairly complex problems in areas of risk mitigation; our firm provides comprehensive intelligence reports for due diligence research requests, high-end exeutive protection teams, assessments and providing e-Security testing and engineering solutions for mulitiple systems.

Regarding the research for example, there is no real secrect to finding the information a client requires, you just need to know where to find it, and how to structure the report so it is immediately useful. Most of our legal clients rely on our "expertise" of identifying critical subject matter they need to know as a value servce, and not one client objected when I moved from charging hourly rates, as they do, to a fix flat rate for the completed research product.

Our experience has been the same with value pricing the work for the security teams - a flat rate is proposed for the "value" of the service provided, and not broken down to hourly rates charged - no one has objected to this either, and in fact, I have been told many times, this makes it much easier for the clients budgeting purposes.

The client knows right up front what the deployment will cost and no one is going to get carried away with the write down every six minute interval on the time sheet pen, and when not responding in a crisis mode to an immediate threat, many of our clients use these services for events and conferences they plan for during the year, and can budget accordingly with no surprises at the end of the engagement.

We are still experimenting with the engineering services - it is difficult to nail down a flat rate when you don't really know what you are heading to on a systems overhaul - at present, we are charging the hourly rate for the testing and review process, and offering a flat rate proposal to provide the solutions.

Oh yes, the important part - our margins are up since the change. Considerably. Administration has been cut in half, and the client feedback has been excellent.

Hope you found this information and feedback useful.

Best regards,

Greg

Nathalie Marteau-Yarzabal

I was on the call with Alan Weiss yesterday. I planned to ask the following question:
More and more in France, buying services take the power in large companies and even in mid-size companies. It means that the buying service is in the buying loop even to buy one pencil! And managers have no way to bypass the people from the buying service. As Alan said yesterday, those people are gate keepers, they deal with saving money.
This has consequences on coaching and consulting buying process and specially on the criteria used to buy such services. And those criteria are tangible ones, like how many hours billed, how many days billed, and so on.
Here is my question: have you experienced such situation (to be front of the buying service because it is a compulsory step within the company each time someone wants to buy something, whatever it is) and, if yes you do, how do you succeed to manage it still with a value-based approach?

I would like to add this remark which maybe open the door to a solution: a system has always a way to bypass it...even if it becomes more and more difficult to find it!

Chris_10000

I bought the InfoGuru Marketing Manual last summer, and the value pricing chapter made a big impression on me. Last fall, I got my first value priced contract. It has been a revelation in so many ways.

When I am working hourly, I tend to think of my work as "a job", more like I am a worker churning out a "product." I have attention on how many hours I am logging, and there's this direct relationship between that and how well I do. There is no incentive to work faster, really. If I finish earlier, I feel like I am supposed to still be working, otherwise I'm not earning my money. With value pricing, I am rewarded for being more efficient; with hourly, I am de-incentivized.

I am currently on an hourly contract, and I am REALLY feeling the difference.

I feel like value pricing rewards people who are more experienced. If I were to factor in my judgement about what's really needed, plus the breadth of my technical skill, plus the familiarity with real-world problems... I can provide severeal TIMES more value to a client in an hour of my time than I would have ten years ago. And yet, the company I am working for is not going to pay me three times as much! Their range for what I do probably ranges from $55 to $75 an hour. In their hours' work way of looking at the world, there's no way they're going to pay me $225 an hour! And yet, when I created the fixed-price contract, everyone was extremeley happy!

With the value-priced contract, I was able to carefully manage the customer's expectations--creating a careful schedule that was quite conservative. Because of this, I was able to come in ahead of all the deadlines (that I had set up), and come in under budget, and my client was very happy with the whole experience.

Interestingly, I've found that having to sell managers at the company I've been working for on value pricing is a little stretch for them. Even though they get paid well, they're still in an "$x for an hour's work" mindset. I have been told by one division that they've never done a flat rate for a service. Several times I had to push back during the negotiation, when we were hashing out the details and they wanted to fall back to an hourly rate. And yet, when I kept insisting on what I wanted, they were happy with it. I think that even though it's foreign to them, there's something reassuring about someone who wants to provide them with a clear, carefully-defined package.

When I took this recent contract, I didn't think there was a way to value price it, because the job was just to be "on call," and solve random problems as they came up. But if I had it to do over again, I would take more time to see if there was some way to turn it into a value-priced contract.

Zoe

Just this morning I received an email from a new client who has had an intro session. She writes: "I do feel that the $200 you charge is rather a lot per hour. When I think that my son's psychiatrist charges $200 an hour and I can claim half that back on medicare! Even for my accountant I only pay $150 an hour plus phone calls or emails. So I just can not justify $400 a month for this kind of service."

I answered her that it was not a per hour charge - but that is what she deduced in the monthly fee that includes 2 monthly meetings plus calls and emails. I explained that it is a short term investment for leveraged outcomes. Because my coaching is personal in nature, and not focussed on business outcomes, it is difficult to quantify in dollars (she is looking to build a plan for life after her children leave home -a lifestyle investment).

Even though I explained it all quite well, I still felt kind of bad about this kind of objection. It caused me some quesitoning of skills and services. Then along came this article and I do feel a lot better. At least it confirms what I do know - I want to work with people who consider investing in themselves a worthwhile experience.

Zoe

Kevin Dervin

Hi Robert -

You bring up some excellent points. One point in particular that gets my attention is that most are quite unaware of the true value they bring to the table.

One of the questions I ask all my clients very early on is, "What do your clients value the most from the services you provide?" Then I'll ask them if they've ever asked their own best clients the answer to that question. As you might guess, the answer is almost always NO.

We work on putting in a system to get regular feedback from clients. Ties right in with InfoGuru principles anyway (case studies and testimonials). People are often surprised to find out that their clients value different things than what they thought.

Often small business owners are adding lots of intangible value, but don't ever get paid for the effort.

I'm definitely trying to cure myself of this as well. I'm not quite there yet on this value based pricing concept, but reading what you've written lets me know I'm on the right path.

I do realize that I'm providing more value than what I was charging. That's why last time I met with a prospect I told them it would be $X which was twice what I had been charging anyone previously. They didn't even blink an eye when they said, "When can we start?"

Robert Middleton

In response to Heidi's question about how to make your services affordable to those who can't afford the higher prices.

My answer is simple - PRODUCTS. For instance, I now offer the Web site ToolKit that enables people to create all the content for their web site and get guidance in designing it - all for $49. When I offered this as a consulting service it cost a few thousand dollars.

Now I'm able to offer higher priced Marketing Action Groups for those who can afford them and for those who can't, I have a handful of products they can take advantage of.

So start thinking products. On these you can actually make more money by selling a much higher volume. Products bring me a few hundred thousand dollars a year and they are all priced very reasonaably.

Heidi Fischbach

A question: I appreciate the value pricing idea and have a question. If I want to be paid my value--i.e., at this point more than I'm charging--but also want to make my services affordable to people who don't have a high income, what do you suggest? I struggle and am disappointed in the notion that only the wealthy can afford to pay for good services and if I price my, say, bodywork sessions and mind/body healing work at what I would say its value is (let's try $125 / hour for starters, as opposed to my current $75) I know many of my clients--for whom $75 is already a stretch--would not be able to afford that. Who is left out when we keep aiming out prices higher and higher just because we can?

Oh, this is a painfilled area of thought for me, I see.

Thanks for the prompt to go here!

Heidi

Bill Garrett

Hi, Robert.
For years I underpriced my services as do many other financial planners today. Perhaps we fail to fully appreciate the client's perception of the value we bring as many times it is difficult to quantify in dollars saved or made but, rather, in a way to attain goals. I have found that when I actually brought a quantifiable value of dollars saved (in college costs, taxes, etc) I felt empowered to raise my fees immediately from $250/hr to $350/hr and to raise my planning fees from $1000 to $3000 on average. I have had little 'push back' at these levels and the clients, without exception, who have paid this are ecstatic. I have truly added value to my services and can demonstrate it which enhances what I have already been doing.

Bill Garrett, CFP, CEA, CCPS

Fred Wiersma

Hello Robert,

Eli Goldratt - famous author of 'the Goal' and founder of the Theory of Constraints, uses value pricing as well - see www.vvoffer.com .

Myself, I am now working with a prospect to improve his business and get paid based on a percentage of the results. I am very excited about this!

Also I am coaching an entrepreneur, also based on results (% of 2006 turnover!). I am planning to do more coaching on this basis.

Personally, I believe value pricing is the way to go!

Best regards,
Fred Wiersma

Ankesh Kothari

Hi Robert,

Thanks for publishing such an informative newsletter.

Not commenting about value pricing, but here is one story of "outrageous pricing" you'll love.

The famous Algonquin Hotel were going to send a normal press release to announce their re-opening after extensive renovation a few years back.

But then they chucked the idea of the usual boring press release. Instead, they came up with a new product - the most expensive drink on the planet. They called the drink "Martini on the Rock" and priced it at $10,000.

What was so expensive about it? They placed a diamond at the bottom of the glass!

They then sent press releases announcing the most expensive martini ever made. And received a lot of free publicity. A lot more than they would have received by simply announcing their re-opening.

I don't think anyone has ever bought the $10,000 martini from them yet. But they've received a lot of free press worth way more than selling a few $10,000 martinis -- just because of outrageous pricing.

kind regards,
Ankesh Kothari

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)