At the launch of our pricing transformation practice, The Innovim Group (founded by Liz Harris, David Wells and John Chisholm), those in attendance could not help but be inspired by our guest presenter Ron Baker. Ron spoke to our guests about:
- why professionals are what they charge for;and
- how the best professionals who charge for the outcomes their customers achieve are in the “transformation business”
This is exactly why we set up The Innovim Group.
In an age of disruption and informed purchasers, professional firms need to understand how clients derive value from the services and products they deliver, and how they align their pricing with this value, to provide transparency and certainty.
The Innovim Group's focus is helping professionals understand and be able to better articulate the value they deliver, and then price their services according to the value as perceived by their clients.
Following the launch of The Innovim Group, we were proud to be able to offer a Pricing Masterclass with Ron Baker, which was excellent.
In the Masterclass Ron shared his Top 10 Pricing Lessons and, while I cannot hope to do justice to Ron's informative, challenging and thought provoking Masterclass, I would like to share with you a very brief summary.
#10. Hourly Billing is a lousy customer experience
This comment needs little explanation. Every professional knows this in their heart of hearts; even if they won't admit it publicly.
#9. The transition from Hourly Billing to Value Pricing requires liminal thinking
It is not easy for most professionals that have been used to decades of valuing and billing their services solely by time, to make a total paradigm shift and start pricing their services up front based on their clients perception of the value they are providing to them.
It takes courage, much unlearning and some acceptance of risk. But most importantly, it requires professionals to be in a liminal space.
Based primarily on the book by Dave Gray, "Liminal Thinking", which he defines as:
"A state of ambiguity or disorientation that precedes a breakthrough to a new kind of thinking. The space between.
Importantly for those making any sort of major change, we have to realise that change happens at the boundaries of things: between the known and the unknown, the familiar and the different, between the old way and the new way, the past and the future."
#8. Strategy & positioning dictate your pricing strategy
Until you define your purpose (your "why"), define your positioning, work out who your customer is, and understand what your customer values, it is pointless embarking on any pricing strategy.
It will be meaningless, haphazard and inconsistent. That is why many professionals choose to take the easy way out and stick to retrospective billing instead of strategic pricing.
#7. The value conversation is the most important skill in your business
The second rule of medicine is "prescription without diagnosis is malpractice" (The first rule is "first, do no harm").
Unfortunately, too many professionals move straight to the solution (see Mahan Khalsa "Let’s Get Real Or Let’s Not Play" ) without asking the right questions. (see Warren Berger "A More Beautiful Question: The Power of Inquiry to Spark Breakthrough ideas").
Before we price, we need a scope of work; before we have a scope of work, we need to have a scope of value and you cannot have a scope of value without first having a value conversation.
#6. Ron's 5 favourite key predictive indicators
The best organisations in the world have KPI's that define success the way their customers define success. Most professional firms do not.
Key Predictive Indicators, as distinct from Key Performance Indicators, are those indicators that are more predictive of a firm's future success rather than any past successes. (see Ron Baker “Measure What Matters Most To Customers: Using Key Predictive Indicators”).
Ron's 5 favourite firm wide KPI's are:
- Turnaround time - the only time your clients really care about
- HSD's - High Satisfaction Days. HSD's were trademarked by consulting firm NewLevel Group some years ago. An HSD™ is one of those days that convinces you, beyond doubt, why you do what you do. The more HSD's a firm has the better. The number of HSD’s logged into a firm’s calendar is a leading indicator - and a barometer of a firm’s morale, culture, and profitability.
- The Value Gap. This measurement attempts to expose the gap between how much a firm could be yielding from its customers compared to how much it actually is.
- Net Promoter Score. The best organisations in the world use some form of Net Promoter Score that measures the willingness of their customers to recommend their products or services to others and to test a customer’s loyalty. How many professional firms track that? Not many.
- Innovation Revenue - the value of firm to customer rather than lifetime value of customer to firm.
#5. Cost accounting is opinion: cash is fact
Again Ron destroyed the myth which unfortunately is the talisman in many professional firms; cost accounting (see Dr Reginald Tomas Lee "Lies, Damned Lies & Cost Accounting") and instead posits that firms should measure cash results. Whichever accounting standard you use will give you different results.
#4. Laughter is confession
YouTube is awash with humorous video clips on timesheets and the billable hour.
BBDO's Time$hits is one of the better ones. Watch here
#3. The best learning tool ever invented: After Action Reviews
Again, Ron emphasised just how good and essential AAR's are in any professional firm. No matter how you price.
Read Ron's LinkedIn post on the topic.
AAR's alone can replace both the timesheet and the folly that are annual performance reviews.
#2. Professionals need to embrace risk, not run from it
Profit comes from risk, yet most professional firms will do whatever they can to avoid or minimise risk; especially by passing it onto their clients which is precisely what hourly billing does.
Ron discussed 3 actuarial axioms:
- If what you do entails any risk, you are not a commodity
- There is no such thing as a bad risk, only a bad premium; and
- There is no model for pricing risk by the hour.
#1. "All transformations are linguistic". (Werner Erhard)
Language is the precursor to behaviour change.
First change your paradigm, then your language and then change your behaviours.
Professional Knowledge Firms have learned to change their language from one of cost (estimates, hours, billable time, hourly rates, efficiency, etc) to the language of value (price, objectives, effectiveness, solutions, transformation, etc)
Want to transform your firm by transforming your pricing?
If you would like assistance or guidance transforming your firm by transforming your pricing, the Innovim Group can help.
Simply contact David, Liz or I for a no obligation chat or coffee.
In the meantime, Happy Transformation.
