Context changes how buyers pereceive value.
“I don’t see the value.”
“It’s not worth it.”
Two weeks, two owners, two proposals rejected.
That was the most valuable painful experience I had 8 years ago.
Although harsh, these two owners showed me that ‘value’ is completely subjective.
If you use value as the basis for your fees or prices, be prepared for a lot of rejection.
Why is this?
Ask any two people what something is worth and you’ll get two different answers. Why? Because there is no universal standard scale or measure against which value is determined.
One person thinks $30,000 is a fortune and another thinks it’s barely a blip on their radar screen.
This is especially true for the work done by knowledgeable experts. Law, accounting, fractional executive advisory, executive coaching, consulting. All clients bring their own internal calculus to the question of what is it worth?
You can knock yourselves out trying to nail an ROI (return on investment) to justify a fee, and the client can simply say “It’s not worth it.”
Introducing IMPACT Based Pricing (BP)
Once done licking my wounds, I thought seriously about the problems with value based pricing.
- There’s no standard measure of value.
- Value has been degraded to the point where it usually means “cheap.”
- Competitors will lower their fees so that their ROI seems higher. You either drop your fees or look too expensive.
When I reviewed the conversations I had with those two owners, and with so many others before them, I realized that one key data point was missing: what they (their company) would do with the value provided. In other words, the value or outcome is X but “so what?”
How does X change their lives?
I call those changes IMPACTS. And I took the next step of creating IMPACT Based Pricing.
One CPA firm Owner said it so plainly that I got goose bumps.
“I am 43 years old. We have one young son. I do not want to wake up 15 years from now realizing that I missed every milestone of my one child. We must make changes so that we generate more revenue without me personally involved so that I am free to make the time to spend with my son.”
The ROI was only valuable if it meant he was freed from the day-to-day operations of the firm.
Another client told me he wants to be able to take his wife out for a nice dinner whenever he wants, without looking at the bank balance. No quantitative ROI would mean anything on its own. It had to enable them to dine out at will.
There’s the lawyer who supports a local organization that helps families with special needs kids get the services they need. He knows from personal experience how legal help cuts through the red tape and changes kids’ lives.
When we talked and I asked him how increasing his firm’s fees would change his life he told me he’d be able to donate more money to the organization. Increasing his philanthropy is an IMPACT that changes his life.
The Power of Choices
One other thing I learned from these two rejections was the power of choice. I had given them each only one option. Take it or leave it. They left it.
The Choice Framework is part of IBP. You design 3 customized options for each client with fees proportional to the significance of the IMPACTs created.
The client evaluates them and chooses the option:fee combination that makes the most sense to them at the time. The acceptance rate by clients receiving three options is about 85%.
Your Firm Can Adopt IBP
The most frequently asked question is “How hard is it to adopt IBP?” Firm owners worry about the time it takes to learn and to teach their associates. About marketing, answering client questions, learning the Choice Framework and the Offer Letter. They worry about the internal changes to work habits and firm practices that have to be put in place.
My clients almost always tell me after 2 months “Oh that wasn’t so hard after all!”
I work in partnership with my clients to adopt and implement IBP. I design 3 customized options following our discovery call and the firm owner chooses. Then we get to work.
If you think it’s time to adopt IBP (and get rid of your current pricing model, whether hourly billing, tiers, or products) schedule a meeting with me here.
You can read all about IBP in my newest book, STOP Leaving Money on the Table. The book doesn’t replace my consulting; it helps you get a deeper understanding about how IBP changes your life.
Value is relative, IMPACTs are absolute.
