Value Pricing: The Client Matrix
June 1, 2012
Last month, I wrote about moving away from pricing schemes based on time. Many readers were undoubtedly skeptical of the idea, and with some clients, the skeptics are exactly right. The key is value. Those who see no value in a survey make very poor clients.
Discussing how to increase our value proposition is a wasted effort for clients who see no value in our work. If only there were a way to quickly identify people for whom a survey has no value. If we could spot these people before we spend time discussing value, everyone would be better off.
As it turns out, there is a way.
Every time someone purchases a product or service, they fall into one of four categories. Think of a four-cell matrix with the payer along one axis and the beneficiary along the other. (See the illustration on page 41.) The buyer category can tell us a great deal about the motivations of the buyer, and understanding these motivations is key to a successful client interaction.
Type 1 buyers both pay for and directly benefit from your services. The professional should stress both quality and value with these buyers. Type 2 buyers are almost exclusively focused on price. If you must deal with a Type 2 buyer, understand that quality and value will not motivate them. You’ll need to be prepared to work cheaply if you routinely work with these buyers. Conversely, Type 3 buyers are unconcerned with price, so you should always propose the best-of-the-best for them. Type 4 buyers must be provided with a very clear and easy process for retaining your services. Don’t confuse Type 4 buyers with those who need a lot of options. Determine the need and fill it with a service that has a high profit margin.
Unfortunately, Type 2 buyers are more common than you might think. For example, most real estate agents fit into this category. Once a contract between property buyer and seller is signed, the surveyor can only mess things up for the real estate agent since the agent only gets paid if the deal closes. If a surveyor finds a problem that prevents the deal from closing, the real estate agent loses his or her pay.
The good news is that we can often switch from working with a Type 2 buyer (the real estate agent) to working with a Type 1 buyer (the property buyer). Instead of working with someone who views our work as an impediment to his or her transaction, we can work with the person who will reap the long-term benefits of a professional job well done.
Convincing real estate agents to let you talk to the person who will actually pay for the work is usually easy. First, the agent needs to understand that in most jurisdictions it is illegal for a surveyor to perform a survey with the condition that he or she will only be paid if the deal closes. (A contingent survey presents the surveyor with a clear conflict of interest; most Codes of Ethics prohibit surveyors from working in such situations.) Second, the agent should understand that the person who orders the work is ultimately responsible for paying for the work. When faced with those realizations, most are glad to give the surveyor the name and contact information of the party who will be responsible.
Of course, not every buyer at a real estate closing is a Type 1 buyer. Those who are being forced to get a survey, either through a bank requirement or government edict, will most likely see the survey as nothing more than an expensive checkmark on a form. This is why passing rules requiring surveys for every property transaction will never have the effect of making surveys more valuable; the effect is quite the opposite. Understanding the motivation of the client is imperative.
What about Type 3 and Type 4 buyers? Although these clients don’t pay for our services directly, they often make excellent clients. A good example is an attorney. Again, the first thing to determine is the attorney’s motivation. Sometimes they are Type 3 buyers who can benefit greatly from a thorough, professional work product while someone else pays the bill. Other times they are working more as facilitators for their clients and are Type 4 buyers.
Working with an attorney to prepare a case for trial puts the surveyor squarely in a Type 4 buyer situation. When the work of the surveyor can make a difference between winning and losing the case, the value of our product is very high, and we should be compensated accordingly. I’m not suggesting that the surveyor become an advocate for the client’s point of view; that is the role of the attorney. However, most attorneys have no clue about land dispute cases. The right surveyor can help the attorney prepare to present the facts in the best possible light.
When you receive a call from a new client, the first and most important question you must answer is, What type of buyer is this? Once you determine the type of buyer you’re dealing with and the associated motivations, you can decide whether the client is worth your time. If so, then you can begin to develop a strategy to increase your value so that you can build a successful long-term business relationship with that client.
Next month, we will begin looking at a business model built on working with these clients in a value based pricing system.
The Four Client Types• Type 1. This is by far the most common type. 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. Real estate agents are classic examples of Type 2 buyers.
• Type 3. This buyer receives the benefit while someone else pays. One of the main reasons health care costs spiral out of control is that the ultimate consumer is usually not the party responsible for paying. Patients, doctors and hospitals have no incentive to reduce costs because none of them are paying for the service; insurance companies pay the bills for their clients. For surveyors, Type 3 buyers can be excellent clients.
• Type 4. This buyer does not pay for or benefit from the product or service. Neither price nor quality matter to this buyer; they only want things to be easy (and very often fast.) The best example I've seen of this type was the male military supply officer tasked with buying bras for female military officers. He bought 3,500 bras all exactly the same size. 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.