The article details the fact that a local company Fee Technology Inc. has acquired a patent for “a mathematical process for creating a direct relationship between the prices charged to the cost structure of a business.”
Correct me if I am wrong, it is called cost-plus pricing and the patented process is called multiplication.
Last Saturday evening I received this email from Ken Morrison of Provision Accounting Group in Richmond, British Columbia.
This is definitely an HSD.
Ron,
I am an “older” chartered accountant in Richmond British Columbia (forty years in the business). I have two younger associates (29 and 34) who are preparing to take over. A staff of six for a total of nine. We have been very successful over the last four years marketing (the old guy young guy combo is deadly).
But Nathan (29) found your site and challenged us on the value pricing concept, scrap timesheets etc., we have now instituted the fixed price agreement for all new clients and are going to transit existing clients over the next months. Much of what you advocate we were doing, culling poor clients etc but the fixed price agreement and value pricing is revolutionizing our business.
I personally am for the first time in forty plus years am free from needing to rationalize my pricing to an hourly rate and can price value. It is changing my life.
The one other change I have made is that since we are giving the client a fixed price and a cash back guarantee we are asking for quarterly payments on all accounts. For example, if the fixed price is $5,000 and the year end is December 31, we ask for $1,250 on June 30, $1,250 on September 30, $1,250 on December 31, and the final payment on March 31, which is our latest deadline for completion of the work.
You can imagine how this is reducing our work in progress and account receivable balances.
The old guy is ready to scrap timesheets now, the young guys are holding back.
Thanks for your leading the change.
Ken Morrison
Thanks Ken.
Congratulations and keep us posted on your progress. I can’t wait to publish your Trailblazer case study after you’ve eliminated timesheets.
At the beginning of the month, Jay sent me a thought-provoking email that he has graciously given me permission to share.
Needless to say, when the subject line reads “a mental breakthrough” from a thinker such as Jay, you have my undivided attention.
Hey, Ron,
I was just reviewing Chapter 16 of your manuscript. (Love it.) This weekend, I had a mental breakthrough that really originated in part from something you’ve been saying for quite some time. Let me explain:
First, in early May, I was blown away by Simon Sinek’s TED talk on starting with why. (I think I forwarded the video to you.) I found the Start With Why concept a game-changer. I immediately downloaded the book [Start With Why].
Coincidentally, I was at the same time reading Switch by the Heath Brothers. (So I was delighted when I saw your Verasage meeting reading list.) For the past three months, I’ve been struggling to figure out what my and my firm’s “why” was.
At long last, I think I finally found it.
My “why” is “to fix the practice of law.” My firm’s “why” is “to innovate (in fixing the practice of law).” Everything we do, everything we’re about is grounded in relentlessly innovating. Looking back, that’s the message of both my blogs—The Client Revolution and Gruntled Employees.
Fixed prices is just a “how,” under Sinek’s framework. I’ve been making the same mistake that TiVo made—selling the “how” instead of the “why.”
Fixed prices is an important “how” for us, but it’s not the only one, and it’s not the thing that’s going to make companies bang down the door to sign up with us.
But if we instead focus on the “why,” it not only helps us stay on message in our marketing, but it also identifies whom we want to market to. Innovators. To paraphrase Sinek: “If you’re the kind of company that’s all about innovation, boy, have we got a law firm for you.”
And bringing it back to Chapter 16: I once wrote a post or article or something (could have been an SPU [Solo Practice University] gig) in which I mentioned that law firms didn’t really start using hourly billing until the 1950s or ‘60s. My point had been to challenge the notion that hourly billing has “always been the norm.”
In a comment, you pointed out the research that you discuss in Chapter 16 of IVP: that law-firm hourly billing was started in 1919. Since that didn’t really mesh with my point, I’ve kind of ignored that fact. But now, suddenly, I get it.
“If you’re the kind of company who’s all about innovation, why are you using a law firm whose billing model was invented in 1919?”
I think this was the point that I was missing: that hourly billing is antiquated. I’m going to start incorporating this notion in my writing and marketing right away.
As always, much thanks for your great work. Hope your summer’s going well.
Best regards,
Jay
We are defined by what we believe, not what we know
Jay’s breakthrough is absolutely correct. Value Pricing is merely part of a larger change in business models, which is driven by a firm’s strategy and positioning, which ultimately is driven by a firm’s “why” (or purpose, if you prefer).
Innovation is crucial, which is the point of my Great Moderates in History? post.
At the end of World War II, English writer and prominent socialist H.G. Wells wrote:
Human history becomes more and more a race between education and catastrophe.
Wells was a socialist who believed knowledge alone would create a more peaceful world.
But surely before they became the aggressors in World War II, the German people were among the best educated in the world—with their universities to become the model for America’s—and the Japanese among the most literate.
For as valuable as knowledge and education are, it is imperative to bear in mind that man is guided far more by his beliefs than his knowledge.
How else does one begin to explain why people fly airplanes into buildings full of innocent people?
In a business context, this is Simon Sinek’s point when he says “people don’t buy what you do, they buy why you do it.”
Rabbi Daniel Lapin makes this point quite cogently in his book, Thou Shall Prosper, helping his readers understand how the world really works:
You are best understood and appraised by others on the basis of the things you believe rather than on the basis of the things you know.
For example, during the twentieth century, Jews again learned the importance of this principle. They learned that what the Germans of the Third Reich believed was far more important a guide to their actions than the things they knew. After all, Germany was a society whose universities had produced the world’s most accomplished scientists, like Max Planck, and great philosophers, like George Hegel.
Germany was a society that had produced writers like Heinrich Heine and musicians like Ludwig van Beethoven. Nonetheless, it was their beliefs about a superrace and the genetic inferiority of Jews—beliefs that had little to do with facts&mdashthat won they day and changed the course of history.
Most of the really important adventures on which you embark depend on belief and faith. For instance, when you marry, you seldom do so on the basis of incontrovertible facts: You don’t walk down the aisle knowing for certain that you are going to live happily ever after in a state of permanently wedded bliss. And you don’t enter the state of matrimony knowing everything there is to know about your spouse. You marry on the basis of belief and faith.
...For an entrepreneur, starting a business far more closely resembles marriage...Faith is key (Lapin, page 183).
Indeed, all enterprise is an act of faith, a faith in the future, faith in the ability to humble yourself before others and solve their problems, create real value, investing in an unknown future where predetermined returns are uncertain—supplying before you can demand.
Hence, all organizations are built and operated on a worldview—what Peter Drucker called “The Theory of the Business.”
We are ruled by are theories and worldviews far more than we are willing to admit.
Accumulated knowledge certainly guides this theory, but ultimately any business is a leap into the unknown future.
This is what George Gilder means when he says “Knowledge is about the past; entrepreneurship is about the future.”
Ed Kless and I have been having discussion recently about our “why,” and it’s not an easy question. Take a look at what Ed believes, from his blog:
I believe that small business is where the vast majority of the wealth of the world is created. I help small professional businesses recognize that they do this through developing and sharing their knowledge. It is a great model. Do you want to know more?
I founded VeraSage, along with Dan Morris and Justin Barnett, to bury the billable hour and timesheets in professional firms, which is not a bad “what,” but it doesn’t answer why?
Well, because I believe that the time accounting regime is a servant that has transmogrified into a tyrannical master that lessens wealth-creation and service to others, humiliating and denigrating the dignity of knowledge workers everywhere.
I’ll be hosting a Webinar for CPA Leadership Institute on Wednesday, August 25 from 1 pm to 2:40 pm (Eastern Time).
The topic is: Cross-Selling: What is Your Firm’s Lifetime Value to its Clients?
You can learn more at the CPA Leadership Institute’s Web site here, and even get a detailed outline of the Webinar, in pdf, here.
This topic takes me back to the late 1980s, when I began to seriously study Total Quality Service, as it was then called by Karl Albrecht in his book, The Only Thing That Matters.
This book had an enormous influence on my thinking (it’s one of my Top Ten Best Business Books), because it was TQS that led me to the study of Value Pricing.
It was an epiphany when I realized that billing by the hour not only generates lousy customer service, it’s also a lousy customer experience. No one likes to be surprised by price.
Studying TQS leads you into customer loyalty economics, and one of the metrics is always “What’s the lifetime value of a customer to your firm?”
The logic being that you need to sometimes ignore the math of the moment and make an investment in the relationship. This is also where the billable hour fails miserably, as pointed out brilliantly by VeraSage senior fellow Paul Kennedy in his essay on why timesheets are damaging to customer relationships and lifetime value.
But I believe there is a more important metric: What is the value of your firm to your customer?
This forces us to think about constant innovation, and offering services that can help customers through the various stages of their lives and business—from womb to tomb, so to speak.
I hope you’ll be able to join us for the Webinar, but if not read the Kennedy essay and any book by Karl Albrecht.
Our Australian colleague John Chisholm wrote about The Australian Legal Affairs Section of August 20th being primarily devoted to the problems and hopeful demise of the billable hour.
All the articles are worth reading, but the one that caught my eye was devoted to Lavan Legal, the Perth firm that is on track to eliminate timesheets in approximately two years.
This is a 200+ lawyer firm. So much for the argument that only smaller firms can achieve this transition.
John also reports that next week’s Legal Affairs Section (it runs every Friday) will also have more articles dedicated to this topic.
Obviously we are nearing a tipping point Down Under.
Today, the most effective email I have ever received arrived in my inbox at 1:13pm CT.
The email was from a co-worker at Sage that I have never met face to face. Amber Kenyon is the senior strategic account manager for partner programs and works out the Richmond, BC office. One of her duties is working on the Simply Accounting partner conference, Simple Partnership at which I am a planned speaker.
It seems there has been decision to obtain special shirts for Sage team members and Amber was charged with obtaining the shirt sizes. Instead of the standard email asking for my size, Amber sent me this instead:
Good Morning Simply Staff,
I am extremely excited to let you know that you have been recognized as members of the staff to attend our Simply Partnership Conference in October. In efforts to ensure that we are organized before the event, I am going to ask you to submit your shirt size to me by tomorrow (Friday, August 13th) to ensure we get the correct size. The shirt will most likely be a golf type shirt to help you imagine yourself in it. If you do not reply by tomorrow I will have to guess and this is what you may end up with.
I will be starting to send out more information in the next couple of weeks in regards to a schedule, presentation tools and other key bits that you will need to ensure that you are ready to go in October so stay tuned.
Have a great day everyone!
Sincerely, Amber Kenyon Senior Strategic Account Manager, Partner Programs Sage Suite 120 - 13888 Wireless Way Richmond, BC, V6V 0A3
That, my friends, is an effective email!
I responded with my size, large, in record time. Her email is fun, witty and has had the desired effect (at least on me) - a quick response.
I am extremely honored to be an invited guest on the morning show hosted by Steve Wark and Leonard Wright on Las Vegas’ hot talk station KMZQ 670 AM. I will be taking part in their weekly program called Financial Fridays. I am to be interviewed on the concept of Intellectual Capitalism: Why Entrepreneurs are Great for America. This will be a very upbeat segment and I am to be interviewed for a full hour. You can listen via the Web at the link above and you can call in.
Like any excellent VeraSage program, I will have full academic freedom to speak my mind. There will be no “taboo” topics. I am sure we’ll discuss politics, ethics, sex, and heck....maybe even religion. I’ll be discussing why leaders have an obligation to have and maintain firm ethical foundations - not just at some times, but all the times, everyday. How Congress fails the Kantian tenet of having to live by the rules and regulations forced upon the Citizens. How our Country is so full of Grace that we really help those struck by disasters. Why even though we are blitzed with populous media about how bad everything is that in reality we are “way OK”.
How lucky we are to live in such a miraculous land where we can be a complete stranger in a new city and at 3 AM, walk into a bakery and order a customized sandwich, hand them a shiny (in my case dull and overused) piece of plastic and walk out with a meal and full stomach. No government Czar is required. Simply engaged people interested in their own lives yet open to servicing others. What a great country.
Our Australian VeraSage colleague John Chisholm wrote a thought-provoking piece about customer service (though he used the word client and I’m too lazy to change it).
It’s a great reminder that a firm’s service proposition should be designed around its best customers, not all of its customers.
Here is John’s take on it:
Most firms have client maintenance, client service, and client development programs for their major and most important clients. Most firms understand that the 80/20 Rule applies to them (80% of the revenue comes from 20% of the clients) although I am not sure how many firms understand the more critical 180/20 Rule (180% of the profit comes from 20% of the clients).
But what does it mean to be a major or first class client of a law firm? Or are all clients of your firm first class clients?
I suspect not as the reality is all clients are not created equal and some clients are much more valuable to you than others so to treat them all as equals is not good for your business.
If you agree that all clients are not borne equal and that all clients value different things differently a good place to start might be to actually ask your first class clients what is important to them and how they would like to be treated and served.
What could I expect to receive from my law firm if I was really a first class client (apart from larger invoices) that second or third class clients might not receive (does my law firm tell its other clients they are in fact second or third class clients?).
Assuming a law firm ever thought I was a first class client (unlikely) and asked me those questions, I might respond along the lines that I would expect:
Everyone in the firm from the Receptionist downwards would know just how important I am;
Whoever I am dealing with knows my business and that I am not wasting time ( or worse money) over and over again explaining things yet again to another lawyer I am expected to deal with.
I would expect my law firm to transfer its tacit knowledge freely around the firm.
I would have access to be best and brightest the firm has to offer.
I would have preferential treatment such that other clients might be “bumped” for me as I am given priority.
To be kept up to date with what is happening in the legal and business world that could affect me and my business.
Some commercial introductions perhaps and invitations to key events.
The firm might ask my opinion and input on things that affect the firm.
No surprises—in service, timelines or price.
To pay first class prices for first class service and advice.
Real coffee.
It goes without saying that any client—whether first class or third class—is entitled to assume a minimum level of service and technically correct legal advice, but if you have clients paying first class prices and your law firm can’t service their expectations and what they value, I am pretty sure these days they can find another firm that can.
Another article in Lawyers Weekly on the Perth firm Lavan Legal and its quest to rid itself of timesheets.
Lavan was mentioned in a prior post, which also linked to a local article on the firm.
Dean Hely, the deputy managing partner, said the firm established a pricing committee as of July 1 and is aiming to move away from time-based billing to showcase its innovation credentials.
He also noted:
You do get used to timesheets but the thought of not having timesheets is like the lawyer’s utopia.
Of course Utopia means “no place,” but there are firms out there without timesheets.
I’m not about to claim they are all utopia, but we do know it’s possible.
Another law firm is profiled in this article in The Lawyer:
CMS Cameron McKenna has launched a marketing campaign to promote its alternative billing structures, which include a ‘pay what you think its worth’ option, to clients.
This firm has also established a pricing team.
Since pricing is a separate function, we are big advocates of turning it over to people who are good at it.
Poor pricers should not be allowed to price.
Congratulations to these two firms. More cracks in the dyke of the obsolete billable hour.
VeraSage Founder, Dan Morris, will lead the 1st Tweet Chat sponsored by CalCPA (http://www.calcpa.org) this upcoming Thursday, August 12th starting at 10:00 AM (Pacific) (GMT -8). Readers, friends, and even challengers, are invited to participate with fellow professionals using the Twitter Hash Tag : #cschat1. This will be an excellent opportunity for participants to ask questions and receive answers and links to resources to improve their customer selection and retention activities. Additionally, Dan will lead discussions and provide resources for terminating toxic customers that are polluting firms and dragging down earnings and ruining a firm’s spirit of service.
A recent article in Lawyers Weekly reported on the results of an online survey, with 200 Australian lawyers responding.
Alhough obviously not a scientific survey, when 43% conclude that timesheets are “intolerable” and greatly contribute to them not enjoying their work, it at least gives us a vector of people’s feelings on the effectiveness of this measurement device.
More encouraging, 20% of respondents “said they see timesheets as part of an outdated business model which needs to change, while 10% said they find them ‘stressful.’”
“Only 8 per cent of respondents said they do not have any issues with timesheets, while 19 per cent said they don’t like them, but can live with them.”
Encouraging results. And no, we here at VeraSage didn’t vote early and often.
I recently gave a talk at the ABA Legal Rebels program in San Francisco. It was a six-minute format, where you had to have 20 slides, timed to transition every 18 seconds.
This is one of the hardest formats I’ve ever attempted. That Winston Churchill crack about (paraphrasing here) “If you want me to speak for eight hours, I’m ready now; if you want me to speak for 10 minutes, I need two months,” is so true.
The one comment that got the most attention, based on Retweets and feedback I received was this: “The timesheet is the real cancer in the legal profession; the billable hour is a symptom.”
We can’t bury the billable hour until we bury the timesheet. The two are inextricably linked.
Logic and settled economic theory says that hours are not an effective measure of a knowledge worker’s value.
Then he who says A must say B.
Hours, then, are not an effective measure of knowledge worker efficiency or effectiveness. Period. You can’t have it both ways.
Some lawyers in Australia, and certainly in the USA, are beginning to see the light.
(Note: The videos of the ten presentations at the ABA Legal Rebels session will be posted over the next couple of months).
A recent video from reason.tv noted the word fair in English has few direct translations in other languages. This was fascinating to me being a lover of etymologies, but it also got me to thinking about the expression fair price.
Take a look at the video and please comment on your thoughts about what is a fair price to you?
RSS Feed
Comments | 0 Trackbacks | Permalink | In the Media Pricing on Purpose (aka Value Pricing) Choose an Industry: Technology