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[Music] Value-based pricing to touch on that one more time. Uh, if, if you're doing this custom every time, doesn't sitting down with a client or prospect, I guess, and and saying, "So, what's this worth to you?" You know, kind of, kind of feel a little, uh, too fluid. How do you, how do you approach the value-based pricing?
Yeah, you need to. It's very, very different than what people are used to. And I've got a framework that I've dubbed the "Why Conversation." Where if you go into a sales interview and people, the client knows, the client knows they think they need, but you, like, they're pretty sure that you're the solution to their problem, or they wouldn't be spending time talking to you. So for some reason, they believe that you have something that they want, or you can provide something that they want. But usually what happens is you sit down with them and they brain dump about the project. And I've got the software background, so usually it's scope stuff, like, "We want to have these features." You know, real specific tactical things about what, you know, the SAS might look like or something like that. You know, the different features and permissions and all that, modules. And it's tempting. Back in the day, I used to eat that up. I'd be writing down all the scope, I'd be designing the solution in my mind so I could kind of like take a guesstimate at how many hours it would take me so I could give them a proposal. So the whole conversation was was about me trying to get as much scope out of them as possible.
With value pricing, that flips it. To use scope last. That's the last thing you do. So once they finish brain dumping all of that really tactical, specific stuff, which really, they're not qualified to tell you about anyway. You know, if they're telling you how to do your job already, it's like, "That's not super appropriate. It's not that useful because they might have picked the wrong solution." So then about 20 minutes in, uh, they'll have exhausted everything they know. I've been taking million notes. And I would say, "Man, this is great. I've got all these notes. I'm excited about this. Can we back up for a second and talk about the big picture? Because there are a hundred ways that this could be done. So I want to make sure that I don't paint us into a corner by picking the wrong way. So let's talk about what you're trying to achieve with this SAS or whatever it is that they want to build. Let's talk about what you want to achieve. What's the business outcome here? What would be the home run? Why not, not do this? Why not do it in a different way?" And I get into the "Why Conversation," which is "Why this? Why now? And why me?" And I would ask a series of questions along those lines to find out, or at least I would, I would encourage them or kind of force them to convince me that doing this is the right thing to do to achieve their, their desired outcome.
Then maybe there's, what, you know, I usually would say, "Why not just do it manually?" You need this, you think you want this internal workflow solution. It's going to cost a fortune. It's going to take up tons of time, your time, your employees' times for the next year. Why would you do that? Why not just hire three more admins to run the invoices faster? Why not do it in some other way?" And and eventually they'll convince me that software is really the right solution. And then I'd say, "Okay, why do it now? Why not wait?" You've, you've been thinking about this for two years. Why not wait two more years? And if they can give me a reasonable answer of why it's urgent for them to do it right now, I get excited because that means that it's going to be higher value to them. You know, they'll say something like, "Our biggest competitor is stealing our customers," or "Amazon announced that they're going to come into our market. We feel like this window of opportunity is closing." That means that this client is going to be highly motivated. They're going to be highly engaged. That makes them way easier to work with and it increases the value. So I want to hear that it's very urgent for a good reason.
And the last one, which is the hardest for people usually to get, bring themselves to ask, is, "Why would you hire someone expensive like me to do this? Why not get your cousin Vinnie?" Or "You told me you have web developers in-house. Why not have them do it?" And they'll give you all these reasons. Uh, once you get through the conversation, why they do need an expert like you, they do need to do it right now, and it does need to be this. And if you've got all of that language from them, which you've been like writing down like crazy in your notepad, then the proposal writes itself. You can say, like, "Here are all the reasons that you convinced me to work with you. Here are all the reasons why you have no other option." And and if you get to the end of that "Why Conversation" and there's no clear business objective, you don't see a business case for them spending a ton of money with you, there's also, there's no urgency. I probably wouldn't even write a proposal at that point because the client is just gonna be pulling teeth. It's gonna take forever to even attempt to close the deal. It'll probably never close. If it does, they'll, they'll try and negotiate down on the price.
So I would just say, "Find out what a home run looks like. What that's probably worth to a business like this. It has to be this. It has to be now. And it has to be me," or at least someone like me. And then I can write a proposal. I can say, "All right, this is probably worth a million dollars to them per year." At the end of the day, like ultimately, this product is bringing in $100 million, a million dollars a year. So I can set three prices based on that value. And it's a guesstimate, but at least it's, it's in the ballpark. Yeah, hopefully in the ballpark. And then you just set three prices. Like, "Okay, if it's a million, I'm going to say I'm going to give them an option one that's $100,000. I'm going to give an option two that's $220,000. And an option three that's $500,000." And then, and only then, do I start thinking about scope. What, what could I do for $100,000 to help move the needle that this client wants moved? What could I do for $220,000? And if these numbers seem high, then chop a zero off. If they seem low, add a zero. But but that's the idea. It's like, find out the value, set a price, and then decide a scope that would fit into that price. You'd be happy to do the scope for that amount of money. And you, this process works with all sorts of different businesses. And if you follow this same framework and you actually do it, then you can come out with, you can come out with much, much higher prices than you ever would have put in a proposal before. As long as you're attracting clients for whom the value of the outcome is incredibly high. If the value is very low, you can't set your prices high. You have to say your prices low. So then you know not to, not to guess.
Your next question, but it's like, you need to attract clients for whom you can provide a lot of value. Otherwise, you're going to still have low prices because what you're delivering to them isn't, isn't worth that much. Yeah. I, I think the, the ninja move there, the trick is understanding what is that million-dollar value and asking the right questions to get there. And I love your "Why" framework because if you can understand and you know, just through asking, "Why don't you do this manually?" And they say, "Well, we're growing a lot and I'd have to hire 12 people to support the volume we expect in 12 months. So we want to kick the software thing off now." Then it's easy to say, "Well, instead of hiring those 12 people, how about for the cost of two, we've got this project?" Exactly. That's a, that's a classic one.
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