When was the last time your asked to see
the time sheet for the car you are buying? This was just one of the many of
rhetorical questions that Rob Baker asked when I attended his “Firm of the
Future” forum a couple of weeks ago.
Ron is a US-based advocate for the
abolition of the billable hour in professional services firm, as well as an
‘Influencer’ on LinkedIn. According to Ron, he doubts he will see the
redundancy of time sheets during his lifetime, but the “tipping point” may not
be that far away.
I was curious as to how different the
pricing of professional services is, which Ron knows a bit about, and other
products and services, which is where my expertise lies? And the answer is? Not
that different at all.
The second bar, assuming you have a
profitable product, is your price. This is an area of conflict: one party wants
to minimise this, and the other party wants to maximise it. Move on to the next
bar, which your value or your output. This is what your discussion with
customers should focus on, because you are both in agreement on this. Both
parties want to maximise it.
Goods commonly have product ladders, and
often come in small, medium and large sizes. There is absolutely no reason why
professional services shouldn’t do likewise. A product ladder helps companies
segment the market, in the same way that families will buy a 24 roll packs of
toilet paper, while singles opt for 4 roll packs.
A well-designed product ladder gives
your customers choice. And as we know from behavioural economics, if you give
customers a choice of two products, the decision becomes a price based one.
Give customers three products to choose from, and the decision becomes a
value-based one.
So how do you create those different
products? I recently sat down with a business coach to help him migrate from
time-based pricing to a fixed price subscription service. After walking him
through Ron’s six “T’s” – time, terms, technology, talent, tailoring and
transference, as well as numerous other features (e.g., material and
documentation, support between coaching sessions), we had price plans sketched
out within half an hour. Not only that, the coach was much clearer on what his
scope, roles and responsibilities were under the plans.