If you think about, talk about, and try to use AI every day, you might be having trouble sleeping. I have figured out why that is.
As I see it, AI has two enormous impacts on our firms, and they cause problems for both the expertise delivery side and the customer service side.
This is so important that today I’m writing about what AI means to how you do your work and price for it. Next week I’ll talk about the effect on customer/client service and how that affects pricing.
Whammy One: How AI affects pricing
If you’re still billing by the hour, you know every client is demanding that you bill less because “obviously” AI reduces the time it takes you to do your work. They have every right to do that and I have nothing more to say about that.
My focus is on those professional/knowledge firms that have adopted other pricing models. Perhaps your firm offers tiers (Good Better Best) or packages your services into products with different price points.
If you’ve included ANY time-related terms in your offers you’re going to face backlash against your prices. Every buyer will assume that since your offers feature time in some way, using AI will reduce the time it takes to do the work and therefore your price should be less.
I’m sorry to say, this is a trap of your own making.
Some examples:
A CPA, bookkeeper, or fractional CFO includes specific tasks in each package. Every buyer will assume that some of the fee is related to the time it takes you to do the work. Use AI? That means less time and should lower the fee.
Lawyers have been getting on the legal subscription bandwagon for the past year or two. The ones I’ve worked with had tried to protect their themselves from cope creep by specifying how much time each client gets to get their needs met. So now the clients come back and say, “You can do as much for me in less time if you use AI, so I want a lower fee.”
Certainly other fractional CXOs such as marketing and operations will face this challenge too. If you regularly include analyzing data, writing reports and making recommendations, and you run the data and other information through AI, the client will expect a lower fee because you spend less time.
The typical consulting model also charges for data collection, analysis and review and writing reports with recommendations. If your AI tool writes the questionnaires, sends it it to the target people, collects the data and analyzes it, the client will have every reason to expect a price reduction.
IMPACT Based Pricing is the Answer
When I created IMPACT Based Pricing (IBP) in 2018, I was responding to the degradation of value pricing. No matter how hard you tried and how good you were, you faced the reality that no two clients see any number as having a specific value, so your value calculations were bound to be off in many cases. Also, value was tending to mean ‘a good deal’ in other word, cheap.
IBP requires the client to tell the provider their needs, wants and desires and in what ways meeting those will change their life. This is not optional. It is the whole thing.
The point is that when the client tells you what it will mean to them to get these impacts, and you offer to create those impacts for a price proportional to the significance of the impacts, you are giving them what they asked for, not what you think they should have or want.
And integral to the offers you customize is that you focus on the impacts, not the inputs. You are saying, “We’ll create these impacts for you at this fee within this time frame.” What you do and how long it takes are your business not the client’s.
And thus, the fees for your options cannot be negotiated down because the client thinks you’re spending less time. You didn’t sell them time and they didn’t buy time, they bought IMPACTs.
If you have adopted IBP and are implementing it correctly, you might still have a client who challenges’ your use of AI but you will have a calm. rational response that ensures you hold your fees where you set them: proportional to the significance of the IMPACTs you’ll create.
Next week I’ll write about Whammy Two: the client who uses their own AI to check your work and then asks you to review their version.
