Episode Summary

Blair Enns delivers an impromptu master class on the strategies and tactics of value pricing creative work.

Episode Notes

Blair Enns delivers an impromptu master class on the strategies and tactics of value pricing creative work.

Blair's Bio

Blair Enns is a 25-year veteran of the business side of the creative professions. In 2002, he launched Win Without Pitching, which has worked with thousands of creative professionals in numerous countries through direct engagements, seminars, workshops & webcasts. Blair is the author of "The Win Without Pitching Manifesto" and the forthcoming "Pricing Creativity: A Guide to Profit Beyond the Billable Hour"

Links

Transcript

Jonathan:

Hello and welcome to Ditching Hourly. I'm Jonathan Stark. On today's show I'm joined by Blair Enns. Blair is a 25 year veteran of the business side of the creative professions. In 2002, he launched Win Without Pitching which has worked with thousands of creative professionals in numerous countries through direct engagements, seminars, workshops and webcasts. Blair's the author of the Win Without Pitching Manifesto and the forthcoming Pricing Creativity: A Guide to Profit Beyond the Billable Hour. Without further ado, here's my interview with Blair [00:00:30] Enns, enjoy. Blair, welcome to the show.

Blair:

Thank you Jonathan, my pleasure to be here.

Jonathan:

I am super excited to talk with you today especially about your new book Pricing Creativity. Could you start off by giving listeners a little bit of context about what the book is meant to do for its readers, who's targeted at, what led you to write it just sort of the big picture.

Blair:

Yeah so my businesses is Win Without Pitching, it's a sales training for creative professionals. We work with [00:01:00] independent, typically owners of independent creative firms of various types usually design or advertising based but often going into the kind of adjacent markets and their teams and we help them get better at selling what it is that they do and you know there's some right there in the name Win Without Pitching there are some ideas around the conventions that we help to challenge. Pricing Creativity is meant to be a [00:01:30] desk reference ... an enjoyable readable reference manual for anybody in the creative professions who sets, negotiates or delivers price.

Jonathan:

Excellent. Well that's right up our alley here. We have had similar paths over the years, we've read a lot of the same people, I know Alan Watts is big on your list, Ron Baker, many many others [00:02:00] I think we probably have the same set of 20 pricing books on our bookshelves.

Blair:

Yeah, probably.

Jonathan:

And also we both have spent at least a decade I think you probably have at least two decades of actually implementing this stuff or experience in a field that you're now implementing these theories in, actually converting them into practice so it's going to be ... it sort of comes as no surprise to me that we have lots and lots and lots of kind of like shared ... I don't want to say revelations [00:02:30] but it just like, wow this stuff does work, it is tricky to implement and it takes some doing, there's a perhaps more art than science at some points but it definitely works and largely in my case I'm super anti hourly billing in case you couldn't tell by the [inaudible 00:02:51] portal, but I know that you do talk about some types of hourly and [00:03:00] for your target market, for people who are making payroll and they've got a bunch of bodies that they have a lot of capacity I should say, it does make sense to perhaps sell blocks of time.

Kind of want to talk about that at some point. Maybe we don't have to dwell into that now but you have this great framework called the four phases of client engagement that talks about this sort of decreasing value curve as you come down [00:03:30] from the discovery phase or I think you call a diagnostic phase and the and that moves into recommendations. Maybe you could talk about the four phases just briefly because people, listeners are familiar with this concept I've talked about you before.

Blair:

The four phases in any engagement of any expertise space business would be diagnose, where you come to understand the client situation, prescribe, where you prescribe a therapy if we wanted to use continue with the medical analogy, [00:04:00] the deliverables of the diagnose phase would be diagnostic findings, the deliverables at the prescribe phase would be a strategy and then you have what I call the apply phase or the initial application of therapy. Then you have ongoing reapplication of therapy so diagnose, prescribe, apply, reapply, and the highest value offering that you have is first and foremost your ability to accurately diagnose the client's challenges, [00:04:30] assess the scene as it were and from there if you're not able to diagnose properly then it doesn't matter how good your prescription is if it's not targeted to the challenge that's really there.

Then when you get into reapplication, excuse me you get into the fourth phase reapplication, that's the highly commoditized stuff of redoing things over and over again where you're adding very little value. It's mostly you're getting paid for things that you do with your hands and your [00:05:00] feet mostly your hands a little bit of your brain still but I do like to break those four phases of the engagement into two separate categories. I refer to the first two diagnose and prescribe as the thinking stages or phases and then the latter to apply and reapply are the doing phases so your point is the highest value offering that you have is in the ... I call them stages, the thinking stages and then once you get into doing that tends to [00:05:30] be more commoditized.

I think from time to time it makes sense to package up a whole lot of that doing. Sometimes it does make sense to sell that as units of time. It really depends on the business, it really depends on how you sold the previous stages of the engagement, it depends on how your business is set up, how your clients businesses are set up, so I really do like the idealism of value based pricing. Ron Baker who I'm sure we're going to talk about [00:06:00] has been a tremendous influence on my thinking on value based pricing and he read an advance copy of the book as did you and he had some really good feedback for me and one of his points of feedback where I had to say, "Well I think we're just going to have to disagree on this one," is he's just adamant that at no point should you ever sell time.

I like the idealism of that I think practically there are times when it makes sense to sell time and one of those times might be when [00:06:30] you're selling that fourth phase, the ongoing reapplication work and it's just a whole bunch of busywork. It might make sense to sell that in units of time.

Jonathan:

I think you ... I see this as well, I tend to tackle it in a little bit different a way but again I think this is because of different audiences. There are people who listen to this show who are not just developers and there are firm owners, developer and other types, [00:07:00] and I see ... the thing with the implementation phase specifically, I call it implementation phase with the build phase. Usually the first time you build a new piece of software it's like a build phase and that's what most software developers sell is the build phase and they give away the first two phases for free to try to win the deal or as a first step in it before they start building but they just sort of build themselves out of the normal build hourly rate [00:07:30] because they would never even occur to them to charge for those most valuable pieces.

I suppose the way to look at it is if you already have a lot of capacity in your firm and you just have a lot of employees, you've got like 10, 200 column junior devs or whatever you want to call them, you need to have a sufficient cash flow to cover their payroll or if they are contractors their expectations, [00:08:00] you know financial expectations of the relationship. I do, from a pragmatic standpoint say look if you have to ... if you've got these people and you've made these promises, then fine sell implementation and if you have to sell it by the hour then sell by the hour if that's what you need to keep the lights on.

I see it as something ... my general advice is to be moving away from that kind of work and to grow your firm instead of by increasing the number of hands on deck to do that kind [00:08:30] of busy work in those later phases to instead not hire, not grow by hiring but grow by increasing your profits and trying to always be moving this I call it increasing the altitude engagement so trying to move farther up the chain of command at the client, working with people who are farther up the chain of command in order to do more strategic types of engagements that are higher value.

Blair:

I agree with that and I think I can see the point opposite to mine. [00:09:00] I can see you and Ron making the point that as soon as you put this on the table Bair you kind of give people the invitation to go back to hourly because hourly is the easy thing to do that's why we do it. We can rationalize and we can cover it up tell ourselves other stories about other reasons why we do it, it's just easier to price based on inputs. It's easier ... The conversations are so much easier, [00:09:30] you have something you can point to and I think of the few different places where it would make sense to sell time. The idea ... I'm not suggesting that all of your engagements of the kind of the more role implementation or what I call the reapplication work should be packaged up and bundled as time.

I think there are better examples of ... and it's interesting you know one of the perspectives I hoped to bring to the subject matter is I'm a sales trainer first. I run a sales training organization for creative professionals. [00:10:00] It's occurred to me that I've met a lot of career professionals who are familiar with the theory of value based pricing but very few of them who actually do it and the reason that if all sure is the conversations are hard, the sales part of it, the interactions with the human beings. That's the hard part.

I recognize that as soon as I open the door and say well okay, value based pricing is the way to go but you know from time to time it does make sense to sell time. I'm going to enable a whole bunch [00:10:30] of bad behavior but there are better times. An example of selling excess capacity. When you're out there selling actively looking for new clients for your organization, you're looking for a small number of clients at a certain size and so many firms forget about the at a certain size and there's some math that most firms should be able to do on this so you know that it doesn't make sense to take a client under the size of X.

Let's say you're out there hunting for clients the size of X [00:11:00] or greater and along comes something that's maybe like an L or whatever. It's point three X. X should be ... your starting point for figuring out what X should be is 10% of your fee income target for the year. That's your starting point for figuring it out so if you're a million dollar shop, you should be looking for clients who spend about a hundred thousand dollars with you over the course of the year. If you're a ten million dollar shop you're [00:11:30] looking for million dollar clients. Let's say you're a million dollar shop and you're looking for a hundred thousand dollar clients and you uncover somebody who says well I have a twenty five thousand dollar project.

You should not pursue project work in a customized services firm where you have capacity constraints there are only so many clients you can work with. Invariably you're going to uncover project work from time to time and when it makes sense to take on project work like 25,000 when you're pursuing hundred thousand [00:12:00] dollar or longer engagements is when you have excess capacity. When it makes sense to sell time in this case is when you have a price buyer, somebody who's really price sensitive, somebody you wouldn't normally do business with, you're looking for more value buyers right so you can price based on value so it's not somebody you wouldn't normally do business with but it's a one off project. You can price it in a way that it can be profitable for you and so you're essentially [00:12:30] using excess capacity and then you just have to make sure you do a couple of things.

Number one is you price in, you sell blocks of time and it might be a ten thousand dollar block of time, it might be 20,000, it might be all twenty five thousand dollar block time in this example and you don't open yourself up to an hourly billing engagement. So, number one you sell a block of time and that block doesn't even necessarily have to measure up with exactly what the client's budget is so we can get into [00:13:00] some nuance there and number two you want to make sure you strip all of the excess value out. Things like access to senior people, reporting et cetera, et cetera, maybe even project management like full on project management. You might be able to strip that out.

The ideal scenario where I think it makes sense to think about selling time is when you have excess capacity and you're dealing with a price buyer who has a project and [00:13:30] if you think you can frame an engagement or I'll sell this block of time there's no guarantee on deliverables when that unit of time is up, it's up. If we're not finished you need to buy another block of time in this case blocks might be 10,000, 20,000, 25,000 and you don't get to buy an extra five hours you've got to buy an extra $10,000 worth of time, it makes sense to consider situations like that.

Jonathan:

I do not disagree with that, it's very very pragmatic. This is the kind of [00:14:00] application of value theory. It's not even, it's not even really ... we're not even talking about value pricing here but it's a pricing approach that's super pragmatic based in the real world. Sometimes you need to take on clients who maybe you would rather not or are not a good fit or maybe have some red flags but hey you've got to make payroll, you need the money, how are you going to price it, and there are a couple of things you pointed out there that I think are nontrivial.

First, not selling 1Z 2Z [00:14:30] hours you're selling blocks in advance not in arrears. You're not saying like, "Okay here's the invoice for all the hours." It's like "You buy $10,000 block and we'll get going." I think that's super important. The other thing is to recognize that it's for the doing work and it's not for the thinking work and the thinking work would be something that you would price separately outside of the hourly [00:15:00] block model.

Blair:

Absolutely, nothing commoditizes thinking work faster than selling it in units of doing.

Jonathan:

Exactly. Another thing that is important to recognize is that moving from what you and probably the rest of the world dear listener are used to doing, billing for your time by the hour is a slow process. It's not the kind of thing you can do overnight and the approach [00:15:30] that you've just described is a perfectly reasonable transition step to keep you from going out of business while you're learning how to work this nuclear bomb of value pricing. It's very powerful and this rocket can take you to the moon but it's really really easy to get wrong the first 10 or 20 times. It's almost a strategic use of trading time for money that I think makes good sense [00:16:00] as a transition step at least.

Blair:

Yeah, and in this case we're probably talking about one person keeping one time sheet for a week or two. That's probably an area where maybe we differ a little bit but yeah I don't know, I wouldn't call it-

Jonathan:

I just think there's some nuances there that are important. You mentioned a word that I would love to loop back to which is commoditized and the first thing in your book that blew [00:16:30] my head open was a passage that I'd actually like to read if that's okay.

Blair:

Yeah.

Jonathan:

The section is called, "Producer or marketer which are you?" And this is sort of the concluding paragraph so I'll let you expound on it but the concluding paragraph is, "And now we arrive at a fundamental issue of pricing creativity. You can have a culture of efficiency or one of customer innovation aka value creation but not both. You have to decide, are you [00:17:00] going to be a producer focused on efficiencies or are you going to be a marketer focused on value creation." I've never seen this articulated so clearly and I'd love it if you could kind of pull that apart for people.

Blair:

I'm not going to take credit for it, first time I read something like that was Ron Baker in his book Pricing on Purpose and then again in his second book Implementing Value Pricing and he himself is quoting Peter Drucker the great author [00:17:30] and father of management consulting but I don't quite identify with the words that Drucker used. He used the words effectiveness and efficiency so he has them at the opposite end of the spectrum and I think effectiveness is kind of a nice ... it's a literation it's a nice play on the word efficiencies but when you think about it, it's pretty clear you don't have to spend too much time thinking about. It's [00:18:00] pretty clear that all firms exist on this continuum of efficiencies on one end.

Usually efficiency driven firms are firms that are working towards optimizing all of the available hours, so billable efficiency right, so the number of billable hours available, what percentage of those across the firm are your billing, and there's billable efficiency targets that are put up by consultants like my friend David C. Baker ReCourses and others. All firms exist on the spectrum with efficiency, [00:18:30] the pursuit of efficiency at one end of the scale and at the other end of the scale is innovation or delivering client value and you think well if you're a firm that's focus on efficiencies right now you're probably bristling at that.

You think well we're not, come on we're not giving up innovation when we pursue efficiencies but absolutely you are because innovation the creation of customer value, these are essentially the same things not ... they're [00:19:00] close enough for our conversation. They require waste, they're hugely inefficient. Innovation is hugely inefficient and it requires time and space to be able to think, try things on, discard things, try something radical. Not just time and space requires money so you need to charge enough that you've got all kinds of time and space to put your feet up on the desk or and think or to experiment and iterate et cetera. [00:19:30] When you are estimating how many hours it's going to take you to do something, you're really confining your people and putting them in that hour box and you're removing ... by removing waste, you remove the opportunity for innovation and it's cut and dried.

If you still don't get it just think about it a few minutes longer and you'll see how true this statement is. I've said this from many stages and often in the audience there is kind of a CFO or an operations' [00:20:00] person or maybe even an accountant or some sort of consultant around efficiencies and they just kind of bristle at this and there are whole movements out there about getting your firm more efficient and you can ... through efficiencies you can get to a certain place profitability wise and you can get to a certain place based on other variables innovation wise and value creation wise for your client but the closer you get to ... the more efficient you [00:20:30] become the more you give up on those other fronts.

Jonathan:

I could not agree with this more. It just changes the culture of what's important and it's ... I agree that I don't see how you can have both. In fact, I'm reminded of an article I just read, it's not a new article but I just read it on Harvard Business Review essentially that strategic planning is an oxymoron and [00:21:00] it's the same kind of concept because planning is around cutting costs and getting efficiencies and strategy is about value creation, how are we going to leap to the next mountain. First of all, where is the next mountain top? Which one are we going to leap to and then figure out how we're going to get there it's top ... and he uses almost ... maybe I'm conflating the two but I believe he uses almost identical terms about it's going to be messy, it's not going to be efficient and that's the way it's supposed to be. It's never not [00:21:30] going to be risky, the strategy part, the value creation part, the innovation part, it's always going to be risky. If it's not risky you're doing it wrong so [crosstalk 00:21:38]

Blair:

Yeah, you're describing entrepreneurship. You're describing what it means to build a business and then at the same time when we look, hone in zero in on it, you're actually describing the nature of your relationships with your clients. That's how it should be. It should be messy, it should have all of this room for figuring stuff out, it's [00:22:00] organic. You can try to break it down and understand it to a certain extent but the more you do it's like dissecting a frog. Well, it's boring and ultimately the frog dies of it.

Jonathan:

Let's talk about ... there's a big area in the book where you talk about the sort of stages of a value conversation. I'm probably using the wrong terminology but there's a four step process, four conversations I don't think they're necessarily one after the other.

Blair:

[00:22:30] Think of it this way, I think of any sale in particular a consultative B2B sale you think of it as an arch of four conversations. It's a little trick that actors use when they're playing Hamlet which is over 4,000 words. It's like four hours to play it and they're told you view the role of Hamlet as you break it down it's just seven soliloquies so you just learn those soliloquies and that's essentially how you break the play down. I've [00:23:00] just chosen to view the sale as four conversations and the value conversation is the third in four conversations. It sounds a little bit ... maybe it sounds a little complex but I'll break it down for you a bit.

The idea is if you see the sale is four conversations and then all of a sudden you're dropped into a sale, a prospect reaches out to you, reach out to them, you're introduced, whatever it is where you find yourself about to present a proposal, you just stop and ask yourself, "Which of the four conversations is this?" [00:23:30] Once you identify the conversation then you ask, "What is the objective of this conversation. Where am I trying to go in this conversation?" Once you know the answer that question then you ask, "Well what was the framework that I'm supposed to be using?" So what conversation and my in, what's the objective of this conversation, what's the framework I use.

I describe them as four linear discrete conversations but they're not necessarily that way. It might all happen in one conversation, it might happen in six conversations. [00:24:00] Some of the conversations might happen out of order. You might have one call or meeting where you get one and a half way through two conversation ... through one conversation half of the next one you pick it up in the next one after but it's really helpful to think of it as four discrete conversations.

The first conversation is the probative conversation, that's where you prove your expertise and you go in the mind of the client you flip and we actually call it the flip. You flip from the vendor to the expert [00:24:30] practitioner so ideally the probative conversation happens without you present. It happens through your referrals or your agents of thought leadership. A prospective client is reading something or saw a video you did or saw a speech or was referred by one of your best clients, they already see you as the expert so you're allowed to take some sort of control in the sale.

The second one is the qualifying conversation. It's where you as the vet the lead to determine if an opportunity exists and what the next steps are so a lead is just [00:25:00] a clue to possible sale maybe somebody filled out a form on your website or somebody is active on your website or somebody reaches out to you or you call them. It's the typical sales conversation. You're typically ... when you're qualifying by voting against fairly standard sales criteria of need decision maker time frame and budget.

The third conversation is the value conversation we'll come back to that. The fourth one is the closing conversation. I like to call it the transition conversation because when you handle the first three [00:25:30] conversations well, the closing conversation is really is simple as putting three or four options in front of the client and facilitating a choice and it's this seamless transition. When the previous conversations haven't gone well, you haven't done what you were supposed to do navigated to the place where you're supposed to navigate, then you're putting all of your chips on the closing conversation so closing becomes this big stressful thing and it really should [00:26:00] just be kind of a natural extension of the previous conversations.

My framework with the value conversation is essentially ... it's the same as all of the frameworks I've seen out there with one step added so the standard three step framework for a value conversation is mission, sorry I got that wrong, objectives, measures value. I just came back from vacation. Objective, what are the business objectives we're trying to uncover? I [00:26:30] call it the desired future state. What is your desired future state Mr or Ms client? What's the place that you want us to help you get to?

The second is measurement. How will we know when we've arrived there? What are the metrics? What will be true, what will we measure to know that this has happened? Then the third one is what's the value to you and your organization of doing this? Then the four step that I add is before you move [00:27:00] from the value conversation to the closing conversation is you offer pricing guidance so you give them a sense you've got the information on them about their desired future state, around how you measure success, around the value that might be created for the organization and the individual, and then you say essentially "Okay, now I'm going to go away, I'm going to put some options together for you and we'll reconvene and I'll walk you through those options but I want you to know that those options are going to be [00:27:30] in a range of X to Y."

So, you offer some pricing guidance and one of the reasons you offer pricing guidance is I say X to Y it's really Y to X because you want to anchor high, I'm sure you've talked about this before but you want to anchor with the big number so Y to X and I have some frameworks for doing that. If there's a price objection, if there's something ... if you're talking so far beyond what the client is capable of bringing to bear resource wise then you want to know now [00:28:00] before you retreat and actually start thinking about what the solutions might be, the prices might be and the solutions you might deliver. That's it, that's four conversations. The value conversation is the third conversation in there and I have four steps for that value conversation.

Jonathan:

I love that last step you said it's ... you call it pricing guidance?

Blair:

Yeah.

Jonathan:

Like you said that sort of objectives metrics and value [00:28:30] are standard stuff, I've talked about it a lot before, the pricing guidance thing in the anchoring is really good. I've never done that but I can easily see how to slot that into the process, it would be completely natural and it would perhaps increase my close rate or decrease our proposals after rate but those numbers I'm already pretty happy of where they are but it's probably a good technique for people who aren't particularly happy with those numbers. How many proposals they're closing [00:29:00] based on how many they're writing.

It's funny because I do a lot of the things that that does, I do elsewhere in the conversation. I'll do it earlier in the conversation. I'll hammer on what is a home run look like and how would that affect the organization so if I do some back of the net calculations we're talking about an extra million dollars a year to the bottom line something like that. I think that that's actually kind of hard to teach people so like when I'm trying to teach people how to do this that's pretty hard so [00:29:30] you really have to be thinking on your feet and asking all the right questions. It's cutting off like a black belt move. To just know that at the end of the conversation you're just going to like have a spot where you say "Look, this is going to be somewhere between a hundred fifty thousand on the high end and probably like 35,000 on the low end." That's just so much easier.

Blair:

Yeah, followed by a pause because silence is and I don't talk about this too much in the book but [00:30:00] if you can ... I think mastering silence is the single easiest most effective thing you can do to become a better sales person. If you can deliver a price or in this case pricing guidance and then say nothing, win the battle to not speak then because whatever the client says after you deliver the price range it's so valuable to you. There's so much information in there. If they say, " [00:30:30] Okay that sounds fine," you think oh wow all right, all my prices just moved to the right. They're all just right and if you get resistance even over the low number, then that might be a sign that you're trying to have a value conversation with somebody who just is not charged with future value creation or it might be a price buyer or they just don't see you as meaningfully different whatever the case is.

So, that pricing guidance we have that built into the step, one [00:31:00] of the rules in the book and it's broken down into four sections. There's principles where I think everybody should just learn and understand and I have taken all the basic value based pricing and basic principles of economics that support pricing and delivered them in what I hope is a readable enjoyable way so you understand the principles. Then there are six rules and these rules are things that you do all of the time and then the largest section of the book is tips. It's actually guidance for specific situation and guidance for putting your proposals together, getting [00:31:30] into retainers, alternative pricing models, how do you come up with your high priced options, your middle price options, your low price options, all kinds of stuff.

Then there's a fourth tool section that I want people to use ... actually write on when they're crafting their proposals but one of the rules I think it's the last one is, "Your client should always hear a price before they see a price." From your point of view it's you say a price [00:32:00] before you show a price and you don't find that guidance in the standard pricing literature because that's really something that comes out of the world of sales. If there's a price objection, you want to hear it before you go away and start crafting your proposal.

Just think of all of the times maybe you've been in the situation by I know hundreds of people who have been in the situation dozens of times in their lives. It's plagued some sales people their [00:32:30] entire careers where they get into a closing meeting, they pull out the deck, they go through pages pages pages, they get to the last slide the last page, it's the price, there hasn't been a meaningful price conversation or value conversation, the client looks at the price and says, " We don't have that, we can't afford that," and then the sales person is just dejected. That's the moment where you say, "Well, how much do you have?" And you're willing to do it for whatever because you're so [00:33:00] over invested in the sale.

Before you get to that situation, before you do any meaningful amount of work to dive into start to create the solutions and understand what the price would be, get some pricing guidance first. If the client can't afford you, you know you've got this target of X which is somewhere around 10% of your total income for the year, that you want each client to be spending at or above that amount, if they can't afford that you want to find that out early. You want to find that out early in the qualifying [00:33:30] conversation. That's the second of our four conversations is the first one where humans are actually speaking to each other. Remember the first conversation the probative conversation Ideally it's had through your thought leadership or your refers.

In that first human to human conversation, it's your job to uncover that you know any kind of budget information and then you go through the value conversation and then you deliver what ... the client might say well I've got a hundred thousand dollars and you might be thinking, you're going to need a million but you go through the value conversation and [00:34:00] you uncover the fact that you expect to create $5 million a year in recurring value from this project then you could say ... so let's just say on the high end you say I'm going to come back with a range of ways that we can help you on the high end probably in the one to two million mark like 20 to 30% of the annual value that we would hope to create. On the low end if you really need me to come in with something at a hundred thousand dollars [00:34:30] I'll tell you what we can do for a hundred thousand dollars but I think this is an engagement of hundreds of thousands of dollars or more.

Jonathan:

Absolutely. That's a perfect segue into the ... well I guess the closing conversation so in the way that you do your proposals because I thought my proposals were short maybe five pages. You talk about running the sort of closing conversation with a single sheet with three options on it like it's a [00:35:00] Salesforce sales page or something. Let's talk about that a little bit so moving into the ... and also I'm sure you'll bring it up but just in case, the prices that you're throwing out there in your guidance, you don't know what you're going to do yet.

Blair:

You haven't even thought about solutions and that's one of the things that it's really hard when you're moving from hourly based billing, time materials, inputs, whatever you want to call it, it's really hard to get your head around because you're going to end every conversation already thinking about what you might [00:35:30] do and you really want to learn to move off of the solution and just think about the value ... focus on the client, focus on the value you might create for the client. Then from there you set prices and then at least price ranges, and then you start thinking about well what could we do in these ranges. So, yeah you think about solutions later and really, it's really that simple it really is. That's one of the rules is unpaid written proposals do not exceed one page.

Jonathan:

[00:36:00] Let's go again at this, I love this because I hate writing proposals so the-

Blair:

Hands up who loves writing proposals? (laughs) It's a promise that we've been making to our client for years. We will get you out of the proposal writing business and in exchange you take all of that free time and you devote it to writing thought leadership or creating other forms of thought leadership. The idea that written the unpaid written proposal needs to exist is just ... it's one of the biggest fallacies and I'm sure people are listening to this thinking, "Wow, nice theory Blair but [00:36:30] that's just not ever going to." I guarantee you there are hundreds of firms out there who limit unpaid written proposals to one page or even no pages just the ... because I've said for years the proposal is the words that come out of your mouth. Here's what we're going to do, here's what we propose to do, here's how long it would take, here's how much it would cost, if you're in agreement in principle we'll write up the details in the contract for your signature.

That's how it should work and that changed for me when I started [00:37:00] to read Ron Baker's work on pricing and others and saw the importance of offering options. Always offer options and that's the second rule so your requirement to put, sorry, you have a requirement to put multiple options in front of the client and so when I saw the value of that, I realized okay, well we're going to have to write ... proposal is going to have to go on paper but no more than one page. As I say in the introduction [00:37:30] to the book, my first experience with this I was an ignoramus when it came to value based pricing and I was almost ... I was getting close to a decade into my consulting career and I was working with a very well known firm, design development firm has really set the tone for a lot of what other firms do today.

I was working with them and I asked to see their proposals and they were one page with three columns and I think the one that I saw was column one was [00:38:00] 250 grand, column two was 400, column three was six or 650 and I couldn't believe what I was looking at and the owner said "Yeah we always do this." and I said "Well the clients don't ask like where did you get these numbers?" "No."

Jonathan:

I get students all the time that people do ask them that question and I just say tell them, you know the answer is this, past experience. You cannot let them try to dissect [00:38:30] the number it just turns into disaster.

Blair:

Yeah if you're really value based, if you're pricing based on value then they ask where did the numbers come from, well it's based in assessment of the value that we might create for you. So, you're in the value conversation which is the hardest part of all of this is having a good value conversations. One of the rules is master the value conversation but to master it you have to have a framework and you have to have lots of practice and if you can master it man you will go to the next level. If you're pricing based on value, you would [00:39:00] justify it not by anything other than saying, "I think that's compensation we would be comfortable taking based on the value that we have created for you with this option."

Let's say you decide that it's a million dollars a year of recurring value if you do all of these things well. You offer pricing guidance and you've got to do some thinking on your feet but you come back and whatever options you come back with you are selling essentially the same thing. You are selling to the client their desired [00:39:30] future state that you uncovered in the qualifying conversation and you confirmed again in the value conversation so what's a place you want to get to? Discounted for uncertainty. Your most expensive option has the smallest uncertainty discount and your least expensive option has the greatest uncertainty discount but yours ... if you're selling based on value you're selling the same thing. You are selling to the client their desired future state discounted for uncertainty.

Jonathan:

Yeah, let's drill [00:40:00] into that. That's further down my list to talk about but now is a great time so a couple of ... I know from talking to perhaps thousands of developers that this is just another one of those things that's a tough mind shift to make when you're used to selling your hand, selling your inputs because all they think about is, "Well, how long is it going to take me?" and by extension they think that their price should be the same for absolutely every client. [00:40:30] It's like well it wouldn't be fair for me to price myself differently from quite a client because they're only thinking about the work that they do and then the thing they're not thinking about which is the only thing that matters to the client really is the results. The outcome that they're going to receive, the business outcome.

One of the things I talk about a lot is when people are like oh jeez I just can't bring myself to put this you know we will be working together on a proposal that they're getting ready to present and I'll give them a number [00:41:00] for the top option and they're getting sticker shock. They're like I can't even ... I could not deliver this with a straight face because it's only going to taking me this long to do it and I'm like "Yeah but you're forgetting about risk, you're forgetting about stress, you're forgetting about capacity, you're forgetting about urgency, you're forgetting about all these other things that are super important to the client."

You hammer hard on the uncertainty one so let's drill into that. Maybe you could ... you've already started talking about it but could you kind of define that and then maybe help people a little [00:41:30] bit with the black magic that you would use to kind of try to calculate that.

Blair:

Yes so there's a chapter in the book on selling risk and sometimes uncertainty is risk or risk mitigation and sometimes in the sale it makes sense to have that bit this very kind of overt on the table discussion. You might say I've got three options here for you Mr Client three different ways you can hire us, price tied a low I've [00:42:00] got kind of like the low risk option to you is the most expensive one and then I've got the higher risk it's more affordable ... it's the cheaper one, I wouldn't say more affordable, it's the cheaper one but you're taking on more risk and then the one in the middle is kind of a more balancing of the risk between you and me. You phrase it that way to the client and just think when you're constructing your options for your proposal, just think of it what's the most that we could do to take [00:42:30] the most risk away from the client and the risk free pricing, the ultimate risk free pricing would be contingency based pricing where it's you don't pay until we deliver on the desired future state.

We hit, we deliver the objectives, we hit the measurements that we've identified and we create the value that we said we would help you to create. That's an example of that's the low that ... that's no risk [00:43:00] to the client, you take all the risk. So, if you chose to price an engagement that way and a lot of people are cringing thinking well we'd never do that, harden off, never say never. I'm not trying to make the case that developers should price this way but I am trying to make the case that you should be open minded about all of these engagements when you're pricing them and you might decide this thing is a sure thing on your end for whatever reason and I want to make a whole bunch of money and I want [00:43:30] to make all the client's risk go away and I know they're willing to pay to make that risk go away.

You might consider taking an engagement like that from time to time. I don't think it should be a habit, I don't think you should have more than one client like that generally speaking at any one time, but everybody's risk profile is different. That's one way to think about the ... that's the lowest risk option to the client, the highest risk to you therefore the highest price to you.

Jonathan:

Yeah, and it should [00:44:00] be a very high price.

Blair:

Yeah very high, way beyond if you priced it at hourly, multiples it's really about the ... it has nothing to do with your input, zero. At the other end of the spectrum, if the highest risk offering you have to the client which is the lowest risk option to you is to sell time. Sometimes I think I favor selling time where you strip out all other forms of value and put it in front of the client. When [00:44:30] you're what Reid Holden author of Pricing with Confidence and Negotiating with Backbone, what he would call negotiating with a poker player. We all know what a value buyer is, a value buyer somebody who really is interested in the return on the investment. We know what a price buyer is, a price buyer someone who just wants the lowest price and they'll do whatever they can and they'll forego all kinds of other forms of value just to get the lowest price.

A poker player according to Holden is a value buyer [00:45:00] disguised as a price buyer so when you suspect that's the case you might put this ... the client might be bluffing, might be just playing poker with you saying, "No, all I have is $50,000." And you might say, "Okay, heres option number one the expensive option, and it's $200,000," and he reacts "I told you I only have 50." "Yeah, I'm getting to that. Here's option number two, it's $85,000," so it looks a lot more affordable next to the first option, "Here's what we can do for $50,000, [00:45:30] I can sell you one block of time, X number of hours of one developer and it's $50,000. Am I going to get to project completion? I've no idea, I'm just selling you a block of time."

It's paid in advance, so you communicate all of the things that the client doesn't get in that option by including them in the others. One would be terms, so there's no terms, one might be project management the involvement of a project manager, access [00:46:00] to principles, some sort of reporting, knowledge transfer, you name it. There's just all these other things you would do in the more expensive options, you just make sure that they do not ... they show up in the expensive options and they do not show up in the cheap option. You put it forward and you say to the client, "Well here's what we can do for $50,000, it's the riskiest option to you because frankly I don't think we can get it all done in $50,000 worth of hours. I think [00:46:30] at the least you should take the eighty five thousand dollar option."

Jonathan:

That actually might be a good segue into driving people to option two.

Blair:

Yeah, which is usually your goal so anchor high is one of the rules. You lead with the high price and the science behind anchoring is the first piece of information that you get on a subject matter skews your thinking about it as you make adjustments through kind of a second way of thinking. You never adjust fully to compensate for the first piece of information [00:47:00] so you make sure the first number they hear is a high price. It also makes the second price, the middle price seem far more palatable so you anchor high that's one of the rules, deliver the high price first. If you think of the low prices maybe where the client thought the budget was going to be, the high price is the anchor, most of the time clients will choose the middle one it's called extremist avoidance.

They stay away from the extremes and they choose the safer [00:47:30] middle comfortable option so you want that comfortable middle option to the client to be in general I'm making generalizations here but more than they anticipated spending but it's less then the really high anchor and you have to remember the anchor is not there to be bought. It will get purchased from time to time, it's there to make the second option the middle option where you want them to buy look more palatable.

Jonathan:

Excellent, we are getting to time, man this went by fast. Can [00:48:00] we just do one last question, could you describe a little bit ... because I do not do this. I know a lot of people that do this I do not do it but I do believe it's a good idea just more out of ... just to sort of optimize my sales process to the point where I don't feel the need to do this but the presenting the proposal life. I write it up and I send it and if they want to buy they buy if they don't I don't care.

Perhaps in there's sort [00:48:30] of a luxury position there where I can just not care that much but now let's say that I did care and I really wanted to maximize my odds of closing a deal and someone has their three options on one piece of paper as you described, how would you actually execute that conversation in the real world? Would you go there, is this over the phone, is it a screen share, what do you talk about, how long is the meeting, could you just give me and the listeners a picture of what that looks [00:49:00] like?

Blair:

Yeah, it really doesn't matter the format of the meeting whether it's a face to face meeting a web meeting or a phone call as long as if it's a phone call somebody has got access to email if they're on the phone unless they're on a landline phone and those don't exist anymore. You can send the one page proposal over once everybody has convened so proposals, we used to think of them as most people still do as these big rambling things that you stay up all night creating. You [00:49:30] kind of lob them in over the fence via email and then you sit and wait back to hear a response and that's like your clients putting you in the proposal writing business. How many firms out there whether they're creative firms or they're developer shops, how many firms out there just crank out, take on all of this extra work that's largely unnecessary to create these proposals then they lob them over the fence and now they have no power they're just sitting there waiting?

It's really ... you should deal with it [00:50:00] this way, I will create, you the sales person, I will create a proposal for you Mr client. In exchange, you will assemble all of the people who need to be ... all of the what we would call on the sale side decision makers, you would assemble all of the key decision makers on your team for a brief phone call, web meeting, face to face meeting, whatever it is for us to review it and I'll share it with you once we all get together. That's the trade, [00:50:30] there's no inherent reason why the client should expect that they can put you to work creating a proposal and then disappear on you. If you just stop and think about it for a couple minutes you realize that's absurd.

You wouldn't let other people treat you this way. You're putting together a proposal in exchange for them getting together to consider the proposal and then agree at the end of the meeting what the appropriate next steps are and you've got everybody you say all right so you recap [00:51:00] the value conversation, these are the objectives you're trying to hit, what we call the desired future state, these are the measurements that we talked about that we'll use to know that we've succeeded, this is the value we hope to create for the organization, I said I would come back with prices in this range of X to Y, I have three options here. I want to start with, actually it's Y to X, I want to start with Y the most expensive one, and you might say we first began by asking ourselves, "What would we [00:51:30] do if money was no object?" What would we do, what's the most we can do to take away is much uncertainty from the outcome is possible?

Jonathan:

That's great.

Blair:

Here's the solution we came up with and here's the price. Then you can go to the middle one or you can go ... I really fill it out from situation to situation but you can go to the cheap one and say at the low end of the spectrum, here's the ... you said you wanted us to come with a proposal that was at the seventy five thousand dollar mark so we ask ourselves what could we do for 75,000. We're not [00:52:00] huge fans of this one, we think you take on a whole bunch of risk there but maybe if that's a trade you're willing to make then you know maybe that's the option for you. In the middle we've got something that's somewhere in between and it's 125,000 or whatever it is. That's just an example of how you would frame that conversation.

Jonathan:

I absolutely love the if money were no object line. It's just so good. We could probably talk all day so let's wrap it up there. Thanks so [00:52:30] much for coming on the show Blair, where can people find out more about you?

Blair:

Thanks Jonathan, my pleasure to be here so I'm on winwithoutpitching.com and they can buy the book Pricing Creativity: A Guide to Profit Beyond the Billable Hour at pricingcreativity.com. It's available only on the website and then after you buy it and read it I'd like you to go back to that page and see how many of the principles in the book were used in the pricing of the book.

Jonathan:

Awesome and when is it available [00:53:00] for purchase?

Blair:

January 10th.

Jonathan:

January 10th ladies and gentlemen, pricingcreativity.com. Thanks again Blair.

Blair:

Thanks Jonathan my pleasure bye bye.

About the Show

My name is Jonathan Stark and I’m on a mission to rid the earth of hourly billing. I hope that Ditching Hourly will help achieve this, one listener at a time 🙂

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