Rethink Account Management, Raise Your Prices

Why The Account Manager (or Consultant) Role is a Barrier to Extraordinary Profit, And What to Do About It

In an earlier post called The Most Valuable Skill in Business I talked about how letting go of solutions and focusing intently on what the client wants, and the value she’s looking to create, is indeed the most valuable skill in all of business. Unfortunately, this skill of focusing on the customer—and by extension, forgetting for awhile about what you might sell to her—is not all that common, especially in the creative and marketing professions where most of the communication is one way at a time.

A Series of One Way Communications

Think for a minute about how we are conditioned to communicate with our clients, right from the very beginning of the relationship. First, the client decides what they need. Then they lob us an RFP. We compose our response and lob it back. The client reviews our submission then informs us we’ve made it to the next step. We are invited to present. In the presentation we do most of the talking and the client gives very little away. After a few cursory questions they finish with “Thank you very much; we’ll be in touch.” We wait for the decision. If we’ve won, we are invited to the proper brief where we once again largely download the client’s directives. We then retreat to prepare our solutions, again in isolation, and begin preparations for the next presentation.

In such a world there is very little real collaborative conversation. There is one party transmitting and the other receiving. One exchange at a time, we are either presenting or being briefed.

Conversations Instead of Presentations

At the heart of much of what we teach at Win Without Pitching is simply getting back to conversations. The second proclamation of The Win Without Pitching Manifesto is We Will Replace Presentations With Conversations, and our framework for navigating the sale is The Four Conversations—the idea that you should view the arc of the sale as four discrete conversations, each with its own objective and framework for navigating to that objective. Conversations instead of presentations.

Substituting One Type of Expertise for Another

I’m advocating that account managers (I include consultants in this term—essentially anyone on the front lines regularly interfacing with the client) learn to substitute one type of expertise for another.

There are two main, broad categories of expertise: subject matter expertise and process expertise. Account managers in specialist firms are typically subject matter experts. Like dead people in The Sixth Sense, they see patterns everywhere. (My 2Bobs podcast co-host David C. Baker points out the relationship between pattern matching, innate intelligence and expertise building in his book The Business of Expertise.) When the client starts describing their situation, the experienced account manager taps into his mental history of other clients expressing similar sentiments or symptoms and immediately begins to form hypotheses as to the problem, the solution and—jumping ahead further—either the price the firm typically charges for such a solution or the maximum price the client is likely to pay for said solution. This jumping ahead is what needs to stop if you want to access the highest levels of value creation and profitability. By going too quickly to our mental library we bring all kinds of limitations and biases. Most grievously, however, we shift the focus away from the client and what she wants to us and what we might do and charge.

What I’m advocating is that account managers endeavor to build expertise around the process of conducting a value conversation. In the appropriate moment in the sale, they must learn to let go of their subject matter expertise, clear their minds of any possible solutions or prices, and focus on facilitating a value conversation—the most valuable skill in all of business. If you can make this transition in your firm, I believe you can open up levels of profit that you previously viewed as ethically unattainable.

Enter The Value Council: The Central Repository of Pricing and Scoping Decisions

I first encountered the idea of a value council in Ronald J. Baker’s book Implementing Value Pricing: A Radical Business Model for Professional Firms. Building on an earlier idea of a pricing council, Baker advocates the full centralizing of all pricing decisions in the firm to a small group (picked based on skill, attitude and temperament rather than on role or rank) led by a chief value officer or CVO.

Representing full centralization of pricing, the value council and CVO is indeed a radical rethink of how to handle pricing in a professional firm. For the greatest impact, however, the firm must also centralize the scoping of the engagement. Centralizing the pricing function without centralizing scoping represents only a small step toward the extraordinary value and profit creation attainable through value-based pricing.

The Roles of the Value Council and Account Managers

Each of the few value councils I have had the pleasure of working with has been limited in their power to affect price because the account leaders were still scoping—focusing on solutions—instead of uncovering value creation opportunities unencumbered by their ideas of the shape or scope of the engagement.

At the highest level of pricing centralization and, I believe, value-and-profit creation, here’s how account leaders and a value council should work together:

  1. Remove pricing from the front lines (centralize in a value or pricing council)
  2. Keep the scoping function tied to the pricing function (thereby centralizing that, too)
  3. Train your account leaders to embrace the idea of becoming process experts, allowing them to conduct a value conversation without crossing the line into scoping solutions
  4. Have the account leader brief the value council on the key areas uncovered in a value conversation:
    1. What the client wants
    2. The metrics of success
    3. The value that might be created
    4. What the client might pay for that value
  5. Have the value council construct a draft one-page proposal of engagement options and prices
  6. Invite the account leader to comment on and contribute to the draft
  7. Agree on final changes and have the account leader conduct the closing conversation with the client

There are many more elements of the value council covered by Ron Baker than I have touched on here (and Tim Williams nicely summarizes much of it here). My main point is that while centralizing pricing in your firm is a step toward building a firm that is intently focused on extraordinary client value creation and the corresponding profits, to finish the journey and get to the highest levels of profit you will have to centralize scoping too, and reshape the account manager role as one of dual expertise in both the firm’s subject matter and the process of mastering the value conversation.

 

A Creative Professional’s Progression of Financial Success

In this week’s episode of the 2Bobs podcast that I co-host with David C. Baker on the art of creative entrepreneurship, David and I try to unpack the word “success” and get to the root of the objective, measurable form of success and the entirely subjective idea of feeling successful. We agree that financial success is the easiest way that we objectively measure the success of others but also that it has an undersized and fickle impact on how successful it makes us feel. I find the topic of success so complex that this episode is either the best or the worst we’ve ever recorded. Maybe you can decide.

Regardless, it’s only coincidental that today I’m writing about financial success. We all want financial success of some level. What we consider to be successful and how bad we want it to differ from person to person, of course.

I know that in my own journey to understand value-based pricing I have seen three obvious levels of financial success that hadn’t previously been so clearly demarcated to me. Moving from selling hours, days or sprints to pricing based on value is not just a tactical shift, it’s a shift that does not happen without a profound transformational shift in one’s own mindset, and that is something I want to explore here. But let’s begin with the first level of financial success. It may be one that you’re still striving to reach, or perhaps you’ve wisely decided to skip right past it.

Level One: The Efficient Firm

In the beginning, most firms pursue efficiencies. They see time as the resource they have available to sell and so they strive to sell as many of the available person-hours as possible, thereby maximizing their billable efficiency. There are industry benchmarks that firms strive to hit and whenever principals get together they often ask each other about utilization rates, to get a sense of how they’re measuring up on the efficiency front. If time is indeed the resource that the firm sells then it stands that success will be had by selling as much of the firm’s inventory as possible. I’ve encountered some highly efficient firms in my time serving the creative professions and their owners tend to do well financially.

The challenge with this first level of success is the longer you stay at it or even just pursue it, the harder it is to move to the next level. The pursuit of efficiencies, as I wrote in my book Pricing Creativity: A Guide to Profit Beyond the Billable Hour, creates a corporate culture with an inward focus on the reduction of messiness and the elimination of waste. On the surface that might not seem so bad, but as we will see shortly, an inward focus on the firm being efficient is directly at odds with the messiness and waste required to innovate and create extraordinary value for the client. This extraordinary value is the basis for your own extraordinary profits than can be achieved at the next two levels.

Level Two: The Value-Curious Firm

I’ve carefully chosen the term “value-curious” to describe those who dabble with value-based pricing. I expect the majority of the readers of my book to reach, and (if I’m fully honest) stay at this level where they put together options and prices that are based on their own assessments of the value they might create for the client.

Those at this level begin to transcend efficiencies and the selling of time as they recognize the opportunity to charge more when the value to be created is higher. I’m getting emails every week from people new to this category, many of whom are discovering just how significantly they have been undercharging by having clients immediately accept their new anchor prices, some of which are multiples of what they would have previously charged.

These value-curious are the ones who can push past the $250k in gross income per full-time equivalent employee (AGI/FTE) barrier that seems to limit even the most efficient firms and generate per capita profits that are not within reach of their efficiency-focus peers.

And yet, from this second level a third and far more lucrative level is accessible. Few get there but those that do generate profits that many don’t think are possible in a creative firm.

Level Three: The Entrepreneur

The entrepreneur is someone who has gone through the mindset shift I mentioned earlier. They see things differently.

I tell a story in Pricing Creativity of an independent consultant friend of mine who was about to give away free advice in an email. At the last minute he changed the last line from “Good luck and let me know how it works out,” to “My fee is $600,000.”

If you’ve read the book you know the story and how it ends. But, as it turns out, the end that I described was the beginning of my friend’s story of personal transformation. A few weeks after my book launched, he sent me a note.

Your book reminded me that it all began with that email where I changed the last line from “free, too, big fee” at the last minute. There are times in your life when you can point to one decision that can fundamentally change your life. It’s looking like that pricing decision was one for me.

In a lengthy email, my friend, who I’ll call Luke (not his real name) went on to describe many business deals he is involved in that have six-, seven- and eight-figure payoffs, either completed or pending with a high likelihood of completion. Luke owns pieces of other businesses, is getting paid based on gross sales of others and has helped to build and is now trying to sell a company for which he will be paid a percentage of a sale price that might hit nine figures.

I call these business deals, but before my friend’s aha moment, when he changed the last line of an email, they all looked like engagements. A client had a problem and asked him to help. He would do what he had done for the previous decade: put together a consulting engagement where he sold the client time—days onsite and ongoing access—to help them achieve their goals.

Now, instead of thinking like a consultant he thinks like an entrepreneur. That is the fundamental shift in mindset I mentioned earlier. Where your entire focus moves from selling something to creating something.

Luke looks for ways to help create enormous value and then he proposes to get paid on that value. He no longer thinks about what he will sell, only about how much value he can help create and what that would be worth. As a result, none of his deals/engagements look anything like the other.

It’s not likely that you can say the same thing about your business. In fact, so many creative firms tend to deliver solutions so similar from client to client that they start to go the other way and productize their services. For most firms, this is a big mistake. The greater opportunity for financial success is in the other direction–viewing each new client as a blank slate of opportunity to create extraordinary value and to earn extraordinary profits.

You might think my friend has an advantage over you that allows him to do something you cannot. “He’s a consultant—this comes naturally to him,” you’re thinking. When I first met Luke he was an art director at a small ad agency in a small market, fresh from art school. I’ve met enough other designers who have made this transformation to know that there is nothing about the creative professions that precludes someone from being paid the way, and the amounts, Luke gets paid.

If financial success alone does not drive you, here’s another quote where he describes what it was like to work on his first value-priced engagement.

Man was it fun! Most fun project I had ever worked on. Hell it was definitely not work. Just fun.

Welcome to the next level, one that can only go by the name of true entrepreneurship. A level where the focus is on value creation, where you willingly take on risk and you agree to try to do things that you’re not even sure that you can do. A place where every engagement is different from the previous and a feeling of fun pervade the work.

A Final Caveat

These three levels of success are clear to me, and each level makes what passes for financial success at the previous level look paltry, but that does not mean that all creative entrepreneurs have some sort of obligation to progress on this path from one level to the next. The higher levels come with higher risks; the propensity for risk is not universal. Some people are just wired for efficiencies and are uncomfortable with the freeform approach of the entrepreneur. That’s okay. A good living can be made—with little risk—by running an efficient firm. For many of you, that may be enough.

Coaches Corner: Getting Smacked in the Back of the Head

I was working with a WWP client recently, and as we discussed a range of topics I heard a common refrain, one I’ll call the entrepreneur’s educational lament: “I train my employees, and once they learn all these skills they take them and go work for my competitors.”

I too have sung this song. I used to feel like I ran a university. Employees would enter a revolving door, getting trained in what I felt were “world-class” processes. And then they’d leave. Sigh; here we go again.

Let’s be honest. It can hurt when employees leave—a lot. They can carry years of experience out the door. They leave a hole that can be tough to fill and the new employees we hire (typically younger, less experienced and definitely less familiar with our unique processes and systems) come out on the wrong end of any comparison with the departing employees, don’t they? If you’re not careful, resentment can build; resentment against competitors, and against the employees that have left.

Well, in the middle of the discussion with the WWP client I realized that employees still leave my firm, creating holes that are tough to fill. There are plenty of reasons that they leave: management is hard and I’m not the perfect boss—far from it. And I don’t always make perfect hiring decisions. And I can wait too long to take corrective action (though I’m working on getting better about that). And the economy is doing better, making other opportunities for employees both more abundant and better compensated than they were in the past. As I said, there are lots of reasons that employees leave.

I was in the middle of the discussion when I realized that I don’t mind as much as I used to. I really hope I’m not tempting fate by saying this out loud, but as our firm enters the second decade of really living our specialized focus, I find that several things have happened:

  • As our mission has become clearer, it’s easier for potential employees to decide whether they want to work for our firm. They either get what we do and want to be a part of it or they don’t; their choice is more clear cut.
  • As our mission has become clearer, it’s easier to determine whether a potential employee will fit or not. They either get it or they don’t; our choice is more clear cut.
  • We’re pickier about who we hire. To deliver world-class service to our clients, we can’t make do with anyone.
  • We’ve put more time into developing systems for training our employees. Are we perfect? No, of course not, but we’re striving for improvement.
  • I’ve shifted my role from taking care of clients directly to taking care of employees (who then take care of clients).
  • I’m better at taking the long view, understanding that there will be ebbs and flows.

But it wasn’t until I was in the middle of this discussion that I realized the primary reason that I don’t mind as much as I used to: it’s a matter of choice—of focus. In focusing on who had left my firm and how much I had trained them and how much I resented the fact that they left, I was looking into the past, rehearsing my injuries. And by spending so much time focusing on the past, I was looking away from the future. So the future was rushing in from the horizon and smacking me in the back of the head, unannounced. Ouch.

The future tends to do this if you’re not looking out for it.

As the leader, it’s my job to ensure that this firm succeeds. We have to learn from the past, yes, but we can’t spend too much time looking back. We have to outrun the competition, we have to give away our unique, valuable thought leadership, we have to develop world-class processes and implement them over and over again, improving each time, striving for greatness. We have to train our employees, knowing that they’ll all leave, sooner or later.

When they do leave, there are fewer direct competitors they can go to, because of my very specialized focus. Certainly for my firm, there are no local competitors, specialized or not, that can hold a candle against us. Not everyone believes that, but I certainly do.

When I made the choice to specialize more than a decade ago, I realized it would help my firm in all sorts of ways. But I couldn’t foresee the positive secondary effects that it’s had, like the changes in my relationships with my employees.

So when employees leave, I wish them all the best. Does it hurt? Yes. But you know, it’s a privilege to work with such talented people. And I hope (and work to ensure) that they benefit from their time here. That’s my job: to have the courage to focus my firm so that it attracts outstanding clients and amazing employees. Then to train these employees: to help them see the purpose behind what we’re doing, to give them opportunities to gain confidence and autonomy, and to master new abilities and skills— like how to keep one eye on the future and the impending horizon, so they don’t get smacked in the back of the head.

Managing Bad Referrals From Good Clients

Before I jump head on into this topic, I want to be the first to admit that if you search the WWP archive of articles and webcasts you’ll notice a lack of guidance on the topic. Referral programs specifically. You’ll also notice us experimenting with different ideas as we work to prepare a position on this valuable but neglected topic.

Let me highlight what I believe to be true on the journey thus far:

  • Active referral mining is a must and so is rewarding
  • But…rewards should be discretionary as an appropriate thank you and not a revenue source for the referrer
  • Paid referral programs (where you commit to a fee or percentage for referring) are not ideal for any customized services firm
  • Some people find it easy to do, but others…
  • Many feel like ‘sales predators’ when asking
  • Timing is everything
  • Any solution needs to address the above

Referrals are like value pricing – an easy theory that few are able to fully leverage, for largely the same reason: some find the conversation difficult. I’m mining Robert Cialdini’s great work on reciprocity to see if we can parlay it into a discreet, easy to follow referral system that everyone can implement. The test will be whether or not we at WWP use it (One of our values: we do what we say. If we don’t do it, we don’t teach it.)

Ok so for today, let’s take a look at but one slice of the pie, how do you get yourself out of a bad referral from a good client.

Good referrals are like the free pistachios in the bag that have somehow been pried from their shell, leaving you with all the nutty goodness and none of the work.

It takes a lot of work in fact to generate a steady stream of good referrals and it’s no surprise that very few firms ever get to this place where the business is sustained and growing entirely by doing great work for good clients and systematically asking for and following up on referrals. It is however the highest form of “marketing” that we should all aspire to.

Not all referrals are good, however. I routinely see angst created by referrals from poor clients or, more commonly, the situations that arise when a good client makes a bad referral. The common scenario is a good client, who spends lots of money with you, refers you to a friend or relative who has a startup, small business or some other entity that for reasons of affordability or other are not a good fit for you. The mistake is to think that the right thing to do is to take the client on anyway.

So, let’s walk through how you might respond to a bad referral from a good client. Let’s say your gorilla client refers an early-stage (but past start-up) company to you. At first glance you think it’s highly unlikely this referral can meet your minimum level of engagement. What do you do?

First and foremost, understand the dynamics at play. The client is doing you a favour (at least in his mind) but he is also trying to look good to the referree. Your job is to make your client look good. Do not lose sight of this objective, and don’t limit yourself by thinking that the only way you can make your client look good is by taking on a client that’s a bad fit. Nobody wins in that situation. So, how do you proceed? Follow these steps:

1. Thank You

You begin by thanking the client, the referrer. “Thanks for thinking us. We really appreciate referrals and are glad you think highly enough of us to refer us business. Keep it up!”

2. State Any Concern But Reassure The Client

If you have concerns about the fit, state them to the client now and then immediately follow up by assuring the client that you will help his friend get the help they are looking for. In this way you are communicating that you will do your job – make your client look good to the referree. It might sound like, “I’ve looked at their website and they might be a bit small (early-stage, underfunded, tactically-focused or whatever the objection is) but I’m going to follow up and see how I can help.” Now here’s the important part, reassuring the client you will do your job: “”If we’re not the right fit for them, I’ll make sure he gets exactly the help he needs.”

That is your obligation to a good client, it’s not to work for a bad client because it came as a referral from a good one. Whether this initial exchange with your client/referrer is in person, over the phone or via email, it needs to be all positive, even if you’re expressing concerns. It’s most important that the conversation ends on a positive note. “This is your friend, I’m here to help. I’ve got this.”

3. Repeat With The Referree

Now talking with the person to whom you have been referred you do the same thing. Think of the communication as beginning with a positive opening, then moving to your concern while maintaining the positive tone, and infamy, finishing up with an enthusiasm to help.

4. Determine How You Are Going to Help

There are many ways you could help this referree. Let’s list the obvious one. First, you could take them on as a client, if it makes sense to do so on their own merit. Your second choice is to say we’re not the right firm for you, but promise to help refer them. For a good client (referrer) it might make sense to go the extra yard collecting information from the referree and then even sounding out some firms yourself in order to find the perfect fit and live up to your obligation to make your big client look like a star for referring you. It might even make sense to keep checking in with the referree until he or she is happy with the provider with whom he ends up. Another option that you might consider if the referrer is one of your best client and the referree’s needs are very small, is to just help for free.

5. Circle Back With The Client/Referrer

Finally, close the loop by going back to the referrer and let him know exactly how you helped his friend and made him look like a star.

The key to all of this is to remember that when your best clients refer a bad opportunity to you, your obligation is to help your paying client – by making him look good – and not to take on a client that it doesn’t make sense for you to take on. Keep your client in the loop about what you’re doing to help his friend but don’t view a referral as a demand and don’t create any unnecessary stress for yourself or anyone else.

And hey, if you’re so inclined, drop a note and let us know how your referral program is going.