Last week I received an email from Ben Meredith of B&B Consulting Services in Ashland, VA. In the email Ben wrote of his transformation to a PKF, "The biggest change for me was the realization that I don’t have to have the clock running all day - once that stress was gone I could begin to work on creating value for my business and my customers."
Well said! I asked him to write a few paragraphs and share his story. Like all of the others, it is excellent. Enjoy!
Let me begin by confessing that I have actually had the experience of using a time clock at work. Mechanical. Huge. Ugly. Green. It was many (many) years ago at one of my first jobs in IT although they didn’t call it IT back then. I believe The Machine Room was as close as they came to naming that strange room in the back of the building with all the blinking lights.
That green metal box hung on the wall just inside the main office and sounded like it had been hit with a hammer each time a time card was inserted. When I took the job I was told to "just punch in and punch out" - how was I to know that it had selections like day of week and lunch time.
Consequently my time cards were fairly unreadable by the end of the week. Many hours were spent deciphering the over-strikes until I finally convinced my boss that I had just never seen one of those horrible things before. Thus began my love/hate relationship with time billing.
Looking back I guess that everyone then knew how a time clock worked - just as we now expect everyone to be computer literate. I just wasn’t time clock literate. Luckily my next employer had time sheets for me to fill out each week. Or copy from the preceding week as most did.
My partner and I finally struck out on our own forming a company that filled the needs of local companies needing good programmer analyst skill sets to initiate or complete mainframe programming projects. And from there to mid-range and mini-computers… Novell and Microsoft networks and finally cloud computing.
And most of time we were billing by the hour. After all, that was what customers expected and it was certainly the road most traveled. Rarely were you not considered for a project because you billed by the hour. In fact there seemed to be so many horror stories of incomplete projects and failed businesses that anything but hourly billing was considered risky.
I can recall more than a few Monday mornings in my office; working on sales forecasts or resource planning and suddenly thinking "Wait! I’m not billing! I have to have the clock running!"
I had developed the mindset that if the clock was not running and I was not billing then bad things were on the horizon. At best I could visualize fixed costs running like fine sand through the hourglass.
And I can still remember the day I was in a customer’s office and talking with the bookkeeper about a report she needed when the CFO walked by and simply said to her: "Stop talking to him - we’re paying him by the hour!"
All in all though, I think I was more stressed by hourly billing than my customers. Too many hours were left un-billed at the end of the month because of lack of attention, multi-tasking or just that feeling that I had to stay within a perceived budget figure someone had mentioned when the job first started.
There had to be a better way to deliver professional services to customers. My search for answers began with an introduction to the works of Alan Weiss. A few books and videos later I was convinced that hourly billing was dead - I just didn’t know yet how to bury the beast in my own company. That didn’t keep me from trying but my progress was slow.
Mentors were almost non-existent and I could find no one to brainstorm with who did not use time as a metric for estimating project and billing customers. Many people acknowledged that value or fixed pricing was the right approach but I knew of no one who was actually practicing this in their business.
About a year later at a Sage Insights Conference I found myself in one of Ed Kless’ sessions on Value-Based Pricing. Finally someone in my industry was not only saying that value-based pricing is the way of the future but also showing how you can implement it in your business.
It took a few more of your seminars and a lot more work before things started to come together. I did spend a lot of time reading Ron Baker’s material at VeraSage and listening to his recorded seminars (along with many others). In the end I realized all the ingredients were there. It was more an exercise on how to create the recipe that worked for my organization.
Value based pricing is now bolted down for good in the company. I locked the door on hourly billing for good December 31st. Everything since has been and will only be fixed/value based engagements.
I have a couple of long time customers that are still being billed hourly but there is a process is in place to address these as well as casual consulting engagements.
Looking backward I wonder how I could have overlooked the obvious in my proposals and billing practices over the years… could it be that 20/20 hindsight I keep hearing about? My customers really like fixed prices; they can budget for each project and get to approve or disapprove any additional services or expenses before they occur.
I get to spend more time working on both my business and my customer’s business. When I am on-site we are working together and building stronger relationships and nobody is looking at the clock. And I don’t have to be concerned about always billing hours… only about the projects being on time and building value for my business and my customer’s business.
And that makes all the difference!
Ben Meredith
B & B Consulting Services
Ashland, VA
Today, we welcome a new Trailblazer to VeraSage: Gary Crouch and his team at CS3 Technology in Tulsa, OK. He wrote this post in the wake of the Firm of the Future session at Insights 2010.
Gary’s thoughts are flashes of brilliance and will take some effort to embrace and even more effort to fully understand and implement. His most profound insight is, “My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team.”
Thanks, Gary for allowing us to post this.
Leader: someone who guides or directs others
Team: a number of people organized to function cooperatively as a group
Sometime back I read a book or article describing how the knowledge worker can and should maximize their own potential by playing the part of the hired gun (unfortunately I cannot locate the article to give credit where credit is due). For the knowledge worker, the author explained, it is in their best interest to manage their career path by hiring out to the highest bidder at every opportunistic step. This could be accomplished by promotions within the current organization or moving through various organizations that have an increasingly higher need for his/her services. Either way, the number one priority is to promote their skills and experience to the marketplace.
As I have personally benefited from implementing many ideas shared by Ed Kless in my business, I attend as many of his speaking sessions as possible. At Insights 2010, I heard Ed describe our employees as knowledge workers, our most important assets, who walk out of our doors each evening. As I had heard this before, my tendency was to get depressed thinking about just how fragile the culmination of my life’s work, our business, really has become. Then, a thought occurred to me and everything came into focus.
Earlier in the day, we reviewed the building blocks for a successful knowledge worker firm as the following formula:
Profits = Capital Management * Effectiveness * Pricing on Purpose
My thoughts focused on the capital management element of the equation. Capital is made up of various resources that the knowledge firm must manage on a continual basis. These resources include the following:
Financial Capital = Operating capital and cash flow
Intellectual Capital = The ability to maintain and grow knowledge within an organization such that it can be applied to solve customer problems
Structural Capital = The environmental components that allow an organization to function effectively such as processes, systems, methodologies, physical plant, communications facilities
Social Capital = The brand of the organization that includes relationships with vendors, customers, external influencers, product and service awareness, and so forth
It dawned on me; in many cases the ability of the knowledge worker to monetize their intellectual capital is limited. Most knowledge workers need to work within an organization for various forms of capital that they either do not possess, or do not have the ability to properly manage. For instance, they may not possess the cash flow for marketing themselves or for investing in new equipment; they may not be able to build systems to manage projects, bill their services, perform Q&A functions while chasing the next job; they may be great technical resources, but not know how to approach social networking effectively so they have a new project waiting for them when their current project is completed. These limitations of the hired gun are answered by participating in a team environment. When the knowledge worker’s specific expertise is combined with varying forms of expertise brought by other knowledge workers and multiple capital resources, only then does the application of intellectual capital bring value to the buyer.
My function then as the leader of a team of knowledge workers is to attract intellectual capital to my team. I can do this by providing the benefits of various forms of capital that the intellectual capital owner does not possess or does not have the ability to manage. If my team is effective to the point of profitability, then I am able to demonstrate the ability to monetize the knowledge worker’s intellectual capital.
Of course, money is not everything. If I also can help the knowledge worker grow in experience, knowledge and capital management abilities, then I have provided value beyond money. As long as the knowledge worker remains with the team, I also have built additional intellectual capital accessible to my team.
To be sure, the process will always be fluid. As the team gains additional experience and knowledge individually, we must recognize the additional value requiring either additional compensation or opportunities to grow. However, the combined growth inherent in the team provides even more reason for the team to remain intact.
Should a member of the organization find a more beneficial team for their situation, then the process begins again and is costly. However, the relationship has been mutually beneficial. Both the team and the organization have been profitable. In addition, intellectual capital is one form of capital that can be shared. When a knowledge worker shares his knowledge with a customer or a coworker, they do not diminish their own knowledge. In fact, through an exchange of ideas, the knowledge worker’s intellectual capital will grow as well. Concurrently, if our organization’s capital management process includes cross training the team members, the team can retain the exiting knowledge worker’s intellectual capital even as the knowledge worker leaves the team.
Through the process, the organization has gained in reputation, customers, reference sources, finances, experience and any number of other resources. The departing knowledge worker may also add to our social capital as an external influencer or even by bringing the new employer organization to our team as a customer.
Business is the process of providing solutions for others. As we continue to build our organizations, we must recognize the impact of the knowledge worker on our business models. As we provide a valuable package of organizational attributes that the knowledge worker can monetize their intellectual capital, we can help them grow. At the same time, we can increase our retained resources of financial, structural and social capital.
All in all, it is not a zero-sum game; everybody can win.
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
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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)
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!
Carol-Ann attended a workshop on Firm of the Future in October 2010 and in one year has completely transformed into a Firm of the Future. In this year alone she doubled her income. Yes, I said doubled!
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