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.

 

The Most Valuable Skill in Business

There’s that person in your life. The friend or family member you only see occasionally and briefly but when you do, you really connect. You leave every interaction with her with a sense of fondness or love that is wholly disproportionate to the amount of time invested in the relationship.

A little while after your conversations, while still basking in the glow of this special relationship, you realize that you learned almost nothing new about her. You are slightly embarrassed to recall that you spent the entire conversation talking about you—not because that was your intent but because she lasered in on you, asked how you were, what you were up to. And the more you talked, the more interested she seemed to become. She made you feel that there was nowhere else she would rather be, nobody else she would rather be speaking to.

Now take that skill your friend has and transpose it into a business context. What do you have? You have what I believe is the most valuable skill in all of business. The business equivalent of what your friend or family member so effortlessly and beautifully does is called the value conversation, and it is at the heart of value-based pricing and any form of respectful selling.

The goal of value-based pricing is not to charge more—that’s merely a beneficial consequence. The goal of value-based pricing is to create an organization that is intently focused on creating extraordinary customer value. That means developing in your frontline people that same skill that your friend has: the ability to have a conversation with a client and have the entire focus of the conversation be on her. What does she want? What is valuable to her? What is she willing to pay for?

At no point in your conversation with your friend did she interject her stories to mesh with, build on, or refute yours. She didn’t bend the conversation to a topic that’s been on her mind. She didn’t try to communicate anything to you, other than the message that in that moment, you were the only thing that mattered.

What does it mean to do new business in your firm? How close or far are you from the ideal that your friend represents?

Hacking The Value Conversation

The value conversation is where value pricing theory goes to die. The difficulty in mastering this conversation is what causes most people to give up on value-based pricing completely and revert back to selling time and materials. It needn’t be so difficult, though.

There’s a hack to the value conversation that a successful former client of mine pointed out after reading the manuscript of Pricing Creativity: A Guide to Profit Beyond the Billable Hour. When he explained it to me over dinner I thought, “This is brilliant. I should put it in the book.” In the end I didn’t include the hack because I feel strongly that mastering the value conversation is one of the most valuable skills in all of business–a skill that can transform careers and businesses. So, while encouraging you to learn that skill, I’ll now give you the shortcut. But first, some context.

Perhaps the Most Valuable Skill in Business

There are three tiers of financial success in a creative firm that I can correlate to pricing strategies. The lowest tier of true financial success is occupied by the efficient cost-based pricers–those firms that bill as many of the available hours as possible. An efficient firm might bill around $200k in adjusted gross income (AGI) per full-time equivalent employee (FTE), whereas the average cost-based firm might bill around $140k in AGI per FTE.

The next tier of success is where you find the value-based pricers—those who charge based on the value to the client and not based on their costs or inputs of time and materials. These firms escape the limits imposed by the pursuit of efficiencies, moving their AGI/FTE number north of $200k, into $250k and maybe even the $300k range.

The very highest tier of financial success, however, is reserved for those value-based pricers who master the value conversation. These firms can push into the $400k range and beyond, with no real theoretical limit. A well-facilitated value conversation not only has a profound effect on the income of the firm, it creates more value for the client and it is a thing of beauty to behold. I consider it to be one of the most valuable–perhaps the most valuable–skill in all of business.

The Value Conversation Framework

Here’s the simple four-step framework for facilitating the value conversation:

  1. Confirm the client’s desired future state (What do you want?)
  2. Agree on the metrics of success (How will we know we have achieved these things?)
  3. Uncover the value that would be created from hitting these metrics (What’s this worth?)
  4. Offer pricing guidance (I’m going to bring you a range of solutions in the $Y to $X range.)

There’s lots of nuance around the “how” of each of the four steps above, but it’s really that straightforward. You’ll notice that by the end of the value conversation you haven’t even begun to think about solutions. Your entire focus is on the client: what they want, how you’ll measure their success, how much value you might create for them, and finally, some initial ideas on what you might charge for helping to create such value. After this conversation you retreat to think about costs and solutions, building and pricing your proposal accordingly, while following the rules set out in Pricing Creativity.

The Reality: Few Get There

So why are there so few firms mastering what seems like a simple conversation and moving to the highest tier of financial success?

The reasons are many:

  • This mastery is a sales skill and not a pricing skill
  • It requires you to be selling from the expert practitioner position and not the vendor position
  • It’s tactical knowledge acquired from doing, not implicit knowledge acquired from reading or listening
  • It requires you to be talking to client-side executives charged with value creation and not middle managers charged with managing a project or budget
  • The first few conversations can be awkward, and few push through the awkwardness to get to the incredible riches on the other side

All of these reasons and more make a value conversation hack so valuable. So here it is…

The Hack

Early in Pricing Creativity, I tell the story of the first time I saw a one-page proposal based on value rather than inputs. It was the principal of that firm that I found myself having dinner with while the book was in pre-production. Commenting on the manuscript he said, “You left out my hack!” What did he mean, I asked? He replied that he never mastered the value conversation. (Chapter 9: Master the Value Conversation–to me, perhaps the most important chapter in the book.)

Instead, early on in the sale–much earlier than I would advocate–he would put a one-page proposal on the table with three options. But he didn’t view this proposal as the final one. In fact, he said that the initial proposal was never the final one. It was only there to serve as a catalyst for discussion over what the client really valued. The hack, according to my client, was to put at the bottom of each option, “Choose this option if X is important to you.” X might be speed to market, customer service, low risk, knowledge transfer or anything else. He would then ask the client, “Which one of these options is the most appealing to you?” The client would point to one and in doing so reveal what he most valued. This would direct the conversation. “Ahhh, so educating your team as we develop the product (or program) is something important to you?”

In this way the early proposal lead to a more targeted value conversation in which the client and the firm could talk through specific value drivers that the client had revealed by simply pointing to an option, all while framed by the context of the initial prices. The discussion would result in the firm coming back with another proposal more specifically targeted to what the client most valued.

To Hack or To Hold Firm?

As someone who values rule breaking as much as I do rule making, I love this hack while I simultaneously worry about sharing it with you. There is no substitute for mastering the value conversation. I’ll repeat that I believe it might be the most valuable skill in all of business, but I also know that the size of the gap between those who understand value pricing and those who truly implement it is problematically large, especially in the creative professions.

As I craft this parting advice I find myself wondering what I would do if I were in your shoes (Win Without Pitching is a productized service business–we don’t value price the way a customized service firm like yours should) and I don’t think I would deviate from proper sales process and a good value conversation. But not all value conversations are good and easy, especially in the beginning. And like all good hacks, I would keep this in my back pocket for those situations where I saw that an elegant theory was clashing with my harsh reality.

So use at your discretion. If you do try it, I’d be interested in hearing how you make out.

Should You Publish Pricing on Your Website?

We’ve gone from an era where creative firms never published their pricing to one where, while it’s not yet common, there’s a bit of a trend toward it among certain types of firms.

There are right and wrong motivations for disclosing your pricing on your website and right and wrong methods of doing so. Let’s explore them.

First, let’s examine the idea of why a creative firm would consider publishing its pricing on its website. Let’s start with what I hope is the obvious wrong motivation.

Wrong Motivation: Demonstrating Affordability

A firm that publishes low prices is essentially competing on price and sending negative messages to the marketplace about quality, confidence and sophistication. Selling on low price can be a viable strategy for fully-productized businesses that have a production advantage or an economy of scale that lets them sell more cheaply than their competition. These businesses don’t mind dragging prices down and squeezing out less-efficient competitors as a means of gaining marketshare.

You’re not in such a business and therefore not employing such tactics. (If you are then you’re destined to always run your business from your parents’ basement.)

Right Motivation: Demonstrating Exclusivity

The opposite approach of publishing higher-than-market prices as a form of positioning is a more valid one. Pricing is positioning. Let’s be clear, however: where Logos-R-Us might price logos at $499, a firm trying to position itself as upscale isn’t going to price logos at $50,000. They’re going to speak in more general terms about the size of budgets they work with. More on that in a minute.

Right Motivation: Advance Client Qualification

Some firms do a great job of inbound lead generation but end up attracting a high volume of price buyers or other budget-challenged prospects. In such firms it can make sense to publish pricing guidance as a means of keeping the gnats at bay. Putting pricing guidance on your contact form is a good way to help vet such clients and ensure that anyone who does reach out has at least some idea of how much it will cost to work with you.

Now let’s look at the right and wrong methods of publicly disclosing your pricing.

Right Method: Minimums

I’m a fan of using a minimum level of engagement (MLOE) in the sales conversation. It can make sense to publish such minimums.

“Our minimum level of engagement is $100,000 in fees over the course of 12 months.”

Or the more subtle, “Projects typically start at $25,000.”

Right Method: Ranges or Examples

I think ranges and examples are the best ways of publishing pricing guidance, saving the more rigid MLOE for the sales conversation where you can imbue some flexibility and use it as a negotiating lever. Ranges and examples provide guidance but still leave the door open to opportunities just below the minimum level.

“A typical project ranges from $100k – $300k and our clients typically spend between $500k and $2m over the course of a year.”

Wrong Method: Package or Tiered Pricing

Increasingly, I’m seeing creative firms, and digital firms in particular, publishing tiers of services with pricing attached. This is a trend borrowed from Software as a Service (SaaS) companies, many of whom are sophisticated pricers. On Salesforce.com’s pricing page for example, I count seven obvious pricing principles, nudges or other tactics designed to leverage the mental shortcuts buyers use, sometimes irrationally, in their decision making.

Many of these pricing principles can be applied in a creative business, including the use of options and bundles.

There are important differences between SaaS companies and creative firms however and therefore implications on pricing strategies. Most SaaS companies are selling products in large scale which means they’re effectively pricing the product and not the client. (More correctly, they’re using sophisticated segmentation strategies on large markets to group clients and price the segments, but compared to your business where you should be pricing each individual client, they are effectively pricing the product.)

Price the Client

In your firm you want to price the client and not the service. That means taking full advantage of price discrimination (a good thing, in spite of its name) and the subjectivity of value which I’ll sum up thusly: a service you perform for one client can be significantly more meaningful and valuable to another client, therefore you should charge less to the first client and more to the second.

When you publish package pricing you remove your ability to practice price discrimination and you force yourself to make significant judgments on the value you propose to create for your clients before you even have a conversation with them.

It is a good idea to think and price in tiers, bundles and options – just make sure that each is constructed for the client, in the sale, and not an off-the-shelf package with a predetermined price.

In summary, it can make sense to publish some pricing guidance on your website to help you with positioning and to prequalify prospects, just avoid specific prices for specific services, and if you do employ the pricing tactics of tiers, bundles and options (as you should), don’t make the mistake of assembling, pricing or publishing them before any conversation with the client.

A Fair Price

Over a series of articles and webcasts on pricing I’ve been exploring ways in which you can increase the amount you charge for your expertise. It all begs the question, though: is there such thing as charging too much?

Put another way, should you be pursuing as much as you can get from your clients or should you be driven by the idea of a “fair” price? Many economists would say that any price paid is by definition a fair price otherwise the buyer wouldn’t pay it. They’re wrong.

Read moreA Fair Price

Always Be Anchoring

Anchoring is one of the most powerful techniques of effective pricing. You are subjected to it all the time and if you’re not using it in your own pricing, you’re almost certainly selling fewer higher-priced solutions, leaving serious money on the table.

If you’re unfamiliar with the technique, the few minutes you spend reading this might be some of the most profitable of your career.

Read moreAlways Be Anchoring

Everything You Need to Know About Pricing

“We’ve made a lot of money from your advice over the years.”

It was early 2013 and the voice on the phone was an advertising agency president who was signing up for a training program. I knew him only a little from a seminar he attended years earlier and a few emails we had traded since. I also knew that he had purchased annual subscriptions to my webcasts, but I knew little of his business or of his success.

“That’s great I replied,” and I meant it. But he needed to be sure I understood.

“No, we’ve made a lot of money from your advice.”

Read moreEverything You Need to Know About Pricing