10 Steps of Value Pricing
Moving from hourly billing to value pricing (or fixed fees) isn't as simple as just proposing a new pricing model to a new client. In this session, walk through the three phases of transitioning to value pricing (setup, implementation, and execution) in 10 proven steps.
We'll get started in just a short bit. Hello, everybody. Thanks for joining us today for the Firm of the Future Webinar Series. This month, we're talking about value pricing. Today, we're going to be talking about the ten steps to value pricing.
A little bit of housekeeping to get us started. First, there's the control panel if you're not familiar with GoToWebinar. It's best to close down other applications that might be using your bandwidth like Skype and email. You can ask questions as we go through the webinar today, I got Stuart on the line here to help me out in answering those. I will provide some time at the end to answer questions. We do have a lot of content to go through today so we're going to go through relatively quickly on a few things on the housekeeping.
As I mentioned before, the February content series on value pricing. Today, we're talking about the ten steps to value pricing. On the firmofthefuture.com website, later in the month, you'll be able to go to the site and be able to pull down a bundling and pricing strategies, a deep dive on that, a deep dive on the value conversation and also a panel discussion around value pricing journey and what to expect on it. Some great stuff coming to you, check the firmofthefuture.com for those things to come available.
For those of you that were at QuickBooks Connect or if you've been part of the Firm of the Future, there's three different tracks. Today, we're focusing on become a trusted advisor and that's where value pricing is sitting within that.
Who am I? Who's the guy on the other side of the microphone here? My name is Ian Vacin. I work for Karbon, more about us at karbonhq.com. I'm the vice president of product marketing. My email is up there as well, feel free to email me questions regarding Karbon questions, regarding value pricing or different things that come up. There's a little bit of a bio down there for you [before 00:02:22]. I've been in the industry for over 15 years and tech for almost 25. I did work at Intuit at one point where I was the head of the QuickBooks ProAdvisor Program so some of you might be familiar with me from that.
A little bit about Karbon and we'll move on. Karbon is the place to collaborate with your team and look after your clients. Just to give you a quick little rundown what it is. It helps you in terms of your email communications so triage it, collaborate it with your team by working together, manages all the work in one place, timeline, to bring full context to the conversations in the work that needs to be done, contacts, to manage them and be able to reach out, checklist, to get work done, to dos, to manage things that happen each day and the ability to search and find things at a moment notice. If you want to learn more about Karbon, again go to karbonhq.com. This is not a demo on Karbon or a conversation about it. What it is today is about the ten steps to value pricing.
What I first want to do and bring people up to speed on is a little bit of just a primer on exactly what is pricing overall. Because there is some misconceptions on what value pricing is compared to not necessarily hourly billing because I think we're very familiar with that but there are different variations of pricing overall. The five main types are hourly-based billing, cost plus pricing, fixed pricing, value billing and value pricing so what are each one of those.
All of you are quite familiar with hourly-based billing so I'm not going to go onto that but that's basically the set rate per hour for services that you provide, usually paid post. The second is cost plus pricing which is the cost for form of service plus the markup that's necessary ultimately to make a profit.
Now, fixed pricing is what a lot of folks are doing today and what a lot of folks have migrated to. Again, that's a consistent set cost for a product or service. It might be subscription based in terms of a monthly ongoing payment that you're going to pay for whatever service allocation that you as a small business owner or an individual might be asking from your trusted advisor.
Now, value billing is not value pricing. It's a bit different because it's billing on the perceived value or service after completion of the service. Definitely, a distinction there, it's after versus before. Where value pricing is a pricing for before the service is actually performed and based on the customer's perceived value of what that service is going to be. That's cost plus markup plus the perception of value on top of that. The difference between fixed pricing and value pricing which is why I put them up there is fixed pricing, it might be a set fee, let's say it's $500 per month regardless of customers that you would meet along the way where value pricing might start as a situation of $500 a month but you're going to change the pricing based on that customer's perceived value so each customer would get a different price that they will be paying or negotiate on before the service is actually being rendered. Hopefully, that gets everyone up to speed on just the basics of that.
Also, for those of you that are using hourly billing and looking to go to value pricing or even going to fixed fees because, again, this conversation is really not just about value pricing but also on migrating to fixed fees, a little bit of the shortfalls of the hourly billing model and then also some of the benefits.
The shortfalls is something that we've always done. From a professional perspective, those of you who've come up through the ranks and been here and doing it for years and decades, it's just what we did.
Secondly, the biggest issue with hourly billing is the faster you work, the more proficient you get doesn't translate into more profit or more earnings. What it does is it actually translates to less compensation and the more customers that you're going to have in so there's a disincentive to actually be doing things faster and better for the clients that you serve.
The next thing is when you're doing hourly billing, what happens inherently is the prospects or the customers or clients that are coming in the door, that are evaluating whether or not they want to go with you, the first thing or one of the main drivers that happens is when you bring out an hourly rate, I'd say it's $75 per hour. Then they're going to ahead and shop around to find the cheapest rate versus understanding the value that you're able to bring in so the conversation goes down to ultimately getting the cheapest price than it is about finding the best person to work with them.
It's difficult when trying to raise rates, typically you can only do them once a year. They're going to be, actually, somewhat anchored by what you currently are doing today and it's a very difficult conversation. Your skills that you developed along the way don't translate to being paid more for those skills. Again, if you're a specialist which again always talk about moving to a niche or a focus because you can ultimately get better profits, that doesn't translate to more value for yourself or more profits for yourself. Ultimately, that constraints you in terms of your revenues and your profits.
Now, on the flip side of that, the benefits of value pricing that we have here on the screen here are this removes that constraint of time on profits. Again, because you're able to focus, provide more, be more strategic, have better insights than the folks that they might be evaluating otherwise, you're able to benefit from that extra hard work that you've done.
It incentivizes all to improve. Again, we're talking about putting up the price before the actual work is being done and so it puts a scenario of collaborating together to get to the outcome or the goal that we're sending off to do. As well as if I can do it faster, you'll receive it quicker, you're able to do what you want if you're the small business owner.
It improves the ability to attract better talent. What that meant is when you're working an hourly model, you're working on a time clock. That time clock can really make it feel mundane. It can really feel, in terms of when you're looking at utilization and realization numbers, it's a drag in terms of motivation and doing the right thing for the client, right thing for the organization. The incentives aren't there to necessarily be doing it, again, faster, it's about doing it in terms of making sure that I'm fully utilized.
The best thing about value pricing is everything is talked about upfront. There's no surprises at the end of the day when, ultimately, something ultimately takes longer and you're not updating the client. It's very reactive in an hourly-based billing versus proactive with value pricing. Again, it eliminates the barriers to collaboration because everyone is incentivized to work together.
I know it might be a little bit of a refresher for some folks but, again, it's a good starting point before we actually get to those ten steps. I didn't mention this at the beginning, by the way as we transition to the next step, this presentation is for CPE credit. You need to hold tight, we're going to have a surprise keyword somewhere along the discussion today. Then we can answer with that keyword at the end of the actual webinar.
With that being said, let's get into the ten steps to value pricing. What I've done is I've actually broken it down into some phases or some broader transition steps that we're going to go through as we evaluate this. Our first area is we're going to talk a bit here in a second about the research. Value pricing isn't something that you just wake up one day, you might but you wake up one day and said, "I'm just going to go do this," and then you instantly are doing it that day. You want to have a game plan. You want to understand why you're doing it, how you're going to do it and put that in place before you actually put pen to paper or take that first step forward. The next phrase, really, is around the setup. We're going to talk about packages, the pricing, even change management, how do you put all that into place in order to get to that next point along the journey.
Then it's actually you got to put in practice with that first client. Ultimately, what are you trying to setup to learn, what's the best way to do that, what are the difficult parts within that which then goes to the learning journey. Even if you've been doing value pricing for years, it never stops in terms of learning because that learning helps you fine-tune what is the right price that our customers are going to be willing and happy to pay for the services that you're going to provide. That goes back to that last step which is iterating on that and going back and reevaluate, what did you setup, how did you put in practice. Again, that cycle of constantly improving this so that you're able to ultimately be able to do the right thing for the client, right thing for the business and ultimately have a big smile on your face at the end of each project as well as the client because they're going to have a big smile on their face too.
All right? Let's get started and let's jump into step number one. No surprise based on what was the header on the last one which was do your research. I've got some great places for you to go. First of all, if you go to the Firm of the Future site, you'll see Ron Baker, his image is up there. He's got some talks and he's got some content for you to review. Go read a book by Ron Baker, he's a little bit of the forefather of that in the accounting industry. Pricing on Purpose was one of the first books that I would recommend. He's also got Implementing Value Pricing, another book I would start with the Pricing on Purpose. You go to Amazon, find it there. It's a good holistic primer on the theoretical side of things as well as the understanding of how that comes together in the context of doing it with the clients that you serve and the small business owners and the like.
My personal favorite is go to Google, search The Value of Puppies by Jason Blumer. His last name is B-L-U-M-E-R. He did this for a TED Talk that I was a part of a couple of years ago. He simplified value pricing. The video is great because he's talking to, I believe, seven-year-olds and explaining the concept end to end. It was a really creative way to do it. It's best 16 minutes you can use in terms of getting up to speed on value pricing and understanding the theoretical side of it and then how it goes into play. Again, Value of Puppies by Jason Blumer, very [good 00:12:50] way to go.
Next one is ask your mentors and peers while you're maybe in your office and maybe it's just you and your coworkers. There's different networks and different places that you go to get information, it maybe, again, being on this webinar, it maybe folks across the QuickBooks ProAdvisor Program, it maybe LinkedIn groups, it may just be local networking groups that you're working within, maybe a meetup group. Ask others who have gone down this journey before what they did, what they learned and what they would suggest for you to do along each step. Have someone with you that you can bounce off ideas, bounce off thoughts so that you're able to have the best calculated approach that you can. If you don't have that, ask your spouse, ask somebody that's close to you that can give you a realistic view and hopefully be able to give you some [dime 00:13:42] on where to go.
Another good place to go is review the websites of others, go look at those people who've done it real well. For instance, from the Firm of the Future, they've identified 20 top firms that are really exemplifying some of the progressive aspects of the industry. Go look at their websites, understand why they did what they did and decompose what they're presenting and how they're presenting it and it can give you some great ideas about how maybe you want to do that as well. Again, go to other people from QuickBooks ProAdvisor Program and just look at what others have done, it'll give you some inspiration.
The last one here is continue watching this webinar. The first part of the journey is really taking that first step forward and, congratulations, all of you on the call today have done that. This is part of your research so this is a good primer for where you need to go. Again, we're going to be posting some additional pieces or subject matter on pricing and bundling and the value conversation on Firm of the Future site here over the month of February.
Step one, do your research. Step two is, really, to develop a plan. Again, having an understanding of how it all come together and understanding how you're going to get there is really critical because it's not just you doing it, it's the entire practice. You want to make sure that you understand what is the goal that you're trying to achieve, the time frame you're trying to do it, where you need to go to learn and ultimately who you need to bring along the way to be successful.
I broke it down into these particular pieces. The first one here is to determine your why. Why are you doing this? What is your end goal? Are you trying to ultimately get more value from each client so that you can do more upsell and cross-sell from your existing client base versus having to go out and get new clients? Are you trying to simplify your product offerings and ultimately get more value from that so you can bring on more talent, find better talent, ultimately maybe be more focused on what your services are? What are you ultimately trying to achieve and why does this fit within that particular focus and goal over the next six months, year, two years, whatever the time frame might be?
Now when you determine that, it's always best to write it down. Writing it down keeps you honest. Writing it down allows you to go back and review it. Writing it down also lets you point to it with all those better in a practice with you so everybody is able to remember or remind themselves of why we're going through this particular effort, this particular project and ultimately what are we trying to get on the outset of that. The next thing with that, really, in terms of your goals is to ultimately lockdown with the timing as well.
I've used this model before, it's called the OGSM model and what that stands for is objectives, goals, strategies and measures. What that means is to objectives, goals are the measures that are defining the objectives you're trying to get to, the strategies are the tactical ways you're going to get there and the measures are the definition of what each strategy should be delivering in terms of an outcome. You don't necessarily have to go down that formal path but, again, having a good sense of what you're trying to achieve and when you're trying to achieve it will help guide you in terms of what you need to do and when.
The next piece is really identify who's going to drive this, who's going to be the project driver for value pricing, who's going to be the one carrying the torch and making sure that we're going to get to those goals underneath that time frame. Again, a model that I've used at Intuit, I've used elsewhere is called the DACI model. What that means is there's a driver, there's an approver, people who are consulted and there's people who are informed so there's one driver, there's one approver, those people who are involved in the project are consulted and those people need to understand and know what's going on and informed. Everybody in the practice will be informed and, again, you needed to know who the other people are on the other spots. Most likely you are the approver, you may also be the driver. Again, having one person who owns and carries the torch is going to help you get to the best results overall. Again, these are good project management tips overall.
The next one is to think about change management. We're going to come back to the change management component and talk about that in more detail. You want to have a good understanding of how you're going to ultimately get not just yourself but your coworkers, your partners and so forth across the line to be able to do this as well. It really just takes one person to ultimately buck the trend or to ultimately not go down the value pricing bandwagon to ultimately get other people to take the easy way out. Again, that's a disservice to what you're trying to do on the goals and, ultimately, it's really going to hurt in terms of profits and the ability to be able to best serve your clients overall. You want to have a good understanding of what's it going to take to actually get this across the line with everybody involved.
The next piece here is really around picking the first few clients or having an understanding of who you're going to pick. Now with value pricing, again it is a bit uncharted territory for some so there's two ways to go down thinking about where you might want to go. It might just be a brand new client, there's no context, there's no history and you can ultimately try it out and see what their reaction is going to be, gauge how that engagement went in terms of did you price it right, were the bundles makes sense and so forth. A lot of folks will move to value pricing with their new clients and keep their existing clients on what they currently do today and transition them overtime.
Other folks have been successful with going after clients who are non-complex or simple, current [cross customers 00:19:45] that they have that they ultimately are doing things in [routine fashion 00:19:49] anyways, they've had a good relationship overtime and they have a conversation like, "Look, we're going to change this model, it's going to balance out your payment stream to us so you're not paying it all in one lump-sum or spread it across the full year, pay monthly installments. That gives you some good consistency and understanding of your cash flow, ultimately it might give you benefit for not having to pay it all at this moment in time." They utilize those customers that are simple in nature to be able to understand how to have the value conversation, how to ultimately put this into practice.
There's a last one I didn't put up there which is clients that you plan to fire. This has been successful for some folks, not successful for all but you're going to be getting rid of the clients anyway. Maybe the reason why that engagement wasn't working was because of the pricing model, the service model, the inability to be proactive and so maybe mixing this up and utilizing this is a learning opportunity, will ultimately provide the way for you to take that next step forward. Those are some different ways of thinking about it but you need to figure which one of those you want to go down.
The last one here is if you're doing value pricing, you really need to get comfortable with sales and marketing because you really need to be able to have, again, that value conversation, we're going to talk about it a little bit earlier, and be able to ultimately articulate why you're the best with the job that needs to be done and why does this value associate and how that value is appropriate for what they need. For those who are less comfortable with the sales and marketing, this is where I would say fixed fees are the easier or a first step to go before going down a true value pricing model. Again, if you're not as comfortable with the sales and marketing, that's where you got an upfront fixed fee that you're going to be doing for a set service package and again you can present that and ultimately not have to worry about [reading 00:21:48] the customer and the like. If you try to do value pricing, again it's [putting 00:21:54] a price based on the customer's perceived value of what they're going to be receiving from what you're providing.
That is step two in terms of developing a plan. Let's go now to step three. Quick little stop here along the path, this is the CPE keyword of the day. You're going to need this keyword and the keyword is Australia, interesting enough, Karbon, we have an office in Sydney, Australia and an office also in Melbourne so we're quite familiar with Australia. This keyword you're going to need at the end when I give the polling question for the CPE. Again, make sure you track this down for those of you that need a little bit more coffee and hopefully I'm not monotone, CPE keyword today is Australia. Again, last time, Australia is the CPE keyword that you're going to have at the end.
All right. Let's get moving now to step three, create the bundled packages. This is where we're transitioning from that research side and ultimately into the setup phase of value pricing. The packages in the create the bundled packages is the way to be able to articulate what you're doing to the customer and have them help you understand what they need because a lot of times they really don't know. They're coming at you with, "Here's my problem, I know what I want, here's ultimately what I want you to give me," but when you scratch on the surface, there's a lot more that needs to be done. Frankly, a lot of small businesses need to be involved a lot more with their accounting professional in order to move their business forward. They really need to have a trusted advisor along their side.
How do you create these bundled packages? The first thing is, again, you'll see it in bullet number four but there's a power of three that we're going to see not only in step three but in step four and also later as well. The reason why the power of three is important, it's really easy for someone to process when given a set of options that are [three them out 00:23:59] to be able to evaluate which one is the most accurate for what they need. It's so simple to digest. It's also when you're dealing with difficult problems, if you're able to break it into threes, you're able to get to what the middle or the average that you want to be able to leverage and again we're going to see that in pricing. Don't forget the power of three.
Now in creating bundled packages, the first place to start is to really make an exhaustive list. Because what you're going to do from that exhaustive list is you're going to narrow it down, simplify it and then ultimately create it to something that's digestible into these packages. You can just go back and look at the engagements that you're doing today and start writing down what services are you doing and for whom. Then you can go back to even further engagements and look at, again, what are the different projects that we've been doing and for the typical customers or clients that we want to serve. Again, the more detailed you go, the more you're going to be able to understand exactly what are you truly providing.
Again, if you're new and you're basically taking clients from a whole wide variety of industries and different types of functions, this can be quite a large list but it also helps you understand and take a step back and say, "Okay, should I really be providing all this various service across this client base or do I need to be a little bit more focused," and again these packages can help you be more focused going forward. Again, spend the time and document exactly what are those services you provide. Again, if you need some context of what others have done, this is where you go look at their websites and see what services they're communicating and talking to in terms of the prospects that are out there that they're trying to serve.
Now, once you have this detailed or exhausted list of all your services, you now want to go onto the other side of that equation and figure out what is the bare minimum of services that you need to provide to have a meaningful and successful engagement. This could be looking at the least common denominator across the current clients that you have or the recent clients that you have. That's probably looking too thin, you might want to look at that at just a little bit more aggressively in terms of there's probably some clients that you're servicing today that aren't doing enough and it's probably not [an example 00:26:28] that you're doing that little for them because it takes time away from your best clients, it also takes time away to have capacity to be able to bring on new clients if they were to come in, if you're able to get a brand new client that was going to be super profitable or exciting or interesting overall.
Now you got this exhaustive list, you pare it down to the bare minimum. What you're going to do now is you're going to look at the middle point between that and look at, okay, what is the average of services I need to provide or what are the average services I'm providing today across the clients that I have. Again, it's not the minimum, it's not the full set but what typically am I doing right now.
Then when you evaluate that and you look at what that particular set is, look at it from a different lens and say, "Ideally, what should I be providing on an average basis to the clients?" Maybe in terms of just looking at this broadly, let's say I'm an outsourced bookkeeper, I'm providing payroll, I'm providing bookkeeping, I'm providing IT services and the like. Well, actually, a lot of times in doing advisory services and I'm doing it for something, I'm not doing it for others but that's where I'm really providing some meaningful value and I'm getting a lot of appreciation, a lot of really good client satisfaction around that so maybe that should be part of my middle option. That's, again, why I make the distinction between average and ideal.
Now, what's happened here is with those first three that we talked about is we've inherently created three options. There's two ways to look at that. The first one is the GBB which I call the good, better, best model. Again, it's not necessarily the minimum to serve and it's a bit above that, better again sits between best. Again, the best may not be the exhaustive list, it's maybe paring down from the exhaustive list because again you're trying to package, it's not the full a la carte menu. Versus the MTO model, it's the minimum, typical and the full collective set or that a la carte menu at the end. That's really giving that full breadth of what we've just done before. Again, this is what we do in the bare minimum to serve you, this is what we could do at the full collective set and then typically this is what people do in the middle.
The reason why you're creating three packages is because when you present that to somebody, they immediately will evaluate the middle package. They will then see that if they go down on the more cheap route or less servicing route, what are they giving up. Then they look at the best package to figure out what they're missing. It not only slightly anchors into the middle which is fine because, again, that's typically how you serve customers but what it does is it really gets them to think about what's really important for me and what's really important for my business, what do I really need in order to be successful with my trusted advisor. The three options there help to be able to guide the small business client to ultimately understand what services are really critical versus what they came and just asking for because, again, they haven't necessarily thought through everything that they need.
Now once you've got those packages laid out, again remember you are doing it from an exhausted standpoint, you need to break it down into a categorized list. You want to figure out how to group this together into meaningful chunks or buckets. Because if you were to present to somebody, your minimum was 20 services, your middle was 50 services and your top end was 100 services, that's just too much, it's too much to be able to comprehend. You want to categorize that so that in the first bucket, there's maybe four to six categories. In the middle bucket, maybe six to eight. Then at the top, maybe eight to 10. You can quickly scan through as a prospect and know, well, this is what I'm getting here, this is what I'm adding on if I go up to the better model and this is where I'm going to get the best. That gives you this framework to easily be able to have the conversation about what it means for each one of those buckets and what they're going to ultimately get to.
Again, this is the [hard part 00:30:28] of value pricing so I spend a little bit more time on this. Again, remember the power of three, start from the full list, break it down into the three options and then summarize it so it's easy to digest.
Now, following on a similar mantra of the power of three is now you got to figure out ... I got my three packages now, how am I going to actually figure out what are the prices I'm going to actually set for each one of these packages and then what's the variability that I need to assume based upon each client I might have a conversation from. Again, if you go to fixed fees versus value pricing, you're doing the same thing in step three and you're starting at the same point with step four. It's not going to deviate until we get little further down the path.
The first thing and Ron Baker talks about this and full agreement with it is form a pricing committee. If you're in a larger firm, this is probably a set of partners who are able to talk through ... Again, if you're looking at these bundles, what should be the set price based upon what we are seeing across the organization. It's also when you're dealing with a client face-to-face, it's harder to have the pricing conversation if you don't feel like you got ... Again, there's emotional attachment, you want to be able to sell that off for someone who isn't emotionally attached, the relationship that's being formed. That pricing committee is a really good way to keep you honest and also to feel like someone's got your back and you thought it through quite well.
For those of you that aren't in large firms, if you're by yourself, your pricing committee is your spouse. It's the person who's going to be most impacted by the fact that you underbid a client engagement that came in because they're the ones that ultimately have to deal with the aftermath of that. They're not emotionally attached to the client but they're definitely emotional attached to the outcome. They don't need to know about value pricing, they don't need to know necessarily about the business at the same level of detail that you have but it's for them to be able to be a sounding board to provide the questions to really probe in to see did you think about this particular set of scenarios or why did you come up with this particular piece. They're going to probe and help you understand and make you think about things from a different perspective than what you already have. Again, pricing committee is important, you're going to use it here on setting the initial prices and you're going to be using them on engagements as you go forward.
The next is really understanding the cost and assumptions per bundle. What's really interesting is when I do these talks with folks individually and I really press the fact that, okay, this particular service stock, how much do you think it cost? If I press on it, they can give me a relative cost of what it is. Is it exact? Maybe not but it's pretty darn close. You know when you look at a service bundle or a component of that, you roughly know what that's going to take on average. Each engagement is slightly different but right now we're dealing with the averages here.
For those of you that actually have a project management system and you're tracking things per hour and so forth, yeah, you can use that. Again, you're going to want to list out what your assumptions are, you're going to want to list out different things you're providing there and then, ultimately, try to gravitate towards what's the cost because you just want to have an understanding of relatively what this is going to take because you're never going to be offering that price, you're going to be offering that price for obviously the markup on top, what is the value that you're going to want to get for what you're providing and what the customers are going to be perceived to be that value.
Now, what you're going to do based upon having that committee, having those costs and assumptions laid out is you're going to develop three prices for each bundle. You're creating these three by three metrics of prices across the three bundles that we talked about. The prices are really, what I call here, the B-E-I. The first one there is called the BATNA price, the next one is the expected price and then the top one is the ideal price.
We're going to start with the BATNA and that is a business management term and it stands for Best Alternative to a Negotiated Agreement. This is the price that if you and I were in a conversation, you're the small business and I'm the accounting professional, this is the price that if I was to present this with a bundle, would be the walk away price. This is a threshold of both parties. If I'm the customer, I feel like I'm getting a great and fantastic deal but I, as the accounting professional, feel like I am now crossing the threshold for where I am not making enough value on this engagement to move forward. It is not to say that that is the cost, it is what the value that you have to have from each engagement to make it meaningful and willing to take on. That can be a little bit variable but the point is it's not just cost, it's cost plus whatever profit that you would ultimately have to make to be worth your time to spend on that. Again, that's the BATNA price.
On the complete opposite end of that is the ideal price, this is what Ron Baker would call the fist pump price. This is the price by which at the end of the day, a few customers will take it and you're going to say yourself, "Yes, that is fantastic. I'm surprised a few people ever take this price but this is my upper bound that someone will be willing to pay."
Now, the expected price is what's sitting in between. You can just take the average of those two. You can take the average and then look at that and see if it's right and then move it either up or down based upon what you perceived your customers' willingness to pay will be. That gives you a gauge of what relatively you should be setting the price at in terms of your head and mental models you go forward.
At this point now, you got those three prices tiered across three packages and you need to think to yourself, am I going to do fixed fees or am I going to do value pricing? If you're going to do fixed fees, then basically what you're doing here is you're going to be choosing one of those three prices most likely to be expected and that's going to be your starting point in conversations going forward on what your monthly servicing fees are going to be. It can be adjusted based upon your clients and customers. If you're doing value pricing, what you've now created with that model is the range of prices that you'll be willing to accept, that you're going to be working with in order for each customer or prospect that you're going to be dealing with face-to-face. That range is going to help you in terms of when someone picks a package, how to be able to gauge what the pricing is going to be for that.
Now once you've done that and you got your prices, you're going to do a dry run. You're going to go back to that pricing committee and you're going to present your packages and present the one price for each of those bundles, again that's probably your expected price across all three of those, and present the packages and present the actual prices and see what conversation stems from that and if you feel comfortable with that pricing being set for those packages. Hopefully, that makes sense against power of three. We're going to be setting up three prices to be able to get to what that expected price is. Then that price, we're going to, then, be using as our mental model for each one of those packages as we go across. Okay?
We've gone through the two longest, hardest parts of the conversation for value pricing, step three, creating bundles, step four, setting initial prices. Again, this is before we actually put this all into practice. The next step, really, is understanding the change management part of it and so it's making the change. What I want to do here is just, again, we're going to spend a little bit of time on this.
Again, it's really important that yourself, your partners, your firm and the entire organization are able to go on the journey of value pricing with you because, ultimately, it takes the full buy-in and the firm to be successful. This is why you wrote down your goals, you write down your timing beforehand and your rationale, why are you doing this, because you're going to bring those back to life and you're going to be using those to be able to articulate to each person that's, again, in that informed state or whether or not they're contributing on a project. Remind them of why we're doing this and what the outcomes and what we're trying to achieve.
Along this path, again the reason why we did that model of having one person owning the project and working with others was to be able to have that cross-practice involvement. Those who are actually face-to-face with the clients, to those who are partners, having a voice at the table to understand how to be able to do this and making sure all the different variables were considered in creating the models that we're going to be using going forward.
I call this part the as is and to be. I'm a process guy and so a lot of times it's documenting what did we do before, what is the engagement that we did in an hourly-based billing model, how did that look, how did it transpire, what did we do, how do we do it. You want to be doing that anyway to be able to understand your processes as a firm and be able to iterate them overtime. It's for later in the conversation. The to be is what are we going to be doing going forward, how does an engagement look in terms of our conversation with the prospect, how is that then stand to what we're going to present in terms of packages, the prices that we're going to do, the involvement of the pricing committee, the signing of the paperwork and how the engagement itself is going to happen in order to leverage the fact that we're now in this value pricing model where we need to be more proactive and we need to be delivering as fast as we can at the highest quality.
Then it's about getting buy-in across the team. It's having the conversations with everybody to understand why we're doing this, understand objections, answer the questions, doesn't necessarily mean that we need to solve all those questions but we need to listen to them and be able to take an honest evaluation of them and see if whether or not we need to change things because of that.
Then it's ensuring that everyone across the board adhering to it, using reminders, bringing back those goals, the rationale. Again, it's not just something you turn on and then you forget about it and move on, you got to continue to work at it especially in those early days [inaudible 00:40:23] practice.
The last thing and this is the key with any change management project is you need to celebrate, celebrate when those goals are met. You want to have them short-term and medium-term so that way ... Again, you want to have those small successes and those big successes and take a moment and have everyone reflect about getting to that next stage and getting that sense of progression across this new foray.
That's step five. Now, step six, we're putting this into practice. We talked before about which client are we going to work with first, is it going to be a new client or a new prospect that comes along the way, is it an existing client that's pretty simple, it's routine, that has minimal variables that we need to deal with, that we can have a good relationship with or is it someone that I'm going to fire. Again, we're going to go and think about that one specific customer we're going to [inaudible 00:41:14] first.
The first thing is do your homework and that's if possible. Again, if it's a new client, you may not have the luxury of being able to do the research on their business, on who they are, on what they might be wanting and so forth. Any homework that you can do helps you understand the perspective and the situation that that small business owner, that individual is facing so you can think about how to craft the packages, how to have the conversation and ultimately be able to get to a meaningful [and wide 00:41:45] set of goals for the project.
Now, what I call here greet, meet, listen and probe. In terms of whether it's a phone conversation, an in person meeting, whatever it might be, at first sort of dive down into, ultimately, what is needed to be solved and how are we going to solve it. A lot of times, folks will go ahead, hear quickly what's being said and then here's what we do. Quickly [spinning 00:42:10] it right back to the small business owner and then, now, it's just a negotiation on price to ultimately get whatever that might be done.
The key here is you greet, say hi to the person, you get a little bit familiar with who they are, you start to build a little trust in the conversation and then listen. Listen to understand what are they facing, what's their business about. Again, small business owners especially, and again we're all small business owners on the call here, is you love to talk about your business. It's your passion, it's what you wake up everyday to do. Leverage that fact to have them articulate, well, why are you in business, what are you doing, what's really important, what are your barriers right now, what are you trying to solve, what's limiting you, what are you trying to ultimately get to, what's your end goal for the business three months, six months, one year. This probing conversation in terms of being able to pull out more and more information.
One of the ways to do that is this process called the five whys. You ask somebody, why are you trying to ultimately solve this problem for your customers and then they will tell you why, they'll give you an answer. Why is that important, they'll give you some more detail. In each one of those, you're pulling out a bit of what they've done in the response and you're asking it back to them in the framing of a why question. If you do that within five whys, you will ultimately get to the root, underlying cause or the root behavior that's driving this particular outcome or goal or whatnot or barrier that they're facing. Those five whys is a probing mechanism to really dig down deep and understand ... Okay, you've asked for bookkeeping services but why do you really need bookkeeping services, what ultimately is driving that, what are you trying to do with your time or why has this become a problem now, why was it not a problem before.
That helps you then to evaluate the scope, well, what are we trying to solve, at what level of detail and what ultimately is the pain of those people are facing and how painful is it. Because that pain that you're able to alleviate is really the value conversation that you're going to have and so you're trying to then, again, evaluate what they need, how they need it, what time frame and what you can ultimately do to be able to help them. Again, small business owners doing that conversation, you're evaluating it and assessing it from the other side of the table.
That really goes to step seven which is the value conversation. Again, this is one of the most critical pieces of the ten steps. Step three and four is extremely critical and step seven is also extremely critical, this is where it all comes into being in one place.
You got the context now so now you got to be able to tell the story and explain what you're going to be presenting to them is going to solve the underlying problems that they have. The first thing to do here is retell what you heard. Recite what we've actually talked about to make sure that you gauged it and understood it correctly. Then it's really determining together what success ultimately looks like. Okay, so you've asked for these particular services, this is what you're trying to achieve, this is going to ultimately deliver what for your business, this is ultimately going to provide you a piece of mind in what way. If you can then create a sense of aligned goals ... I can get you to where you want here based upon working with you in this capacity, those aligned goals are what's going to set the tone, set the framework of what the engagement is that you're going to be able to provide, that's going to deliver towards those goals or be a part of the journey to be able for that small business to be successful in the outcome that they've outlined.
Talking about, well, how is it to work with me ultimately as a trusted advisor, what are we ultimately going to be able to do. This is [where we stay 00:46:05] in tone, this is really understanding what's the process, what are the tools that we use, what is the conversation style or the communication and [how we 00:46:18] proactively. In the context of that, what you're doing is you're selling your services, you're selling how it is to work with you in terms of your processes, you're selling your expertise. Again, it's much easier to do that conversation when it's in conjunction with what the small business owner is trying to ultimately accomplish and what you do, ultimately, could help them get to that goal. It's framing it into something that is easier for you to articulate and it's very easy for them to understand.
The whole reason for doing this is you're instilling confidence that you're the person, your firm that is going to give them the highest likelihood to be able to get to that success point. They're understanding of how you come to the table and what you do and how you do it is ultimately going to give them the lowest risk and the highest return and, again, the value that's ultimately brought together on that. Again, this is the value conversation. We haven't gotten to the point of even presenting what we do, we're talking about, again, how is the relationship with us going to work and why is that relationship going to lead to the best outcomes for everybody.
That then gets to step eight which is presenting your packages and pricing. We got the context, we have the value conversation, this is where ... Again, if you have the time, if you were to have a secondary meeting, you may tweak the packages that you have. Again, let's assume that you didn't have the time, you're going to be presenting the three packages that you had with the set expected prices that you made, again, in the value pricing model. You will be doing that on the spot using your gauge between your BATNA, your expected and your ideal to set what that price might be. In a fixed fee model, you already got them in sets so you will just be presenting what the prices were with the packages that you've already [perpend 00:48:12].
Now you're presenting, based upon the conversation, a modified reversion of what are the different services that we can provide on a good, better and best model dictated by what you, Mr. or Mrs. Small Business Owner, are needing in order to be successful. Again, that middle one is the typical one, the one that most people use and that's what you're talking about first. You talk about that middle option first. You talk about, then, the smaller option which is basically ... Most people don't do this but at a bare minimum, this is what we can do but ultimately you're going to have to do more work on your side or this isn't going to give you the highest likelihood of success. If you really want to go and do more with us, this is what the best model is that can ultimately deliver you fast results, better results or better engagement, more time back for you to do other things.
You're going to, then, straight up recommend the right one for them. Typically, that is the middle but maybe on the conversation, you learned that maybe the smallest package is the right one for them. Again, you want to do what's right for the client, you don't want to force them into any particular one for your own purposes. You want to do what's right for them because that's ultimately going to deliver best client satisfaction at the end of the day and then, ultimately, possibly cross-sell or upsell opportunities for your business.
If you have a chance, you want to check with the pricing committee on what prices that you're going to offer before you do that. Again, you may not have that flexibility.
You then, again, have shown them the packages, you talk to them about each one and why they're meaningful and now you're going to present the price. In the presenting of the price, you're also referencing the value that they're going to get so it's not price independent, it's price in the context of that value conversation you were just having on why you're the best for this, why your processes are there, how that's going to deliver to those end goals that we stated before.
You're going to define what that engagement is and expectations about what you're going to provide and, also, what they need to do. A lot of times, it may be an outsource model and, again, they have certain things they need to provide to you. Remember, they're part of your extended team so if they're going to be doing activities, they need to act like one of your employees and provide it at the right quality and the right timing, otherwise, it's going to mock-up the delivery dates and everything else. Again, there's a characteristic model you can do with that and I'll talk about that a little later in the deep dives that we'll do on pricing and bundling. Again, you really want to define what that engagement is.
When you get to the point of signing and closing out that conversation into a working engagement, first thing to do is schedule that next meeting and give them a checklist of what they need to do to prep for that meeting. They probably won't do anything on that checklist but, again, you want to start the project in motion immediately upon the close of the engagement itself because, again, a lot of times things will drag on and that ultimately leads to doubts and other things.
Then the next step is really to be the trusted advisor. You guys know this, you do this, this is your bread and butter, nothing in here should be anything new. Again, you now move from a sales scenario to an engagement so you need to transition that in larger firms, you may have someone on the sales side, you may have, again, someone who owns the account, you may have a specific onboarder but each one of those needs to have a proper baton pass both people on the call in order to transition from state to state, otherwise, the small business owner, individual is confused on what's going on in who they're dealing with.
Just like what we did for this project, you need to set a goal and set a critical path to success, how are we going to get there, what are all the different pieces that we need, how can we get this engagement to be routine. Lay that down very clearly and understanding whose got what components to be able to provide.
That goes back to those deadlines.... Here's what you need to provide, if you provide this on time or early, then we can move this project along even faster. If you're late, then it may come into a change fee or there're maybe other penalties that happen here not just that the project is delayed. Again, they need to understand what are the complications they can introduce.
Next one is you got to train the client, so important. If you're going to have someone be an extended part of your staff, again that's what these small business owners a lot of case are, train them for success for what they got to do. If they're going to be on the reconciliation process, again when you're talking about the bookkeeping, train them how to do it even if they say they know how. Don't assume that they know everything, assume that they don't. Because it also looks like you're going the extra mile for them and they can say, "Yeah, I do know that," and you can back off but, again, don't assume that they do know.
Over-communicate. Folks, a lot of folks forget this, over-communication is great because it shows proactiveness. It shows that you're involved, it shows that you care. Again, that really substantiates the value that they're paying overall.
That goes to the next piece which is proactive in the relationship. Again, especially in those early few weeks, that first month, be proactive, reach out, give advice, check in and see how things are going. Don't just assume that everything is going well. Again, they're going to be nervous to reach out at times so you go ahead and do that extra step.
At the end of the day, you got to get the work done. It's got to be on time, it's got to be of high quality because that's substantiating the value that they're paying for and they're going to be happy to pay that particular price because you've ultimately delivered what you said you're going to deliver at the beginning of the day. Again, getting the work done and at least delivering what was stated, if not a little bit over, ultimately leads to the recurring work and also the referrals that we all are desperately seeking to get.
That goes to the last piece which is really the iteration of it all. At the end of each one of these projects or even the different steps or tollgates along the way, dedicate a time for what's called an after action review. This can be as little as 15 minutes, it can be no more than an hour. What it is is the team that was involved takes a step back and evaluate what was successful, what worked, what didn't, what needs to change. That way you can take that back to the organization overall, to the process overall and be able to change maybe what's been done in terms of the packages, the pricing, the communication, the value conversation, all those sort of things so that way you constantly are improving what you do. That goes back to the second point, what worked, what didn't, what was learned.
Make those improvements. Don't wait, make them as soon as you know that you got enough data to be able to prove that you better do something differently. Then you got to communicate. Again, over-communicate, communicate what was found. Again, if something didn't go the right way, first time is fine, it's a lesson learned. Second time, if you're doing the same thing, now you're getting some problems. Communicate what's found so you don't repeat them.
If you're in a larger practice, you got to foster that continuous improvement. Get a culture of that because that's ultimately what's going to be able to have you dial in better and better in terms of setting the prices and the packages and getting the best value for yourself and for your clients overall.
Again, I said this is going to be a pretty full talk and it is. I know that Stuart has been out there answering some questions. We're going to now wrap this up in a nice little bow. What are the summary and the key takeaways. Again, I put up here the ten steps to value pricing. We have research, build the plan, build the packages, set the prices, do the change management journey, assess the client, then have that value conversation before you present, present the packages first and then the prices, get the work done as the trusted advisor and then iterate on the process in order to make sure that this is getting dialed in better and better each time.
The top key takeaways are ... First is research. Go watch the Value of Puppies by Jason Blumer if you haven't and if you're new to the subject matter. If you're a little bit more than just new, then go pick up that Pricing on Purpose by Ron Baker. Good assets to really just get you going down the path.
Setup. Again, I've talked about this power of threes. In terms of getting the bundles, you're going to try to create the three bundles, good, better, best, starting with a comprehensive list and bring it down to a categorized list. Pricing. Again, you're going to create three prices for each bundle so that way you can figure out what that expected price is going to be overall.
Putting into practice. Again, identify who's going to be the first one you're going to go out with and have a conversation. Again, that value conversation is the critical piece so start thinking about that in terms of start from the value conversation before you're actually talking about the work, the price and so forth.
Learn, really really important. Again, you need to understand what you may have left on the table or how you could have approached the conversation differently to get better outcomes each and every time. Don't settle for it worked but I have that constant sense of how do I make this better and better each and every time. That leads to that iterate part of the journey overall.
A little bit of housekeeping here before we move on to maybe a few questions is upcoming webinar series. In February, again value pricing. We're going to have a pre-recorded panel discussion at the end of February and it's going to be a fantastic panel of what looks like four experts in it. They're going to talk about the journey. Again, they're practitioners so they can talk to you about what to expect and what they face along the way and some nuggets of gold in terms of advice. Then also, we're going to put up some content on bundling and pricing strategies in depth and also the value conversation because they're so critical.
In March, I'll be back on here on March 9th. Again, go to Firm of the Future to sign up. We're going to be talking about practice improvement and practice efficiency so we're going to be talking about that in terms of context of your email, your clients and your team. Then again, we got another panel discussion at the end of March as well as some good content around onboarding, managing email, client communication and visibility and so forth. Some great stuff coming up here, check that out, firmofthefuture.com.
Again, check back as often. I don't know if you guys have noticed but the website was just recently updated. It looks fantastic, there's a lot of really good tools and stuff already and the Intuit team is working hard to provide a lot more content and a lot more great information for you to be able to improve what you do and ultimately provide the best service to your clients.
Now, I'm not shy from the topic. Again, I want to be able to say thank you, first of all. My contact information is up here. Again, I'm from Karbon. If you want to learn more about Karbon, go to karbonhq.com but my email is up there, firstname.lastname@example.org. My cellphone is there as well so you can call me as well. Just note that I do have a family so a call at 2:00 in the morning Pacific Time is not really the best time to chat. Again, if you need me, I'm there.
We only have about a minute so I'm going to go ahead and look here at the questions. Before I do that, I think it's time for us to launch that CPE keyword for those of you out there. Again, remember at that 30-minute mark, I put up that keyword of the day for you to get CPE. Is it Australia, Asia, Europe, Antarctica or Africa? Again, I'm going to keep that up here as we go. Make sure you answer that if you want CPE.
Couple of questions that came up and I'll just do this in rapid fire. Someone asked, I couldn't understand what the B stood for in B-E-I. Again, those are the three prices. BATNA is what the B stands for and that is the Best Alternative to a Negotiated Agreement. That is the price by which both parties in a negotiation would walk away from the table. You hit the point where you're offering a price that you aren't making money from or you're not making enough money to make the engagement reasonable. For the client that you're dealing with, that is the point by which they're getting the best deal on the planet and it's below whatever they're going to get elsewhere. For you, the BATNA is your walk away price. The last one here is what does MTO stand for. It's minimum, typical and open-ended. Again, it's the minimum amount of services you provide, the average or typical and then the a la carte full open menu list overall. Then the last that I'll answer here was around BATNA. I just defined that so we got that covered as well.
Again, we're now here at the end of the hour. Just to go back here real quick ... Oops, there's my information again if you need it. Thank you, everybody. We're going to close the poll. Appreciate your time today. Go to www.firmofthefuture.com to be able to see this and other recordings from Intuit. Appreciate your time, have a good one.