Community Section -
Client Selection
Ed Kless - 10/13/2009
I have been bombarded this week with people saying they are “trusted advisors.” So much so that I must react.
While being a trusted advisor is certainly a worthy goal of any professional, please realize that it rarely happens. David Maister in his book entitled The Trusted Advisor says relatively few relationship are truly of the trusted advisor variety. He defines them as a relationship, “in which, virtually all issues, personal and professional, are open to discussion and exploration. The trusted advisor is the person the client turns to when the issue first arises, often times of great urgency: a crisis, a change, a triumph, or a defeat.”
With this definition in mind, I find it the height of hubris to say to a prospective customer, “I want to be your trusted advisor,” or, “We like to think of ourselves as trusted advisors.”
My response, “Keep thinking and keep walking!”
Ed Kless - 07/13/2009
What if you would refuse to accept any new customers unless they were referred to you but another customer? Would your leads dry up? If so, your new business problem is not marketing related, it is your service. FIX IT!
The lesson here is that if you are not getting active referrals from customers, your service ain’t great. The only thing more customers is going to do is put you out of business faster.
Imagine if your new customers, like my dentists, come from 100 percent referral sources. Do you think you could charge a premium? Do you at least think that discounting would go away?
It is time to take some stock and ask - Are we really as good as we think we are? If not, it is time to fix your service.
Ron Baker - 04/21/2009
Ed Kless - 03/22/2009
A few weeks ago I received an email from Glen Mund, president of Plus Computer Solutions in Burnaby, BC. Attached was this radio ad they have been running.
Plus_Computers_4_Elements.mp3 This is a terrific example of what we call value marketing - a focus on attracting prospects who prefer to buy on relationships and value and not price shoppers.
Kudos to Glen, Wendy Gorrie and their team. We hope to unveil them as a VeraSage Trailblazer soon.
Ed Kless - 02/24/2009
Below are the slides that Ron Baker and I have used when delivering the Value Pricing Boot Camp. This program has been offered from time to time for business partners of Sage. If you are interested in attending a future event, please email me at ed.kless *at* choosegreat.com.
Enjoy!
Ron Baker - 10/17/2008
As a frequent flyer, nothing is more annoying than having to stand in long security lines, watching the TSA [Thousands Standing Around] pat down little old ladies in wheelchairs.
Fortunately, Dan Morris turned me on to Clear, a Silicon Valley company that enables you to move to the front of the security line in airports where they are present. San Jose airport got Clear long before San Francisco, but once it came to SFO, I signed up.
The customer service from Clear is exceptional. The people are always polite, helpful, and escort you to the front of the line. All for $99 per year.
Dan and I joked that we thought the price was too low, trying to figure out how they could be making money since they have enormous investments in equipment (retina and fingerprint scanning machines), as well as paying rent in high price airports.
Well, indeed, they are now raising their price to $199 per year. But notice how they did it.
We often hear that loyalty is dead in the business world, especially among customers. But I never believed this. I think humans find it easier to be loyal, it reduces many costs and risks in our lives.
What’s dead is a reason to be loyal. This is exacerbated when we receive notices in the mail offering low prices to new customers from our cable, cellular, and credit card companies.
In other words, let’s charge lower prices to low-value customers, and higher prices to loyal customers. It never made any sense to me, since it doesn’t reward loyalty.
This is how Clear notified its members of its price increase, in an email from CEO Steve Brill:
As of October 15, new annual memberships in Clear will cost $199. It’s a price that reflects the rapidly expanding value (and cost to us) of the Clear network.
Our market tests indicate that because of this expanding network and the reputation we have won for delivering on our promises, our new price—which is necessary to solidify our business as we move beyond the start-up phase—will be well received. However, we do not want the customers who supported us from the beginning in building that network and reputation to have to bear the brunt of these costs.
Therefore, I am writing to you with the following special offer: Because you are a current Clear member, if you renew now, you can save $40 and renew for $159. Plus, you have the option now to renew for up to ten years at annual prices that are even less than $159 a year, while protecting you from future price increases. And, of course, you can always get a pro-rated refund on any unused portion of your membership, should you no longer need Clear.
I don’t particularly care about Clear’s rising costs, but his statement about the value is emphatically true. And this statement is even better, especially for us loyal customers:
Most subscription businesses offer deep discounts to lure new customers, while charging old customers a higher price. I’ve always thought that “penalizing” your best customers that way didn’t make sense. Instead, this continuing discount for renewing members seems a smart, fair way to recognize our earliest supporters, while helping us to finance the future expansion of Clear, both in terms of airports covered and the services and equipment we invest in.
Then, as a value-added inducement to renew early, he offers a special Clear ID card that can replace your driver’s license for airport security purposes.
This is strategic pricing. Knowing your value, communicating it clearly, all the while rewarding loyalty.
Are you doing the same thing in your firm?
Ron Baker - 07/22/2008
I will be conducting three Webinars for Business Expert Webinars (BEW) in the coming months.
BEW was founded by Lee B. Salz to bring together a community of business experts comprised of best-selling authors, award-winning speakers, and business gurus, designed to share their secrets of success.
I was honored when Lee invited me to participate. The Webinars are designed for a generic business audience, not just professional firms; the type of program professionals could recommend their business customers attend.
My three programs will be:
Pricing on Purpose: Creating and Capturing Value. Friday, August 8, 2008, 3-4pm Eastern Time.
When Debits Don’t Equal Credits. Wednesday, September 24, 2008, 12-1 pm Eastern Time.
The Experience Economy: Succeeding in Today’s Dynamic Economy. Wednesday, October 8, 2008, 4:30-5:30 pm Eastern Time.
I hope you can join us, and check out the other programs BEW conducts.
Ed Kless - 06/14/2008
Sometimes distorting the truth is a good thing.
I just got back from a speech at the California Accounting and Business Conference. I was asked by the public relations department to deliver a speech since Sage as a sponsor gets a free speaking slot. The title given my talk was Client Accounting Systems. The subtitle was What CPAs need to know to help their clients in 2008.
Rather than give a technology speech on the title, I decided to focus on the subtitle. The talk was a combination of the dangers of solutionism, Blockian consulting theory, and Khalsarian questioning techniques. All duly cited as having influenced me.
The material, while great, is not important. My point here is that had I entitled the session The Dangers of Solutionism or Asking Great Questions to Help Your Customers Understand Value, I doubt that a) the organizers of the conference would have let me give the speech, and b) even if they did, no one would have come.
I had about 100 people who all initially sat in their chairs as if they were in Old Sparky. Most were reading a book or doing email on their crackberries. It was the classic, “I am here for the CPE crowd.” Within seconds, I got their attention, “Do you mind if I don’t use PowerPoint?” Head snaps from the people reading.
Overall, we had a great session, le de coup de grace was at the end when a fine gentleman who sat in the front row came up to me afterwards and said, “Sonny, I am in my seventies and I have never been to a better presentation.” HSD!
By the way, there is no free beer.
Ron Baker - 04/10/2008
Congratulations to our newest Trailblazer firm, Base52 Ltd in Hertfordshire, outside of London (the same city as O’Byrne & Kennedy).
Fred McBeen is the Director and Practice Manager of Base52. I was privileged to meet him at a talk I gave for CIMA last June outside of London.
Here is Fred’s email reporting on his firm’s progress since our meeting:
Dear Ron,
I hope that you are well.
You may recall we met at a UK conference a year or so ago and exchanged e-mails after this.
I was enthused by your presentation and by your book, The Firm of the Future and implemented some changes to our practice after reading this. You asked if I could send you an update after 6 months or so and let you know how things are going, so here goes:
Broadly, things have gone quite well. We are a relatively small practice having only started a few years ago. In the last financial year we grew revenues and profits by about 35% and a good proportion of this growth was due to “Value Pricing” measures we implemented.
We scrapped timesheets about 6 months ago now and I don’t think we have missed them. We set work completion targets every month and track these every week so as practice manager I have a good feel for how work is progressing. Being less hung up about hours has meant that we focus on quality even more and ensuring that we do a first rate job.
I mentioned in my previous e-mail that we had secured a contract with one customer and I had followed value pricing principles and priced this 2 or 3 times higher than if I had used my normal “hourly rate” method. I am so pleased that we did this as the work has been problematic. Nevertheless we have made a good profit on the contract and have done what we said we would do. On our old pricing methodology it would have been very hard slog for very little (if any) return which would have been demoralising for the whole team.
My conversion rate for signing up new customers has dropped from around 70% to nearer 25%. The prospective customers we have not signed up have not been prepared to pay the higher prices I have quoted. By and large I am satisfied that they would not have been the right customers for us. In a tough market, we are finding it more difficult to pick up new customers but for now I am holding my nerve and looking to compete on value and not price.
I have been a bit less tolerant with customers who do not fit our ideal profile. Again it is a tough call but I expect to give notice to a couple of customers shortly who have repeatedly ignored our advice and do not seem to appreciate the work we do for them. This will mean a short term hit on revenues but will hopefully will be for the longer term good
I have taken on board the views in your book about building capacity before taking on new business. We have invested in training, systems and a bit more space so feel ready to expand with the right customers. We are only a small team and I am hoping that I can retain my key team members for the immediate future. If I can do this, I think the prospects for growth are very good.
One of the biggest changes in my own attitude has been self belief and confidence that what we offer is good value and we don’t need to be apologetic about this.
So to summarise the progress report. It’s so far, so good. Our target is to grow profits by another 30% or so this year. I will let you know how it goes..
Thank you again for your advice and support.
Best regards,
Fred McBreen
Director
Base52 Ltd
Fred makes many excellent points here, probably the most important being that you’ll never be paid more than you think you’re worth.
Also, it’s nearly impossible to implement Value Pricing with the wrong customers. I’m a bit concerned, Fred, about your acquisition rate dropping from 70% to 25%. This may be just a temporary drop given your new pricing strategy.
If it persists, however, it may be a indicator that you are not effectively communicating value to prospective customers, since customers aren’t as price sensitive as they are value conscious. If this continues, you may want to develop a “stripped down” version of your services at a competitive price (pricers call this a “flanking product"), which will allow you to acquire some of these customers and then as time goes on they will purchase more from your firm.
But I don’t want to take away from your incredible accomplishments in the past ten months.
Congratulations again, and please keep us posted on your progress.
Ron Baker - 03/14/2008
A couple of weeks ago I received another email from Chris Forsman, who had alerted me to an article about movie theater popcorn, which I blogged about here.
In this new email, he related this fascinating story.
Good Afternoon Ron:
I have been fascinated by pricing models for as long as I can remember and as a salesperson, it is my job to “extract” as much money as humanly possible. I remember being in an opportunity once in which we were competing against several firms in which all of our pricing came in at roughly $750,000 for an end-to-end solution. This number was given to us by the prospect as their desired budget and we all had to “massage” our numbers to fall into this price range. How do you pick the winner when everyone has the same price?
One competitor, who had several recent wins in this industry priced their solution at $1,200,000. They understood that their references would be stronger and that would somehow show that they had deeper domain knowledge. It would also insulate the executive from making a bad decision since their peers purchased the same solution. Naturally, they chose this higher priced solution.
Best regards,
Chris
What a great story! The $1.2M firm separated itself from the competition based on value, not price. We always say, high price tempts, and here’s even more empirical evidence.
This got me thinking about Requests for Proposals. We at VeraSage recommend that you don’t do them, because they subsidize dysfunctional buying behavior, often being used as a club to beat up the current provider by customers who have no intention of changing. Or they are used by price sensitive customers you don’t want anyway.
We also think you should charge for an RFP. Why not? The customers are asking you to compete, which has value in and of itself. If you charged for an RFP, it might actually be a process that had some value, rather than merely reciting deliverables.
That said, we realize many PKFs have to do a certain amount of RFPs. If you do, you should be well versed with what economists call the winner’s curse.
Never forget that your weapon is made by the lowest bidder.
—Law Number 20 of Murphy’s Laws of Combat
In auction markets, economists refer to the dreaded winner’s curse—whereby the winning bidder is often a loser. In other words, the only RFPs sellers will accept are ones you should not make. One of the ways to avoid the winner’s curse is to bid more conservatively when there are more bidders. Thomas Nagle and Reed Holden explain why in their seminal book, The Strategy and Tactics of Pricing:
To understand the curse, imagine first that you are one of two bidders and you win a bid with the lower price. You will probably be quite happy. Now imagine that you are one of ten bidders and you believe that your competitors are sophisticated businesspeople who know how to bid a job. Again you win. Are you still happy? What does it mean that you bid below nine other knowledgeable bidders? Perhaps it means that you were willing to take less profit on the job. On the other hand, it could also mean that you underestimated the cost to complete the work.
The more bidders there are, the more likely you will lose money on every job you win, even if on average you estimate costs correctly and both you and your competitors set bids that include a reasonable margin of profit. The reason: The bids you win are not a random sample of the bids you make. You are much more likely to win jobs for which you have underestimated your costs and are unlikely to win those for which you have overestimated your cost.
The only solution to this is, in effect, to formalize the principle of “selective participation.” You do that by adding a “fudge factor” to each bid to reflect an estimate of how much you are likely to have underestimated your costs if you actually win a bid. Needless to say, adding this factor will reduce the number of bids you win, but it will ensure that you won’t ultimately regret having won them (Nagle and Holden, 2002: 225).
RFPs have become more commonplace as competitive bidding has replaced negotiation for price buyers. It is as if dysfunctional buying practices have arisen to counter dysfunctional selling practices.
It is important to judge the seriousness of potential buyers going out to bid, as a lot of the RFPs are, in reality, nothing but hammers used against existing suppliers to obtain price concessions. Your company should not waste its resources drafting RFPs to anonymous buyers whose criteria for judging your company’s offering are not known to you. It is important to have some contact with the economic buyer, that is, the person who can actually make the decision to hire you, rather than just the procurement department. Establishing relationships and having internal advocates in the customer’s enterprise also helps to ensure your value is being considered, not just price.
In their book Co-opetition, Adam Brandenburger and Barry Nalebuff offer this sage advice with respect to RFPs:
There seems to be a natural impulse to offer competition for free. After all, that is what business people are supposed to do, is it not? You want a bid? I’ll give you a bid…
The right question to ask is: How important is it to the customer that you bid? If bidding is so important, then you should get compensated for playing the game. If it is not so important, then you are unlikely to get the business and even less likely to make money. You might want to reconsider bidding at all (Brandenburger and Nalebuff, 1996: 84).
Another strategy with responses to RFPs is: No surprises. Your potential customer should know everything in your proposal before you submit it. Gaining an understanding of your customer’s expectations, business model—how they make money—and how your company can add value is imperative to increase your odds of a successful proposal, one that will not suffer from the winner’s curse. Search for the differences that will ultimately be weighed in selecting a new supplier. If customers are worth bidding on, they are worth spending some resources on in order to improve your chances.
Brandenburg and Nalebuff also discuss the following eight hidden costs of bidding (in bold, with commentary added), which are also worth considering:
- There are better uses of your time. Keeping current customers happy may be a better strategic advantage as opposed to chasing after other company’s customers. Attracting a new customer can cost three to six times more than holding on to an existing one, and the existing one is most likely less price sensitive.
- When you win the business, you lose money. A customer won on price alone is signaling they have no loyalty, and will leave you once they find a lower price. Do not fall into the trap of thinking you can start with a low price and raise it later; the evidence is overwhelming this will not work, as once you set a low price you are rewarding the customer for beating you up in price.
- The incumbent can retaliate. If this is a good customer, then your win is someone else’s loss. If it is a bad customer, then you have already made a mistake. The incumbent supplier is likely to respond, perhaps by targeting one of your good customers. He may not be successful, but he can force a price concession on your part. If he is successful, you both have achieved nothing but turning two high-margin customers into two low-margin customers—a real lose-lose scenario.
- Your existing customers will want a better deal. Lowering your prices within RFPs sends a distinct message into the marketplace that will no doubt find its way to your existing customers. Some will believe you’ve been overcharging them and may leave; others will demand price concessions. Is winning one job worth the risk?
- New customers will use the low price as a benchmark. Once again, sending the wrong signal to all potential future customers.
- Competitors will also use the low price as a benchmark. Since your competitors can easily discover your RFP price, they will use this as a reference price in future RFPs, most likely resulting in lower priced RFPs in the future amongst all bidders.
- It does not help to give your customer’s competitors a better cost position. Your future and that of your customer are naturally linked. If your future is tied to Boeing, you do not want to help Airbus get a lower price. Unless you have very good reason to believe that you can get Airbus’ business while keeping Boeing’s, bidding for Airbus’ business is costly. You help your competitor’s customer and thereby hurt your own.
- Do not destroy your competitor’s glass houses. The notion you win if your competition loses is simplistic and potentially dangerous. If you lower your rival’s profits, he now has more reason to become aggressive by going after your accounts with abandon, potentially launching a self-destructive price war. In contrast, the more money your competition is making, the more it has at risk from getting into a price war (Ibid: 86-88).
This is where the firm’s value proposition becomes a critical differentiator from its competitive bidders. By offering an unconditional money back service guarantee and competing on total quality service, your firm can maintain a premium over the competition.
Do not let the proposal be the first time you test your price, as this can result in a waste of resources going after price buyers who have no intention of considering value.
Another effective strategy is to offer various value propositions, in the form of differing options, within the proposal, thereby preventing it from becoming merely a one shot, take-it-or-leave-it option. You can even use Chris Marston’s concentric circles to help you, not only to scope a job, but to offer different options.
Maintaining your pricing integrity on the RFPs you decide to respond to sends an important message within your firm that pricing is a strategic decision—one based on value—and not just a number to be arbitrarily derived in order to make the next sale.
Be sure to maintain a mortality log for proposals submitted but not accepted. Perform post-mortems on lost bids and determine the reasons. This will help you focus on value for future RFPs rather than merely cost and price. The better you know the customer and the more thorough you are at ascertaining both their needs and wants, the higher probability you have of securing your share of profitable RFP work.
Keep the winner’s curse in mind as you prepare to respond to RFPs and be sure the potential customer is serious about doing business with you and not just using your bid as a way to lower their existing price. Some firms have tested this commitment by charging for a proposal and then offering a full credit if the bid is accepted.
Utilizing the above advice could help your firm secure a $1.2 million engagement when everyone else’s price was $750,000. That’s win-win all the way around.
Ed Kless - 12/11/2007
There is clearly a difference, in good project management, between goals and objectives. Goals are which we hope to attain by undertaking the project; however, they are not always attained by project end because there may be other external influences that factor in the their achievement or lack thereof. Objectives are, well, objective, in that they can clearly be checked off as having been attained by project end.
For example, “increase sales by 10%” would be a goal of the project not an objective. An objective would be the “installation of the system.” The acid test question to distinguish one versus the other is, “Can this (goal or objective) be clearly accomplished when we consider the project to be completed?”
I am not saying that we should not continue to track project goals post completion; I am just saying that they need not be accomplished in order for us (and the customer) to consider the project done.
Lastly, if a customer wants you to guarantee the attainment of goals than I would have you consider contingency pricing. For example, if they do increase sales by 10%, you should be paid 50% of that number. In a sense, a customer asking you to guarantee goals, is like that customer asking a lawyer to guarantee winning a case and therefore subject to a contengency arrangement. I would, however, guarantee meeting all objectives.
Ed Kless - 11/18/2007
It is not often that we at VeraSage comment on medical practitioners. This is not because we do not view them as knowledge workers, rather, it is because the system of third party payers — insurance companies (ugh) and governmental programs (double ugh) — is no where near a free market and therefore such examples are many times hopelessly flawed.
That being said, I recently came across a blog post from TechDirt which demonstrates that at least one physician out there is willing to be innovative. Here is a little of the text:
Dr. Jay Parkinson, a Brooklyn doctor, brought the house call back — but it’s been updated for the times. Parkinson has started a new medical practice that centers around instant messenger, email and house calls. During regular business hours, he is available to his patients for online medical consultations. Dr. Parkinson then pays the patient a house call only if it is really necessary (you get two included house calls in the fee), but most issues can be addressed virtually.
Kudos to Dr. Jay Parkinson! As a native Brooklynite myself, he makes me proud.
Ron Baker - 08/25/2007
* Don’t confuse PKF in Texas with PKF the way Ed Kless has defined it—that is, Professional Knowledge Firm. Here’s why.
We see so much dysfunction in so many firms, it’s always great to see one do something right. In the Aug 20-Sept 9, 2007 issue of Accounting Today, there’s a Special Report insert titled Tax Season 2007: Gauging Results. On page 18 is an article by Anjana Jackson, a manager in the Tax Department of Pannell Kerr Forster of Texas, P.C. (hereinafter PKF) titled “Reclaiming Tax Season.” It’s encouraging, an discouraging at the same time.
She states one of the firm’s core values is “People are the Key to our Future.” So far so good. But this is what particularly caught my eye:
In 2007, we wanted to strengthen our commitment to provide our employees meaningful challenges in their career growth (a core value) and to progress toward a more consultative mindset. We felt our largest barrier to achieving the success we desired was our client base. In order to groom consultants and provide challenges for our employees, we examined the types of projects our clients asked us to perform, the time commitments, and the level of learning and career satisfaction associated with a client.
The result was an aggressive decision to “disengage” a number of clients that scored low in these areas. This was a huge leap of faith. The reduction of our existing client base represented almost 25 percent of our 2006 charge hours. The impact of upgrading our client base was a reduced busy season workload of seven percent, while improving employee morale and increasing our net fees by 10 percent.
Hallelujah! I wonder what took them so long to perform this analysis? We have been preaching for over a decade that when it comes to customers, less is more. Not only have I coined Baker’s Law—Bad customers drive out good customers—we at VeraSage also use the Adaptive Capacity Model, utilizing the metaphor of a Boeing 777 airplane for your firm. This forces firms to strategically think about their capacity allocations among different value segments of customers, while always reserving capacity for its most valued customers (see article).
We see far too many firms that will actually add capacity for back-of-plane customers—that is, D and F customers (F, of course, standing for “friends and family"). No airline would think of doing this. Once they sell a certain number of Priceline.com (i.e., cheap) seats, that’s it, they no longer will stuff the back of the plane. This is why we call it the “adaptive capacity model” because firms can change—dynamically and strategically, in response to market demand—where they move the bulkheads in their airplanes. Our colleague Paul O’Byrne loves making the point that if CPAs ran airlines, the second story on the Boeing 747 would be on the back of the plane.
So why do nearly all firms have too many customers? We hear two major justifications, both of which are specious upon serious reflection. First, we need this low level work to provide on-the-job training to our youngest team members. Second, we make money on this work, it contributes to our overhead.
The first reason is absurd. Today’s knowledge workers go through at least five years of college, are incredibly intelligent and motivated to learn. Why give them uninspiring work? Would CPAs make surgeons pierce ears? The second reason is just as absurd. Sure, we make money on this low-level work because we are knowledge firms, we make money on practically everything we do (unless we are horrendous pricers). Surgeons could also open a kiosk in the mall and provide body piercing, and most likely they’d make money too. It’s just not the best use of their talent and intellectual capital.
If a firm truly wants to develop its younger team members into a consultative mindset, rather than compliance drones, that should start from day one, not after they’ve performed some hazing ritual of doing crap works because the partners paid their dues and they’re going to make sure the youngsters pay theirs.
And this is where I find the PKF article discouraging. She still speaks of charge hours. How can we create entrepreneurial CPAs if they are still being taught they sell time and have to account for every six minutes of their day? There is such a disconnect here. Team members need to be taught that what they are really selling is intellectual capital, so they will be incentivized to develop and contribute IC to the firm. This focus on hours is holding these firms back from developing the kind of team member mentality they all say they want. Why can’t they see this? Is the elephant in the room invisible?
She also writes the old standby: “We truly believe that our most valuable asset is the people who work for us...” People as assets (or resources), how demeaning and dehumanizing. The beginning of wisdom is using the correct language. When are firms going to start referring to their knowledge workers as human capital investors, or better yet, volunteers?
We live in a knowledge economy, but one would never know it studying the practices, procedures, language and leadership of nearly all firms. They treat their people more like factory workers, providing them uninspiring work along with mediocre leadership. Is it any wonder we have a talent crisis in the professions? Today’s younger generations know they are knowledge workers, even if the firms that employ them do not.
PKF provides lunches and dinners and 20 minute chair massages during busy seasons. All very well and good. But until it realizes its people are knowledge workers I’m afraid all these efforts, while necessary, are hardly sufficient. Until it escapes the shackles of The Old Practice Equation (leveraging hours and hourly rates) and embraces The New Practice Equation as defined on the top of this Web site, its destined to remain a Firm of the Past.
I applaud PKF’s efforts on customer deselection and recognition that it needs to provide challenging work to its knowledge workers. I only wish it would follow that very reasoning to its logical conclusion and embrace The Firm of the Future. Until then, we’ll have to look elsewhere for leadership and real, meaningful change in the profession.
Ed Kless - 07/09/2007
Sprint announced today that is was firing 1,200 customers of 53 million or .002% for excessive calls to their support line. This has caused quite a scuttle.
Frankly, I don’t see the problem except to say that they probably should get rid of 120,000 not just 1,200.
What say you?
Ed Kless - 06/15/2007
In response to a question posed by one of the participants at a recent Project Management Boot Camp I conducted, Organizational Provocateur, Tom “Bald Dog” Varjan of Dynamic Innovations Squad wrote what I think is a great response.
First here is the original question:
Have pitched one of our first value billing non-hour engagements. We have done a very detailed scope document and the customer is looking for a time and cost break down for each task. Suggestions on dealing with this one.
And now Tom’s terrific response:
Dear Prospect,
I understand that you may have never faced this situation of paying for value. The reason we’re doing pricing this way is that by focusing on hours and costs, we are forced to shift our sights off the results.
We pride ourselves on managing our projects with the precision of brain surgery. In any project there can be only so many variables to focus on. We’ve chosen this pricing model because we are on the same side of the table as you and want to focus on the results you’re seeking.
People don’t go to brain surgery for five hours of fiddling with their gray matter. They want to get healthy.
Similarly, no one wakes up in the morning saying, “Let’s hire an IT firm for 10 hours of server tweaking.” They have specific problems.
Unfortunately, we believe the hourly pricing model you’re requesting is unethical to clients. Basically, the longer I can prolong your problems, the more you’ll pay me. We’re proud to operate as trusted advisors to our clients who seek us out for care, protection and guidance on their IT issues.
There is a key distinction. Professionals who set value-based fees focus on the outcome of the project, that is, the improvement in the client’s condition. Professionals who set time-based fees focus merely on selling more hours, which may or may not contribute to the end result. Value-based fees are client and outcome-centered, hourly fees are self-centered.
I know this approach may be new to you, and sadly ignored by our industry, but from the ethical standpoint, this is the only way we can sing the same song.
With hourly pricing you and your IT firm not only struggling to sing the same, they are not even on the same page of the song sheet.
In your lifetime, you’ll meet many people who try to sell you “time” and expect you to pay them, but you’ll find only a handful of people who can help you to achieve specific business objectives.
At the end of the day, clients buy results not time chunks. Working on a value-pricing basis is an investment. Working on a per hour basis is just another cost.
Hope it helps a bit.
As they say on the Guinness commercial — Brilliant!
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