Ask Ron Baker: Value Pricing and Self-Esteem
“A man had better overvalue than undervalue himself. Mankind in general will take his own word for his own merit. … [K]now your own value, whatever it may be, and act upon that principal; but take great care to let nobody discover that you do know your own value. Whatever real merit you have, other people will discover; and people always magnify their own discoveries, as they lessen those of others.” – Lord Chesterfield
I received the following from Diane, a CPA in California:
Finally, the biggest change in all of this has been to my self-esteem. About 10 years ago, not long after beginning my solo practice, my mother-in-law, who is an attorney, said to me, "Diane, just remember, men are in business to make money and women are in business to take care of people. Get over it!" What she meant was that the female attitude of "I’ll take care of you" will give you little satisfaction and make you no money. If you are going to be taken away from your family, you might as well make a hell of a lot of money and feel really good about it.
But, that is easier said than done. I fell into the trap of helping my clients and forgetting myself. Was I popular? Did my clients love me? Yes! But, I didn’t feel the same. Only when I took my practice seriously and began placing a value on my services with “Value Pricing” did I begin to feel successful. If you feel successful, you are successful, and then the money follows. When you reduce your value to an hourly rate, it feels lousy, no matter how high the billing rate.
Good luck, and keep up the good work!
When Larry Page and Sergey Brin were students at Stanford, they developed technology that was designed to search Stanford University’s Web pages, which immediately became popular among the students and faculty. This was 1996, and everyone thought that Yahoo! was the dominant search engine, and there could never be another one. Larry and Sergey did not think their technological innovation was the basis for the company they wanted to start, so they put it on the market – at a price of approximately $1 million.
Fortunately for the rest of us, there were no takers. Had they found a buyer, Google probably never would have been born. It is an excellent example of how overpricing can have salutary effects.
Unfortunately, most professionals underprice their intellectual capital. They justify this with a variety of excuses:
- We do not have enough quality customers.
- Customers view what we do as a commodity.
- Customers do not understand the value we provide.
- Our people do not understand their worth.
- When customers engage in hardball negotiation tactics, we capitulate.
These are nothing but excuses to explain away a lack of purpose, strategy, marketing effectiveness and poor customer selection. But, I believe there is a deeper reason, which I truly did not understand until I began teaching value pricing to my colleagues.
Many participants of my courses have commented that they would “feel guilty” about charging a substantial multiple of their hourly rate. They say this as if they are taking advantage of the customer. This attitude is shocking. Not only is it a misunderstanding of how wealth is created – both sides to a transaction profit – it is also a telling sign of low self-esteem.
The epiphany for me was that this was not a strategic, or even a pricing competency, issue, but rather, a low self-esteem issue. Some of these professionals truly did not believe that they were worth more than costs plus some arbitrary profit margin. Yogi Berra has often said that 90 percent of the game is half mental, and the same applies to pricing, since it is a skill played between your ears.
Low self-esteem (or self-respect) does go right to the heart of why professionals question the value of the service they provide. Do you truly believe the benchmark of your value is the hours you spend? What about the years of experience that stand behind that $1 million tax strategy that took 15 minutes to create? Is the value really one-fourth of your hourly rate?
Professionals are so imprisoned by the hourly billing method that it has affected their own concept of self-worth and has lowered their self-esteem. Do other businesses, such as Apple or Disney, “feel guilty” about pricing based upon value?
The lesson is vital, and it is this: Before you can charge a premium price, you first have to believe, internally, that you are worth it. If you do not think you are worth multiples of your hourly rate, your customers never will believe it either.
Have you ever dealt with a professional, such as a doctor or a consultant, who came highly recommended? When you learned of the price, did you try to negotiate it downward? Most highly recommended professionals will not budge on their pricing because they know they deserve it and are worth it. They are secure and confident in their worth, and they price above the market as a result.
Obviously, not everyone can do this. But, the ones who do all possess a common characteristic: high self-esteem. Psychologist Nathaniel Branden has done extensive work on self-esteem. His treatise on the subject is The Six Pillars of Self-Esteem, wherein he defines it as:
1. Confidence in our ability to think, confidence in our ability to cope with the basic challenges of life; and
2. Confidence in our right to be successful and happy, the feeling of being worthy, deserving, entitled to assert our needs and wants, achieve our values, and enjoy the fruits of our efforts.
Branden further points out: “[Self-esteem] is directly affected by how we act. Causation flows in both directions. There is a continuous feedback loop between our actions in the world and our self-esteem. The level of our self-esteem influences how we act, and how we act influences the level of our self-esteem.”
Branden says, “Self-esteem is the reputation we acquire with ourselves.” That is profound. Professionals are deeply concerned, and rightfully so, with their reputations. They care what their customers think of them, of their firm and of their integrity. But, what about their reputation with themselves? Most professionals were never taught even to ask the question.
There is No Standard Price for Intellectual Capital
In today’s world, intellectual capital is the chief source of all wealth. Napoleon Hill wrote in “Think and Grow Rich:” “There is no standard price on ideas. The creator of ideas makes his own price, and, if he is smart, gets it.”
According to the New York Times, Merv Griffin (and his estate) has made between $70-80 million in royalties from the “Jeopardy!” theme song, which he wrote in less than one minute.
People with high self-esteem are not threatened by the success of others. On the contrary, they are truly happy for another’s success and will go out of their way to learn from them. The man who is not afraid of competition does not have any. Customers want their professionals to be successful because they want to be successful. Do not feel guilty or ashamed of your success, and do not let low self-esteem interfere with being paid what you’re worth.