The Power of Options in Value-Based Pricing
Venturing into the unknown is intimidating at first if you’re just getting started with value-based pricing in your accounting practice, but it gets easier over time.
Your first attempts at proposing value-based pricing to clients will be awkward, but you can ease the transition by following the steps outlined in an article I wrote for Accounting Today earlier this year (see The Impossible Journey: Transitioning to Value-Based Pricing). I likened taking those first few steps to my first trip to China.
Once in Shanghai, I discovered that everything in China went well beyond the limits of my preparation. In new cities, I like to wander around the hotel area to get a feel for the neighborhood. We were in an area called the French Concession. It was a hybrid of a European village and Chinatown, without a familiar face in sight. We headed out in search of food and I tried to register landmarks along the way.
We crossed the street to the left and still couldn’t find a restaurant that everyone could agree on. We decided it was hopeless and headed back to the hotel, making another left in order to square off our route. After 20 minutes of seeing nothing that looked familiar, it dawned on us, we were lost. Hopelessly lost.
That experience is a lot like a first attempt at a value-based conversation with a client. Suddenly the client is talking about bigger and broader topics than you’ve experienced and wants to know how to work together. You have the skills and experience to help and are excited by the conversation, but you feel like I did at that moment in Shanghai. Your partners may even say the same thing mine did: “Well, genius, you got us here. Now what?”
Once your firm has a clear idea of your client’s desired outcomes, it’s time to give them a proposal about how you will get them there. The first hurdle is going to be internal and it’s going to focus on “what exactly are we going to present now that we know what they want, how they’ll assess success, and how it impacts their business?”
There are two schools of thought on how experts should build a proposal for clients. One school is: “I’m the expert. They expect me to have a strong opinion and tell them what to do.” We’ll label that the Old School. It comes from a time when your clients didn’t feel like they had access to any and all information in existence. Today, if you dictate a solution, your client will double check your suggestions and lengthen your sales cycle. The second school, the New School of Thought, acknowledges a shift in client decision-making and approaches the proposal from the opposite point of view. Clients know what they want because in their hands is a device that has access to trillions of bits of information. This means your clients are likely to dictate a solution to you, but as the expert, you need to help them make sense of it all.
Your goal is not only to give them a proposal offering what they want, but also proposing what they need. Think of it this way: My household has three kids of driving age and our house looks like a parking lot. My mechanic is the expert that keeps my fleet running. Over time we’ve learned something from one another. It used to be that if I used the correct terminology, he assumed I knew what I was talking about and wanted what I asked for. This usually resulted in frequent quotes and multiple visits before we came to a conclusion. I felt empowered, but not being a mechanic, half the time, I made things worse. One day, exasperated, he asked, “Greg, how long are you going to have this car?” Once I explained it, he offered me options with corresponding pros and cons. He’s the expert, and once he knew my desired outcome, he worked with me to get there. I still feel empowered, and he gets the work faster.
Use options to deepen partnerships with clients. That’s what your clients want. They want to partner with you to achieve their outcomes. To do that, you need to offer them options, but the options need to be designed in a specific way. Here are three considerations to put on the table during your next proposal discussion:
It’s Not a Tactic
First, understand that my advice on crafting options is not designed to “anchor” price or manipulate your clients in any way. This is not a “60 percent of people just take the middle choice” persuasion tactic. I think you need to offer options because you have more knowledge about what your firm can do than your client does. You have more capabilities than they know. Like a good partner, you are giving them information they should be aware of to make a good decision.
For instance, my mechanic knows that squeaking in front means I need a new steering assembly. But based on whether I plan to have the car for 10 years versus two years, he has options to meet my need while attending to my desired outcome. In a similar fashion, you may be able to adjust a client’s timeline based on whether or not they use certain resources. You’re not trying to persuade clients to choose a value-based pricing option. You’re offering them alternatives that meet their needs while attending to what they didn’t know they should be asking for.
Options Must Be Differentiated
Second, each option you offer to clients must be materially different from the other, meet their desired outcome, but provide for different value. Let me give you an example of the opposite. There are times my mechanic interprets my desired outcome as a pricing exercise and I get what amounts to Option 1, Option 1+ and Option 1++. Not being an expert, I can’t see the difference besides price.
I see this same lack of differentiation when my clients run draft proposals by me. To get around this, I use Option 1+ as the new option 1 and ask for better options two through three. It’s an effort, but I make them marshal all their available resources—both internal and external—and ask them to be applied to the clients’ desired outcome. The new options might add a sales consultant to speed up growth, or involve managing an outplacement service for displaced employees, or utilize a team of freelance forensics resources to prevent future fraud or legal issues.
Your value to clients increases when you open your mind and come up with two or three distinct options that not only provide their desired outcome, but enhance the value beyond what your clients know is possible.
Options Must Accurately Reflect Your Client’s Desired Outcomes
The last item in providing powerful options is that each option has to reflect the client’s outcomes in a very specific way. The options have to mirror exactly what the client is after, using their own words. The proposal is no time for guessing or assumptions, so if you’re not clear, call and get clarification. You not only want to know what the client is asking for and how they are asking for it, but the proposal needs to repeat it to them verbatim.
If my mechanic begins talking about the steps I should take to maintain my kids’ old Honda Civic in the same way he does my Range Rover, there’s a disconnect.
In the same way, your proposed options need to reflect your clients’ reality, in their terms. Are they looking for higher revenue per employee? Or getting employees to take more pride in their work? Or do they use the word “fulfilled”? Their chosen words may not be terms that you use, but remember, your client’s not broken. They don’t need fixing. They want your firm to help them achieve their desired outcomes, because they believe the effort will make a difference to their organization and be good for them. Your job is to help them get what they want, in your firm’s own particular way.
Keep those three points in mind as you sit down with your partners and come up with a value-based pricing proposal. A proposal based on the client’s perceived value. Once you’ve heard them define the destination, use options to partner with them on getting there. Avoid the trap of defaulting to a single solution or offering a low, medium and high set of choices. Instead, strive to offer a series of distinct approaches that will not only get the outcome they’re after, but will offer them new and unique solutions in ways only your firm can offer. Help them get their desired outcomes in ways they didn’t even know existed.
It’s a process, not an event.
That day in Shanghai, we eventually found our way back to the hotel. The solution included a Starbucks employee, a set of Howard Johnson’s hotel workers, and a couple of aggressive taxi drivers, but we were none the worse for the wear. As a matter of fact, just as your firm will be better with proposal number 10 compared to proposal number one, we were wiser about how to get around Shanghai the very next day. Partner with your clients using the power of options and increase the value they receive from your services.
Greg Chambers is president of Chambers Pivot Industries LLC, which helps entrepreneurial companies with their sales-and-marketing practices.