Special Guest, Ron Baker, Dishes on Value Pricing
During a recent #QBOchat we had a special guest, Ron Baker. Founder of VeraSage Institute, a revolutionary think tank for professional-knowledge firms, he’s on a quest to bury the billable hour and timesheets. He has his own weekly radio show, The Soul of Enterprise, and if you’re just now learning about him, all his previous podcasts are free, so be sure to check him out!
He graciously signed on with #QBOchat to share insights on value pricing, and as unbelievable as it might seem to some resistors of change, his quest is to bury the billable hour and timesheets. In an effort to understand why and how value pricing trumps billable hours and timesheets, we posed several questions hoping to make sense of this eyebrow-raising concept and possibly become more enlightened QBO advisors. Here are several insights he shared during a recent informative #QBOchat.
The Difference Between Value Pricing and Value Billing
A simple question before delving into the complexities of the topic starts with a straightforward answer. Technically speaking, billing is done in arrears and pricing is done upfront, but as with anything you’re selling clients and peers, psychology plays a key role in the delivery of those concepts. Ron points out that words matter, because the words you choose conjure up feelings. Price is a safe, neutral word, but nobody sees a positive spin on paying bills.
Another important distinction is fixed price vs. value price, because fixed price could simply be an hourly rate fixed in advance or metaphorically, “hourly billing in drag.” Hourly billing undermines what Ron sets out to do, and while he realizes it’s confusing because he uses “value price,” he still wants to eliminate “hourly” from the equation. While Ron isn’t partial to the term “fixed price,” he understands advisors’ inclination to use it when speaking with clients, as this is a concept they are used to. However, he advises that internally we need to think of it as “value pricing,” as that is the maximum amount a consumer is willing to pay for an item. “Value pricing” implies not a fixed price for time or duration regardless of quality, but instead a set quality standard for a completed service that you are providing, regardless of time.
Jan Haugo, an accountant from Arizona, points out how accountants are conditioned from training to bill on an hourly rate, and is curious to know how to help shift them away from something heavily ingrained within the accounting industry. Again, Ron points to linguistics as being pivotal to transformation and cautions us on how the words we use are critical. Most firms who have moved away from the hourly norm are smaller, but Ron has found existing customers as receptive to conversion as new customers are to coming aboard. He owes it to the fact that when you boil it down, we all want certainty in price.
The Benefits of Ditching Timesheets and Burying Billable Hours
Here’s a novel concept from Ron: Ditch the timesheets and fix the price in advance! By ditching timesheets, more weight is placed on quality of work produced as opposed to quantity. In Ron’s ideal business model sans timesheets and billable hours, you have to be able to price risk. He likens it to an insurance company offering earthquake insurance without knowing when the next one will hit. As Ron puts it, “A professional is someone who takes responsibility for creating a desired result, not delivering a series of tasks.” I can get behind that.
Once the monthly or annual fee becomes cumbersome to the customer, it signifies you’re not delivering the expected value. This isn’t cause to despair, however, because there’s no rule that a symbiotic relationship between accounting professionals and clients can’t be tweaked to continue being mutually beneficial. For the professional, however, as long as you trade hours for dollars, success will never be truly yours, because hours are always limited.
Another great argument for getting rid of timesheets? It measures the wrong things. Unlike the average day laborer, accounting professionals are knowledge workers. Day laborers work x amount of hours to produce a series of tangible tasks, but knowledge workers are expected to project, protect their client’s interests, make bold decisions based on training and experience and perform valuable services that provide no useful data from timesheets. This is wholly different than punching a button a designated number of times each hour.
Ron Baker hates tracking time for other logical reasons. Time doesn’t convey useful information about customer service, work quality, attitude and simply isn’t predictive of a professional’s success. Regardless of the customer, they want to see results. Focus less on the input and more on the output. Whatever you goal, results speak for themselves, and timesheets are a lagging indicator. By the time you see it on a timesheet, it’s no longer manageable.
Inevitably there will be backlash trying to get rid of timesheets, because accountants need something to measure; it’s ingrained in our psyche. Ron seems confident in overcoming objections, having successfully dealt with backlash on timesheets, but he does admit accountants would rather be precisely wrong than approximately right. His stance is still unchanged, though. Timesheets don’t determine competency, but quality work, the right attitude and customer service are things that do.
Once the debate on timesheets dies down, another important question arises.
What Does Pricing a Customer Look Like?
Some firms have menu pricing for homogenous services, like simple tax returns, but everyone needs to have a minimum price for their service offerings (i.e. tax returns, bookkeeping, setup). Offer the basics, and give the business owner the option to include other value-added components to your service. A few great examples would be unlimited access, a 100% service guarantee and fixed price certainty. To reiterate: an hourly rate is not a price.
QuickBooks expert Kim Hogan is making progress with firms in the value-priced offering arena by using Liveplan, Tallie and other software, and she says they love it. She reveals clients hate seeing the prices for software, but giving them a monthly value-priced option including their software is well-received.
Ron’s wisdom calls for giving customers choices to decide the value/price tradeoff they’re willing to make, and this helps convince them of your value. Like Kim, he loves the idea of bundling services, because just like a customer out car shopping, he’d take something on the lot that has some extra things he hadn’t planned on just because he sees the value in one particular item he was seeking. A lot of people shopping for cars do exactly that on a regular basis, so bundling wouldn’t be a hard sell to accounting professionals or clients.
Financial statements are history and accountants are historians with bad memories. Helping your customer make history is more exciting and more valuable. Ron doesn’t discount the value of financials, but he realizes accounting professionals can be doing much more than that.
What Kinds of Services Go Into Your Packages?
Surprisingly, Ron points out the fact that fewer customers equals greater profit. While this may seem counterintuitive, it’s often true. Focus is essential, and the most profitable firms in the world are well niched. Delivering the best breed of technology solutions to clients in addition to services rendered ensures you’re offering top-notch customer service. Everyone should offer a service guarantee, because it’s already something you do, and making it explicit gives you pricing power for it. If you won’t bet on yourself customers won’t bet on you, either.
Make your services extremely scalable, and offer them to everyone. Choice differentiations can be based on turnaround time, payment terms, talent, and technology. A faster turnaround should come at a higher price, or let them choose a lower price with faster payment terms. Fed-Ex is a good example. Because payment terms are just another word for pricing, they need to be agreed upon upfront. If you have business customers, structure their payment terms around their cash flow and not your work flow. They love that, because nobody knows their cash flow better than their accounting firms.
How Do You Switch Your Hourly Clients to a Fixed Price Agreement?
Evaluate a client’s means, communicate your value, and offer multiple packages so they have choices without feeling forced. Discuss their plans for business in the upcoming year. Learn their wants and making the switch is fairly easy. 24/7 might be extreme for everyone, so make it part of your choices. Kim points out that self-serve 24/7 software access is available with QuickBooks Online, so you’re adding value without having to do anything extra. If businesses choose the cheapest choice, for example, they don’t get to text you. Some firms have unique numbers for their offerings, just like airlines and AMEX cards.
Value pricing is a customer-centric pricing strategy, not a service strategy, so it’s done by customer rather than service. Plus, there isn’t a need to rush in and tackle every current client at once; make the switch one customer at a time. Get back to focusing on results and stop measuring efforts. As Ron points out, the hardest to convert to these concepts are accountants, lawyers and other professionals, because unlearning something is often more difficult than learning it to begin with. Time isn’t sold, because no customer buys time, and you can’t sell something people don’t think they’re buying.
If you’re interested in learning more, check out Ron’s book, Implementing Value Pricing, one of several books he’s written. As you can see, this was an amazing chat, chock full of incredible insight. Be sure to check us out and join in our weekly discussions so you too can stay ahead of the curve. Visit our site and sign up for our weekly newsletter. We’ll see you next week!
Looking for the transcript from this tweetchat? Here you go!