- SPECIAL REPORTS
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When we implement value pricing, we promise to put our clients in charge. The only way to do this is to provide choices. But how do we present those choices in a way that encourages our clients to choose the best option, not just the lowest price?
In Step 3 (POB October 2012), we developed a list of possible prices for the client. Our price matrix involved three pricing levels (rock bottom, regular and “yippee”) and three service levels (basic, enhanced and “over the top”).
The choices you present to your client should include one price from each service level. Of course, you’ll want to rename them for your client presentation. Think more along the lines of bronze, silver and gold levels. Be creative, but keep it professional.
By now, you should have developed a rapport with the client. You also know their motivation, which is the key to determining the perceived value of your service. As we’ve said from the start, this whole exercise is about pricing based on the value of your service. That means it is critical to have an idea of the value you create. This value is as it exists in the mind of the client. No amount of debate or cajoling about external values will have an impact. What you think of the value is irrelevant; the only value that matters is found in the mind of your client.
When you present the options, be careful not to make choices for the client. Remember, they are in control. You can and should help them make wise choices, but you should also be willing to walk away if the choices they make will not resolve their problem. Make certain they understand that under no circumstances will you drop items that are required by the minimum standards. The basic level services are non-negotiable, just as the rock bottom price is non-negotiable.
Having said that, how you choose to describe the basic level of service is very important. If you use words like non-negotiable, the client will quickly see that you lied to them about being in control. A better way to describe this service is to explain how the licensing boards have established a minimum level or required service for the protection of the public: “I am required by law to do these things.”
Once you have established the basic level of service, you are ready to start discussing extras. I like to start with the extras that the client indicated they might need during your initial conversation. Draw a distinction between those items that are minimally required by law and those that are required by some other party. If part of why your client needs the survey is a bank requirement, be sure they understand these requirements.
After addressing what the client needs, you can then discuss what they want. Use your experience with past clients to craft a custom package of extra services to be delivered at an extra cost. Your list of extras and over-the-top services can be a bit fluid. Just be sure your client understands that this proposal is like a tailored suit; it has been created especially for them and their situation. One size does not fit all when it comes to professional services.
Finally, discuss the services the client is unlikely to want or need. But do not make that choice for them. It is OK for them to turn down some of your potential services. In fact, the client who wants “everything” is telling you that you do not offer enough services or that they have no intention of paying you for any of them. Put the power in their hands, just like you promised during the initial conversation. For over-the-top services, do not try a hard sell approach. Clients will sell themselves on these items if they truly want them.
Take written notes during the price presentation. Most clients will show you what they think of your products and services as they are being discussed. (Pay attention to both the verbal and nonverbal signals.) These notes are the foundation you will need for the next step.
A critical part of presenting the proposal is to present not only service choices for the client but also the price associated with each of those choices. Whether you present a rock bottom, regular or yippee price with the various options is something you manage based on feedback from the client. Try to mix all three price types into the discussion. How the client reacts to your prices is important. Here are a few typical reactions and what they likely represent:
- Client wants cheap, cheap, cheap. Some want everything rock bottom or below. This generally indicates a Type 2 client. You should have caught this during Step 1 (be a good listener) so you didn’t waste your time preparing the proposal. It is too late for that at this stage, so unless you are desperate for work, it is best to thank this client for their time and refer them to someone else. Those who ask you to fudge things and go below the standards minimally required by law are trouble with a capital “T.” Under no circumstances should you work for someone who knowingly asks you to ignore the minimally required standards.
- Client says price is no object. This could be a Type 3 or 4 client, or it could be a client who has no intention of paying you. Either way, this situation calls for a large retainer or full payment up front. When my prospective clients balk at up front money, they are telling me they will be someone else’s headache.
- Client complains about the last surveyor they worked with. Listen carefully. Sometimes they have legitimate complaints. Other times they are just whiners who will be saying bad things about you next; in that case, it’s better they work with someone else.
- Client listens carefully, then asks questions about the price of various individual items. These clients are usually evaluating the value of your service. The best thing you can do is succinctly answer their questions, then hush. (See more discussion below.)
- Client listens carefully, then asks a lot of questions about the process but not the price. This client wants you to act as their free consultant. They aren’t really interested in getting you to do the work; they want you to tell them what they need to get cheaper down the street. This is why I ask about previous work they have had done during Step 1. If they have an ongoing relationship with someone else and they indicate they are satisfied with their work, why are they talking to you? Usually this is a ploy to take your time. What this client wants is to use you as a benchmark to reassure themselves that they made the right choice working with the other firm. It is possible to convert this type of person to your client. But only if you know your presentation and service level are so far above the other firm the choice will be easy.
Many of the potential clients with serious price objections can and should have been prescreened by the initial conversation. When you first implement value-based pricing, your ability to effectively prescreen will be limited. Once you gain experience, it will become easier. The goal should be to invest the time and resources necessary to prepare a proposal only when the client is someone you want and someone with a high likelihood of success.
Even with effective screening and proposal presentation, some clients will question the price. Ronald J. Baker, founder of VeraSage Institute and author of “Implementing Value Pricing,” makes a key point about this type of client: “The customer may not be objecting to the price as much as doubting the value. This is a critical distinction because the majority of a professional’s customers are not price-sensitive.”* Although Baker is specifically talking about the clients of certified public accountants here, the same insight applies to the clients of surveyors. A big difference is when your client’s motivation for getting the work is a requirement by some external entity, such as a bank loan. This external requirement usually turns them into a Type 2 client.
Except for the few situations described previously, a client objecting to your price is telling you to convince them of the value of the service. To react to this objection by reducing the price is folly. If you do that, you will be confirming in the client’s mind that you overpriced your service at the start. If you believe you need to reduce the price, be very clear with the client that the reduction must be matched with a similar reduction in value. Everyone wants to save money. Nobody wants to get less value.
After presenting the options (with a fixed price for each), it is time to negotiate. Let the client speak first. You had your chance to say everything you needed to say during the presentation. If there is an awkward silence, resist the urge to fill it. Answer questions concisely. If the client expresses doubt about the price, ask if there is a particular part of the proposal that has them concerned. The good news is that there are plenty of things to negotiate besides the price. During the initial discussion, you established parameters such as time sensitivity. One way to address price concerns is to break the project down into smaller chunks. Some services they pay for and receive now, while other services are postponed.
I once did a significant project for The Nature Conservancy. They had a large tract with no boundary survey. Initially they wanted the entire project completed very quickly during my busiest time of year. I gave them a price that far exceeded what they could afford. Part of why the price was so high was that I needed to add staff to gather the data within the specified time window. My firm is small, so we could not handle the workload alone.
Through discussing their concerns, I learned that working within their budget constraints was more important than a fast turnaround. I proposed that we break the project into six smaller projects that could be worked on during the next six consecutive winters. The boundary lines were through wooded property, and we could be much more productive during the winter when the leaves were off the trees. In this way, the client was able to spread the cost of the work across six budget years, which made it more affordable. We were able to modify the deal to better suit both parties, and I was able to make the same profit margin as in the initial proposal.
Another way to change the value of a deal without changing the price is to modify the payment terms. But beware of the client who wants to receive now and pay later. An initial deposit of 50 percent is usually the minimum acceptable. For clients insisting you complete work sooner, you should insist on being paid more up front. Remember, no value is given to the client without some sort of concession from them. (“Yes, I can have that project completed by the 15th, but in order to do so I must have the full fee up front.”)
When you have gained experience managing this critical stage of your client interaction, your ability to close the deal will greatly increase. Paying close attention to the initial screening and properly managing the presentation of the proposal will ensure a high success rate.
Of course, when your client shakes your hand and says you have a deal, that just marks the start of your next challenge. Making promises and agreeing on prices is only the beginning of a successful relationship. We will discuss putting the agreement in writing in the next column.
* Baker, Ronald J., “Implementing Value Pricing: A Radical Business Model for Professional Firms,” John Wiley & Sons, Inc., 2010, p. 282.
The Four Client Types
- Type 1. This buyer pays for and uses the product or service. For this buyer, value is a combination of quality, price, convenience and a host of other considerations.
- Type 2. This buyer is paying for the product or service while someone else receives the benefit. It makes sense that this buyer doesn’t care about quality; they just want a cheap price.
- Type 3. This buyer receives the benefit while someone else pays.
- Type 4. This buyer does not pay for or benefit from the product or service. When dealing with a Type 4 buyer, make sure you’re filling a specific need, and provide a very clear and easy process for retaining your services.