3/22 - Converting current clients to value-based fees

Fifth in the series about value-based feesIn this issue:
Converting current clients to value-based fees
by Eric Albertson

In my last article about value-based fees, I talked about ways to ease yourself into using them so you didn't have to do it all at once.

In this issue, I'm going to talk about how you can get clients you're already working with to buy into your switch to value-based fees.

This is the point where -- most everybody agrees -- the hard part comes. So, before you continue reading this article (below), please read the announcement that comes next.
Would a value-based pricing seminar help you make the switch?

In the past four weeks, I've had more than 300 readers ask about the possibility of a seminar on value-based pricing.

In response, I'm putting together a tele-seminar on the subject.

If you're interested in the idea, take part in a free preview call that will be scheduled sometime during the next 90 days. The preview call will:

Give you a basic outline of the seminar.
Allow you to tell me what specific topics you'd like to learn about during the seminar.
Let you know what the price of the seminar will be.
Let you know what you can reasonably expect to gain by taking part in it.

Again, I'll schedule this free preview call sometime during the next 90 days. To get an email notification of the time, date and toll-free number to call, just send an email to me at:
eric@succeedinginbusiness.com.

Write VALUE PREVIEW in the subject line. In the email body, list the top three things you'd like to learn in the seminar.

In addition to being notified of the no-cost preview call, you'll also get a free MP3 of the call itself.

First, remember that, if you're typical, you've "educated" them to be comfortable with fees based on an hourly rate, maybe on your deliverables, the lowest price possible on your product, and possibly other traditional billing methods.

They're likely comfortable with the way you've been doing it. They probably wouldn't be with you if they weren't. They love getting you to knock off part of your hourly rate, give them the best price on your quotes, throw in an extra deliverable of some sort, and otherwise taking advantage of you. How do you motivate them to change?

Re-education is the answer. You've been educating them in a traditional billing approach as long as you've been working with them. Obviously, they've bought into it, or they wouldn't be your clients. Unfortunately, the system you've helped teach them is almost entirely in their favor. If you're going to convert them to a system that also favors you, it's going to require a plan of action on your part.

The first step is analyzing your clients. Some clients will take more re-education than others, and some might not be candidates for conversion, at all. Be aware of that. So, the first thing to do is to put all of your clients into one of these categories: solid candidate; might be; absolutely not.
To rate them, ask the following questions about each client. If the answer to a question is a very positive yes, assign a value of 3 to it; if the answer is "somewhat," assign a value of 2; if the answer is a positive "no way," give it a 1. Here are the questions:

Is the client: Good for considerable, long-term revenue? Close to you, personally?

Does the client: Work for an organization you absolutely don't want to lose? Have a number of different buyers to whom you sell (or to whom you could sell)? Willingly serve as a reference?
Willingly pay your bills without bickering?

Has the client: Shown an extraordinary return on your services or products? Assigned you to a particularly high-level buyer? Accepted your prior pricing method without objection?
Ever said, "Just get it done and bill me?"

When you've asked and answered all of the questions about each client, add up the total for each, and assign a rating according to these criteria:

23 - 30: Good candidate for conversion.
14 - 22: Consider these after you've worked with the good candidates.
0 - 21: Leave 'em 'til last (and probably never bring up the subject with them).

Now, you've identified your top customers -- and probably, your top candidates for conversion. Maybe there are a dozen on your list, or maybe there are just one or two. Regardless, the next step is to derive a plan for approaching each of them. While your goal is to convert these clients to contented, value-based fee clients, you don't want to drive them away in the process. So, as for surgeons, your first rule is: Do no harm.

Begin to lay the groundwork for conversion by thinking about which attributes of value-based fees would be attractive to which clients.

An approach you can almost always use is: "I'm in the process of instituting a new kind of relationship with first-time clients. I think it's reasonable that I also tell my best existing clients about it."

Here are some other possibilities:

"I know you have a hard time dealing with uncapped costs. It's hard to budget when you don't know exactly what you're going to need. I'd like to talk about a way to make costs more predictable."

"I believe that my product or product and service can give you significantly more value if I were to bundle X, Y and Z along with it to better meet the real need of people in your situation. Yes, it will cost a little more, but other clients like you are telling me that the value and cost savings you receive is more than worth the small incremental cost."

"I'm aware that some of your employees would like to be able to call me whenever they have questions about the project. But they usually don't do it, because they're afraid of running up costs. I also know I could have helped them (and the project) if they had called me. Let's talk about a way to solve that problem."

"I know you'd like me to be more accurate when I estimate the amount of time I'll have to spend on a project. But, let's face it, it's nearly impossible for me -- or you, for that matter -- to make accurate estimates sometimes. Let's talk about an approach that would eliminate that problem."
Some things to keep in mind:

When you are dealing with new clients, always talk to them about value-based fees, only. Don't bring up any other fee method. You're beginning new relationships, so direct their education -- from the outset -- along lines that are favorable to both you and them.

Get it straight in your own mind, first. Know what the advantages of value-based fees are for your clients. If you don't, you'll never be able to sell the idea to them. This is the big issue. When you come to truly accept the concept of your value, you can sell it to anyone. This is what everyone I coach on value-based pricing eventually tells me. They all say, "Why was I so blind? I've been passing up the $1,000 dollar bill because I've been focusing on pennies."

Remember, that when trying to convert existing clients to value-based fees, the first rule is: Do no harm. In other words, do not push the concept so far as to lose valuable clients. At the same time, you can't be hesitant. Know the ins and outs of value-based fees before you bring up the subject. And, know them well enough that you can be positive and enthusiastic about the idea.
Next time out, I'll discuss some particular strategies for introducing value-based fees to existing clients (new ones, too, for that matter).

If this whole idea is beginning to boggle your mind, just remember the client I talked about in my first article about value-based fees.

The one who recorded a 300 percent increase in income as a result of adopting them. In the first three months!

That's unusual, I know, especially in so short a time. On the other hand, I've never had a client get less than a 25 percent lift, with 50 percent and 75 percent being common. The rewards are worth it.

So, hang around.

'Til next time,

Cheers,

Eric Albertson

Portland, OR
March 22, 2007