Trailblazers Section -
Technology
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
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
![clip_image001[7]](http://verasage.com/images/uploads/WindowsLiveWriterDoyouwantfrieswiththat_14612clip_image0017_c2b606f6-7bba-40bb-87c4-dde5ecfc87a2.jpg "clip_image001[7]")
President
Smart e-Solutions Inc
www.smarte-solutions.com
www.waccg.com
785-832-0007 (Office)
866-400-0922 ext 2666
913-269-2666 (Mobile)
VeraSage is pleased to announce a new Trailblazer in the technology industry — Forepoint LLC.
Based in the northwestern United States, Forepoint has undergone what President Kevin Cumley describes as a magical transformation. “This business is fun again after some years of difficulty. Our customers are happier and more profitable than ever and it is due to the move we have made to what we call value selling and value pricing.”
Not that it was easy. It was actually quite hard. “The hardest part was convincing ourselves. We had some struggles just getting buy-in from our people.” Take Sonia Gray, vice president and partner in the firm. At first, she resisted thinking that customers would not understand and believe that value pricing was akin to price gouging. “I was not convinced, but I agreed to at least try it,” she begins. “Then something happened that dramatically changed my thinking.
“I was talking to a prospect and told him that we wanted to fix price his engagement rather than bill him by the hour. He looked at me, dumbstruck and said, ‘I don’t know why everyone isn’t doing this. I’ve always thought that billing by the hour was just a license to steal!’ From that point on, I was convinced that this was the best thing for both our company and our customers.”
“Getting Sonia over the hump was the catalyst that really got things started,” says Cumley, “Not that it still didn’t require convincing others.” A recent example illustrates this challenge.
Forepoint was engaged by a customer to perform a simple (from their standpoint), but high-risk movement of data for a customer. Cumley set the fixed price based on the relative value to the client and risk to his firm (based on time it came out to a little over 4 times their standard hourly rate). Once the Forepoint staff was informed of the price quote, one of the consultants on the project even emailed Kevin to express his concern, “I know that our services have a lot of value, but I think that this data move has been grossly over-priced, and could be a problem.” Cumley held his ground. “The answer is simple - this is not about time, but value. My question to you is this - given the very high risk for a project of this nature to both our firm and the client, what is the value to the customer,” he responded. After some additional email exchange, the consultant reluctantly capitulated, “OK - I give.”
Kevin even admitted that he expected some price resistance from the customer. The result, the customer not only signed off on the proposal without any resistance, but also was thrilled with the results. “Probably left money on the table,” laughed Kevin. “It ain’t always easy, but it sure is fun!”
One of our favorite Key Predictive Indicators at VeraSage is the HSD—High Satisfaction Day.
Nothing gives us more HSDs than receiving an email like the one I did yesterday. Even though my computer’s hard drive crashed in the morning, which is a lousy way to start the day, getting this email from Brett Kreykes makes it all worthwhile.
Ron,
Keep up the great work at VeraSage! You have been inspirational to me and my small I.T. Consulting company! Indulge me, if you will, in my “story.”
Five years ago I journeyed out on my own as an independent I.T. consultant. I was billing by the hour and things were going pretty well for me. After 2 years I was very busy with small to medium sized companies and residential work. I soon discovered that I was unable to grow my income due to the limited number of hours in a week. How terribly depressing! I wondered for days if I was going to be ‘stuck’ at a fixed income. I didn’t know how to address outside of raising my rates, but I didn’t think my customers would put up with that for long.
After seeking out advice from those wiser than myself, a friend of mine introduced me to VeraSage and I dove head first into the 3 ACCA Booklets available on your website. I immediately knew FPAs were the solution. I continually had situations in my work that bothered me. When one customer had a new problem, it might take me 3 hours to fix it. A second customer then had the exact same problem, which I could solve in 10 minutes. This was really unfair to the first customer and to me! Now, realizing that selling knowledge/skills (and not time) would remedy situations such as this!
I introduced my first FPA to one of my larger customers, which they warmly received. My fees increased 50% without having to do any more work! As my hourly based contracts expired, I introduced FPAs to my remaining customers. I occasionally received some resistance, but nothing unbearable. Once my customers understood how an FPA would benefit them, they soon saw the value of a FPA.
Now, the beautiful part of it. I’ve been firing customers, specifically all of my residential customers and business customers who were not good customers. I now have more free time, less stress, and I can better take care of my FPA customers and provide a higher level of customer service. Now, if any business wants to ‘hire’ me, I sit down with them and determine their needs. If the engagement is not worth at least $10,000 a year, I pass. This way I ensure of having customers who are as committed to me as I am to them.
I have never enjoyed work so much as I do now. I earn a fantastic wage and I don’t have to work myself silly. I even get paid sick days, holidays, and vacations now! (try that with hourly billing) My family life has even improved as I now have more time for my wife and children.
Ron, you and VeraSage have made a huge difference in my life, and I want to say “Thank you!” As comical as it is, my friend who first introduced me to VeraSage has yet to get his CPA firm utilizing FPAs. I brag about my success to him all the time and continually remind him of all the money he’s leaving on the table. It drives him nuts.
Best wishes for the future!
Brett Kreykes
Kreykes Consulting, Inc.
Thanks Brett. Nothing is more humbling, nor more inspiring than hearing stories such as yours.
Value Pricing works, and to all those cynics who say it can’t just read all of our Trailblazer stories. This is empirical evidence from the real world.
It also illustrates that Value Pricing is not just about pricing. It’s a business model. It changes everything about a firm, from shifting your thinking that you sell time to thinking you sell intellectual capital. It impacts how you treat customers, how you select them, communicate with them, and more.
When we say “all this we do only for the price of seeing you, our colleagues, succeed,” we truly mean it. This type of confirmation of our work is priceless because it furthers the posterity of the professions.
Congratulations Brett, and continued success in the future!
As a follow-up, I asked Brett if he trashed his timesheets. Here’s his response:
Ron,
I did in fact dump my “timesheets”...what a sheer joy that was in and of itself. I didn’t have sophisticated software, I tracked my time using Microsoft Outlook’s calendar. At the end of every month I would then manually transfer it into QuickBooks so I could do my billing. It was an awful process that was tedious and prone to human errors. I’m glad that ‘chapter’ is done!
Thanks again!
That’s worth another HSD!
Aries Technology Group sent in this case study on Pricing with Purpose. It is published for those of you who are always saying “Ok, I like the idea, but how do you do it in the real world.”
One of our long standing customers was leaving us. Purchased by a competitor, their ERP system we had supported for years was being retired and the current solution of the purchasing company was being implemented. We had a great relationship and told them, out of courtesy more than anything else, if we could be of any assistance to call us.
And in fact, they did, much to our surprise.
They wanted to convert current and historical data from the retiring solution to the new solution. They had struggled to find and extract the data in a format that could be imported into the current system. They asked to utilize our knowledge and expertise to create six files in a format that could be imported into their current system.
We had never had a customer ask us for help in this manner before. How to price this project: the creation of six reports out of the retiring ERP solution? Especially if the customer would cease to be a customer once the project is completed. Plus, we had other projects in the works with customers that we hoped to maintain building successful relationships.
We talked it over inside our office. We needed to make sure that if we took our attention away from on-going customers and focused it on a customer who was leaving that we were compensated properly. We offered the price of $32,000 to create the reports, to begin the project in 10 business days and to complete the project in less than one week. This value, we explained to our customer, reflected our understanding of not only their value but to ourselves as well. It had to be worth our while to put existing projects on hold to accomplish the project for an exiting customer.
Their response was very enlightening: “How much to schedule it sooner?”
Clearly the customer completely understood the value in the proposal. We offered a new price, $64,000, to begin the project in three business days and complete the project in less than one week. The customer now had three choices: no engagement, a middle price and longer start time or a higher price and shorter start time. They told us to expect a response the next day.
Their decision criteria were balancing the money with the scheduled completion time. They chose our first proposal (the middle option for those keeping score), and we completed the project to their complete satisfaction.
This post was written by the folks at Aries. it tells an amazing story.
Aries Technology Group LLC has been looking for ways to engage our customers on a fixed/value priced model since summer 2006. In order to do this, we had to break our old, comfortable habit of viewing the value of our business and embrace our customers’ view of the value of our business. We finally made the jump to fixed/value pricing earlier this year.
One of the obvious truths in invoicing customers based upon billable hours is that the value of the invoice is arrogantly determined solely by the invoice-er, and not determined by the solution to the invoice-ee. Once this fact was understood and digested, we became increasingly uncomfortable with the billable hour model.
But before taking the plunge, we wanted to know what our customers wanted. One of the tenets of this value pricing model is to offer the customer what they want and discard what the customer does not want. So we asked them, face to face, what they wanted when engaging our services and tapping into our expertise. We told the owners and major decision makers that we wished to move away from billable hours to fixed pricing. The response we received the most: relief!
Among our biggest supporters were our oldest clients: in some cases, clients we have maintained relationships with for over a decade. One owner in particular, a manufacturer of PVC pipe, told us in our meeting that he had actively instructed his staff not to engage our expertise in solving problems. His reason: not only would he not know up front how much time the solution would take, but he would also have no idea how much our invoice was going to be. He didn’t want to risk the invoice coming in greater than the value in solving the issue. Now he can budget our services and understand what he is spending his money on (value to him).
In addition, we made the decision to trash our timesheets. Here is what our staff had to say about this experience:
Amy Shaver, sales and administration: From the administration side of things: it has been great for me as the company administrator not to have to spend any time harassing our consultants to give me their time sheets. And, I don’t have to spend time with them determining the actual amount of time they spent on a support case, project, etc. Back in the billable days, we spent a tremendous amount of time going over all of the time entries, making sure not only that we were charging the customers correctly, but making sure we were capturing all of the time that was spent on projects. I can now focus on making sales and follow up calls to our customers, and not worry about having to explain our bills when I get the customer on the phone!
Tammie Slagle, consultant: As for me, being on the technical support side, I love it! I now don’t have to worry if a client is going to be upset when they see a bill from my company. It always seemed that the client would question the time we billed them for. And also, I don’t feel I am keeping them on the phone too long when I may need some extra time finding answers. It also helps me because I am not hurrying myself along and I now know they are getting my full and as long as needed attention.
Mark Boyd, consultant: Two bullets sum up my favorite things about trashing billable time.
- Spending less time at a client, yet creating more value that they are willing to pay for.
- Not having to keep track of anything but your progress on the project you’re working on. Rather than having to worry if you billed enough hours to make the “boss” happy, you can concentrate more on the job at hand which, results in a faster, more accurate project.
Michael Boyd, consultant: My entire career has been spent in the consulting industry; each company had used billable time. Of course we all now agree that tossing billable time is a good thing. I’ve got a few very specific issues which arose under that model that I’m pretty excited to be rid of. These items range from inconveniences to downright shady business practices.
The first was, shall we say, shifty time reporting. If you tell a client you’ll charge them 40 hours a week, but in reality you work 70 hours a week, what time do you record? The Management team only wants to bill 40, the consultants then can only record 40. Employee Paid Time Off is calculated on billable time, this means the consultants will lose 30 hours a week. Not fair to the consultant. On the other hand, clients agreeing to 40 hours a week, there may not be that much work to do, so we could actually work on 2 projects. In this case the client was overcharged for time. Many consultants I have known felt very morally challenged in these situations, many of those had quit over such concerns. It’s hard to sit in front of a client every day knowing full well what you’re doing.
Secondly, the more complex your assignments are (especially when working on multiple projects at multiple clients) time management and expense reporting becomes increasingly time consuming. At one point it took roughly 4 hours every week to record all my time on every project, then print in triplicate (office, client, personal) copies of every document and route those appropriately. In addition the introduction of time reporting systems such as SAP simply make the process that much more challenging as they have to track an even greater amount of information, and may not always be available while on the road.
Third, in some situations the client could use an improperly recorded time and expense sheet to withhold payments to a vendor. In these cases one overworked employee out of a 20-person team, could accidentally give the client the ability to withhold payment for months at a time. This situation, while great for the client, is not so good for the company.
Moving away from billable time, to me, means that you can create a better relationship with your clients as everyone knows from the beginning what the financial terms of the relationship will be. This allows you to do business without being concerned about price. Secondly the time spent by both the consultants and the clients in writing, reviewing, and tracking time, can be spent actually working on the project at hand. This to me is a much wiser use of everyone’s time and energy.
John Shaver, Partner: Doing away with billable time means that I can do more of what I enjoy doing: managing people and not managing time. Managing people is much more rewarding than simply checking metrics from last month’s time sheets.
Company morale has increased exponentially after getting rid of the timesheets since all of our team recognizes that everything is built on trust. Everyone in our company reminds me regularly that they actually enjoy coming in to work now!
Our customers are happy because they are actually in control of their budgets. They spend more and are happy to do it because they know the value of everything up front.
We have been able to do away with something that was a totally negative experience for everyone involved (customers, employees and owners) and turn it into a totally positive experience for everyone.
In May of 2006, I was privileged to conduct a Value Pricing Boot Camp with Ed Kless and Rob Johnson of Sage, at its annual Insights conference in Nashville, TN.
One never knows the impact you have on any participant, unless they go back to their firms and change their behavior. All we can do in a seminar is work on changing attitudes and theories, but the real test is will that lead to changing behavior.
This makes the following email Ed, Rob and I received from John Shaver today even more sweet. Another HSD—High Satisfaction Day—for VeraSage and Sage.
Ed,
I would say that you, Ron and Rob have made a definitive difference in our business. We reached the point in doing business by the traditional means (discounting, billing time, etc.) that we were really looking for a fresh and rewarding approach. The value pricing boot camp at the Nashville Insights was instrumental in opening our eyes to a very new way of doing business (I know Ron says these ideas are not new in reference to Peter Drucker but new to us!).
You guys provided us with the tools to inject new life into the business. Even a burned out old veteran like myself is now excited again about moving our business forward.
What’s most exciting to see is the way all of our team members have totally embraced the value pricing approach and how much they love not keeping up with timesheets. When we first brought them on board they told us we were crazy for not sticking with the traditional rules of consulting. Now they can’t imagine working any other way!
Thanks!
John F Shaver
Aries Technology Group LLC
phone: (865) 342-4300 x23 or (800) 990-6646
e-mail:
web: http://www.ariestech.com
Congratulations to John and the entire Team at Aries Technology Group for being one of the early adapters in their profession, inevitably blazing the trail for the rest to follow.
It is my pleasure to present the first Verasage Trailblazer from the technology arena - Koenig Software Systems, LLC of Houston, TX.
Ken Koenig and Linda Kay attended Sage Software’s Project Management and Value Pricing Boot Camps in 2006 and we inspired to create consulting agreements based on the Adaptive Capacity Model we teach at Verasage. Despite being warned that they should start by developing the normal model first, they opted to develop their high-end Black Card offering first. We are sure glad they didn’t listen to us.
Here is their story as told by Linda Kay, VP of Business Development for Koenig
Consulting Maintenance Agreements - The Beginning of the Got Your Back Program
It all started as an aside in a project management workshop. For a short 30 minutes of a three-day workshop, the idea of selling consulting maintenance agreements was discussed. Not just any consulting maintenance agreement but a value priced maintenance agreement. Since we were just dangling our toes into the value pricing pond, we listened closely and filed the idea in our “think about later” folder.
In a brilliant flash of insight one day, we realized that one of our current clients was an ideal prospect for an upper level maintenance program. (We were advised to create three levels in our initial offering.) We know that they like knowing the total price, in fact we did a fixed price deal with them for a huge software customization and installation. We also know that they are in a rural area without a large, sophisticated labor force to draw from. And we know that they were nervous when we turned over the “keys” to their system and clearly needed additional consulting time.
Combining our “knowns” with the consulting maintenance program idea, we created the Got Your Back Program. We included everything we thought our client would need and want in the program. Some of the items include unlimited technical support, advance training, new employee training, and creating email reminders for actions such as monthly closes, changing the tape back up, and periodic system maintenance.
Since we were reserving our capacity and knowledge for this specific client, we requested payment on the first day of the quarter for the following three months. The total price for the annual agreement exceeded $60,000 and made believers out of us.
We began our adventure in the GYB program about this time last year. This week our client has renewed the maintenance agreement and is considering going from the middle level to our highest level. We’ve now bundling the GYB Program in our engagement letters as a total package.
![clip_image001[7]](file:///C:UsersEdAppDataLocalTempWindowsLiveWriter-429641856supfiles570D18Dclip_image002[4].jpg "clip_image001[7]")