Pricing = Self-Esteem
VeraSage Institute Senior Fellow Daryl Golemb has continued to astound me with his firm's innovative pricing strategies. I met Daryl in 1996. He immediately embraced the ideas behind Total Quality Service and value pricing. He was one of the first firms to offer a menu price. Later on, he innovated the concept of the Perpetual Fixed Price Agreement [FPA], carving out the "evergreen" services that CPAs provide their customers annually--such as tax returns, tax planning, financial statements, etc.--while drafting an FPA that only focused on the customer's changing wants.
At one of VeraSage's Sole Proprietor Retreats, Daryl said something that blew my mind. I'm paraphrasing here:
Not only do I have a fixed amount of capacity in my firm, but I also have a fixed amount of emotional capacity. If I'm not being paid at least $5,000 for a new customer, it's just not worth my emotional investment, and I will turn down the work.
I was stunned. I think it took me about six months to figure out exactly what he was saying, since it is so multi-faceted. Part of it is, Daryl understands his value, and is not afraid to price for it. Another part is that high price tempts. Sure, we say that, but what does it mean?
It means that establishing a high price, and sticking with it, conveys something about your value, not only to your customers, but to yourself. It is a self-fulfilling prophecy, an ever-increasing upward spiral of value creation.
Well, Daryl has raised the bar again. In an e-mail that generated an incredible HSD™ for me, here is what he wrote (he graciously gave me permission to reprint it in its entirety):
Good morning Ron!
Beginning with the Verasage conference, and continuing with the Sole Prop Retreat, I have been thinking about our current pricing for entering into a new relationship. Our previous amount was vague--more than $5,000 but less than or up to $7500. I came away from the conference believing that the amount needed to be firmly $10K for all new customers that desire business and life coaching [Daryl's specialty]. Now, this is not our fixed price target amount, but rather the floor for entering into a relationship.
The power of fixing the amount has been tremendous. Astoundingly, I have used this in conversations with new customers twice this week, and we are proceeding down the path with both customers of outlining the scope and price of our agreement. Our initial conversation set not only the table stake, but also the quality of the relationship we were seeking to have with our customers in a way that $5,000 didn't do.
The first conversation was for an engagement for simple corporate and individual tax preparation. The price range this individual had in mind was $4500, which is somewhat higher than he is paying now ($3500 I think). Once I had an understanding of what he was looking for in us, I explained what I was looking for in deciding to take on a new customer. I think he was slightly shocked that the answer wasn't automatically yes--that just because he was willing to buy meant that I was willing to sell. I explained that I have 25+ years experience in the profession, and that simple tax preparation didn't do it for me anymore. I went on to say that I have a very clear understanding of the engagements that bring us professional satisfaction, and those that don't. For everyone's benefit, I do not take on engagements that don't feel great.
We then had a conversation about business coaching, and the many possibilities that could spring from our conversations. At this point I learned that his parents were active shareholders in his corporation, and would really benefit from these services as well. They have an established relationship with a CPA, but always want more from him.
We came to a verbal fixed price agreement for $14,500, for the following services:
- Quarterly coaching meetings for the purpose of setting corporate goals.
- Financial, tax and estate planning conversations with Mom and Dad as necessary to round out the relationship with their current CPA.
- Financial, tax, and estate planning conversations with him and his wife as necessary.
- Unlimited telephone and email with their bookkeeper, who according to the customer, is extremely capable and will look for guidance on big picture planning for the corporation.
- Corporate tax returns, and tax planning as necessary.
- Personal tax returns, and tax planning as necessary.
Under our previous relationship pricing, I most likely would have priced this agreement at $7,500 to $8,500. Raising the bar on the value of getting into a relationship with us, gave me the courage to ask for more.
I can't wait to get started. It feels good to look forward to working with a customer, instead of dreading 'when am I going to fit this (boring) work in?'
This type of pricing isn't for wimps, or for people who want to tally up hours. This is pure Value communication and creation, along with capturing a commensurate share for the firm. Here is what I wrote to Daryl:
This is incredible my friend. It contains two great points, which I believe only advance pricers will ever understand: 1) your concept of "emotional capacity" as a basis for pricing; and 2) that high prices actually drive higher value, both in service delivery, and as perceived by customers.
If you are inspired by this story, and do something to your pricing as a result, you are at an advanced stage, probably the top 1 to 5 percent of your colleagues.
If this story frightens you, you have a ways to travel.
VeraSage Institute is the most revolutionary think tank for professional knowledge firms-we challenge the professions to break free of practice methods that hurt the professions, undermine their purposes, and fail their clients. Among our quests: burying the billable hour and archaic timesheets; pricing on purpose; recognizing that professionals are knowledge workers, not machines; and improving the professions for posterity.