Following on from last month, we are going to look at what is ‘value’ and how to transition to value pricing. Firstly, we need to remember that ‘value’ is from the perspective of the client, it’s their perception of value, what is it worth to them. It is external to the firm. So, what is value? How do you find out what a client values? And the answer is – ask them! Easy, isn’t it? But, so few professionals ask this question of their clients. It means different things to different people, hence the need to ask! Value may look like any of the following: peace of mind; being available; having a great network; great tax strategies; assisting in business growth strategies; mentor; coach; sounding board; problem solver; confidential ear; good friend; and the list continues. Once you have the knowledge of what you do to add value to a client, do more of it, package it up with your normal services.
On the other side of the coin are costs, they are internal and you have more control of this aspect. So perhaps the process needs to consider Stephen R Covey’s mantra, “start with the end in mind”. Start with the profit you want, and work back to the sales figure. So, after considering the costs what does the turnover need to be? What is you pricing strategy? This will then determine the amount of value you need to offer your clients in your services to receive their purchase. It’s important to note, that hourly rates have nothing to do with value. Clients are focused on outputs not process. The key is to create higher value services and increase your average client fee.
Your clients buy your knowledge not your time. Think about that for a moment. If you sell your knowledge then what value do you place on your knowledge? What did it cost you to attain the knowledge? A university degree; postgraduate study; ongoing professional development and, let’s not forget, your experience. Knowledge comes at a cost. Clients buy your advice/knowledge and your experience. Your knowledge creates wealth for your clients and for yourselves. They come to you because you are good at what you do, you meet their needs and provide value to them.
When you begin your ‘value pricing’ journey it is important to include your team and develop their mindset to realize that they a knowledge advisors. Often a team member will not value their knowledge and take it for granted and, therefore, discount their services to the client. So, training in mindset as well as process, is key to transitioning the business to a more modern position.
Part of the transition process is to ensure you have a clear vision, defined purpose and good strategy. Knowing your purpose, why you are in business, and delivering a clear vision to the team are important factors in the transformation to a modern practice. Understanding your competitive advantage, which in the main will be based on the relationships you build with your clients, and being effective rather than efficient (with your clients), will deliver greater value and increase client satisfaction.
How do you introduce ‘fixed or value pricing’ in your practice?
Firstly, all new clients should be on this type of engagement. Create a thorough interview process and take time to understand the needs of the client. Capture their thoughts around the value they perceive in what you are offering. How can you solve their problems? As a side note, you should first determine if they are a fit with your firm, by having a clear understanding of your avatar. It’s important to have a new client process, and stick to it, as ill-fitted clients cost money.
Secondly, develop a ‘value added package’ for the new client encompassing as many services you offer in the package that will meet their needs, all the while building the value of your offering.
Thirdly, look in your database for ‘friendlies’, those clients that will allow you to experiment with them, and begin the journey of the transition to a fixed or value priced package. Ask them what aspects of your relationship and services are of value to them, and what aspects are not. The clients that see you as their ‘trusted advisor’ will ask more from you and be willing to pay you more, and loyal clients are less price sensitive. Bundle up the outputs of your services (remember clients buy outputs not process) and meet with them at least quarterly if not monthly. Note, that if you make a mistake with this type of client, they will be more forgiving, so that you can learn from your mistakes and improve the process.
It’s essential to ensure your engagement letters are clear, accurate and detail what happens “if…”. Say, for example, the client pays monthly, what will happen if they leave before that year’s compliance is completed?
Continually review the process, in all aspects: creation of the packages; delivery; documentation; and promotion. Keep on top of what works and what doesn’t, and continually improve.
Fourthly, communicate your services and packages with your clients via your website, newsletters, meetings, sessions and other correspondence. It’s important to have a client communications strategy and a champion to ensure the process is delivered on a timely basis. Find the best person in the firm to talk to the clients and discuss the fixed pricing options and to promote the value.