I met Ron Baker in person for the first time in 2011. Before that, I had read his articles online and attended a webinar he presented. But in 2011, I attended the first Thriveal Deeper Weekend, which was a “Firm of the Future” seminar offered by Ron Baker and Ed Kless. That was two days of brain-crushing, mind-altering, future-shifting learning and dialogue.
I immediately started to change things: first with a handful of customers with whom we had strong relationships, then with certain service types, etc. I remember a year later, I’d hardly made the progress I wanted to, and was feeling down wondering if it was ever going to happen. I remember chatting with Ron around that time, and he mentioned in passing that firms usually take three years to fully transition to value pricing. Whew – I was much relieved: I still had time.
Three years later, I look back, and boy, there has been such a change between then and now. I’m happy to say, we’re now completely value priced — I’m still learning (and doubt I’ll ever stop), but I feel so much more freed as a business owner having gone through this process. I was recently reflecting on some of the realizations I’ve had along the way and wanted to share them with you:
- Value pricing enables innovation. One of the problems with hourly billing is that it attempts to make every hour profitable. It can work at some level for the tried and tested things that have been done by our profession for the past 50 years (sub-optimally, I might argue). But markets don’t stay the same. And I don’t think anyone would deny the accounting industry is undergoing major changes right now. Innovation, by definition, is unprofitable at its beginning. A pricing strategy that doesn’t recognize this reality discourages us from taking on those projects, instead choosing only those projects that fit its limitations. This means we aren’t investing in the future, which means we’re progressively fading into the past. The value pricing method is designed to enable us to understand where value exists (in the customer), what it is worth (in the eyes of the customer), and to redeploy our resources to create value for all parties in those arenas.
- Value pricing is misunderstood. I’m not sure if there’s a current professional “buzz word” out there that’s more muddled. It reminds me of the term “cloud” four years ago — popular, but most of us didn’t know what it translated into practically. Some think value pricing means how much we can soak a customer for. Some think value pricing means flat fee. Some think value pricing means all-inclusive service packages. Some think value pricing means menu pricing. Value pricing is simply a method to price based on something’s value, not its cost. And that the customer is the ultimate arbiter of value, with whom we must arrive at an agreement on price, before beginning work.
- Value pricing is customer advocacy. The subconscious image in most of our minds for “sales” is “price negotiation” — both parties avoid saying a number first, then the haggling and counter haggling ensues, one party looking to see how low they can take it, the other seeing how high they can go. Value pricing completely contradicts this image — I now figuratively sit on the same side of the table with my customer, together we think through what’s actually going to make a positive difference for them, we get to know each other better, we figure out what that’s worth, and jointly figure out how to structure it. It’s no longer a sales game, and the customer isn’t constantly suspicious of being duped, asking questions about what my cost is, etc. — we’re both focused on what actually matters: the value we can create together, and whether it makes sense.
- Value pricing is freeing. This one is perhaps the hardest to explain, but it’s a mental state of being. Value pricing enables the entrepreneurial mindset that is needed to adapt and evolve our firms. Ideas inform habits, but habits also reinforce ideas — knowledge flows bi-directionally. Hourly billing reinforces the ideas of capacity utilization, people as fixed assets, manufacturing economies of scale, effort as equating to value, day laborer status, etc. I’m convinced these embedded concepts won’t take us to the next level that’s needed for the transformative and creative economy that we’re moving to. Instead, value pricing helps me see time in its proper light: as a resource constraint, not the definition of value. And it is the creativity of our team, and our customers’ openness to letting us impact their lives, where the magic happens. We now keep our eye on that ball, and not on last week’s timesheet.
These are just a few of my reflections, but I hope they’ve been helpful for you. I have to say, business is so much more rewarding and energizing than it was three years. I’m not going to pretend like the transition was easy — it was a struggle dismantling the ingrained ways of thinking, and constructing new ways of doing things. But it was worth it. If my story can give you encouragement, please take every ounce of my exhortation to begin and/or continue on the path — there are good things ahead for our profession once we undertake this transformation!
(As originally posted on the Thriveal blog.)