How To Deliver On Value Based Pricing

Ed Kless reveals how to do value billing. Ditch the time sheets, frustrated clients and employees, and make more profits.
Ed Kless has many titles — Senior Fellow at VeraSage, Senior Director, Partner Development and Strategy at Sage, and co-host at the Soul of Enterprise

We Cover:

Difference between duration and effort (and which one is more important to the client

The new KPI’s for the Modern Accounting Firm

Why Ed chooses to say “customer” over “client”

And much more (job management, value billing strategies and the list goes on!)

• http://edkless.com/2012/10/a-post-on-egads-effort/
• http://edkless.com/2012/09/on-chunking/
• http://edkless.com/2012/02/results-oriented-project-management/

How to Track Time Without Time Sheets!

Ed Kless believes we’ve reached a tipping point for time sheets. I believe him. Timesheets are outdated and stale. Yet, many firm owners tout time sheets because they believe it’s the only way to accurately track a project (and bill for it).

Ed’s about to prove that untrue. Actually, there is a super simple way to track projects.

See…right now, we use time sheets to track the “effort” of a project. Namely, “this is how long a project took.” When actually, there’s a much simpler, less administrative-focused way to do this exact thing.

Track deadlines. 

Giving the project a deadline and hitting that deadline shows both effort and duration. And it makes sense from a client perspective. When they ask you “how long with this project take?” what they’re really asking is: “How long will this take long (in days)?” 

They don’t care about the hours spent. 

How Ed does it is by tracking ‘completion rates.’ When team members turn in work at the right time, they keep a 100% completion. Every late deadline, it goes down. Obviously, special circumstances come into play. But, for the most part, it works smoothly this process.

Time Sheets Are Immoral:

You really should start doing your client’s work based on duration because timesheets are immoral, according to Ed.

Think about it: with timed billing, instead of value billing, you put yourself into an adversarial relationship with a client. A customer wants less hours billed. You want more hours so to bill more. Conflict of interest ensues. 

The RISK of every project sits on the customer’s shoulders. In most businesses, the risk lies with the business. Why don’t you do that? All profits come from risks, hence why value billing is far more profitable. Clients shouldn’t be anxious to call you because the clock starts ticking!

DAVID’S TIP:  I worry about calling my lawyer because I know I’m getting charged every minute. Thus, I waste tons of time trying to find answers for myself instead of trusting the person that’s supposed to have my back! It’s terrible.

Not to mention, it’s too easy to falsify a time sheet. Ed recently gave a talk and asked the entire audience if they’ve ever falsified a time sheet. Pretty much every hand went up. Some falsify it up, others down. Either way…if you make decisions based on a ‘lying document,’ how are you supposed to run your firm to success? It’s so delusional, one man came up and told Ed afterward, “Well, the lies cancel each other out, so it’s okay.” That’s incredible to hear…

Steps to Implement Value Billing: 

An easy way to start value billing is by introducing dynamic pricing. It’s not a pure value billing play, but it gets you on the right track. In this instance, you change the price based on when a client wants work done. Earlier = more expensive and vice versa.

This is a solid first step in the direction of value billing.

Another cool idea Ed introduced is his “Access Level Agreement.” This answers the regular question against value billing: “What if my client calls all the time?” 
With his “Access Level Agreement,” a customer agrees to a package giving them more or less access to you. In one instance, it might be how fast you return a phone call or an email.

• Bronze may be 6 hours
• Silver may be 3 hours
• Gold may be 1 hour

On top of that, you take an unlimited amount of calls. However, you institute a diagnosis plan. You diagnose issues that require some research and charge a small fee for it. If you find the answer and it takes more effort, you offer them a price and solution (much like a car repair shop). 

This way: The customer feels you’re responding and providing value, but you are also getting paid!

Another option is the ‘self-service’ route. A recent interviewee discussed putting together troubleshooting packages that answer common questions. This saves everyone time.

How to Determine the Success of Your Value Billing: 

After you’ve started with value billing, you’ll want to follow Ed’s “Key Predictive Indicators.” (KPI). Normal KPI’s look at past data. You want to look at future, predictive data.

You’re essentially trying to figure out if a customer will be a repeat customer or not. 

In the airline industry, they do the same thing. They look at: Turnaround times (percent of on-time flights), Lost luggage percentage (lower the better), and the Customer Complaint Ratio (same, lower better).

None of these indicators has to do with profits or margins — only the customer experience.

You will do the same. You’ll focus on :

• Turnaround time: How fast do you get work to a client? Earlier than they expect? Slower?
• High Satisfaction Days (HSD): How many great days does the customer have? As those days increase, the more they will work with you.
• VALUE GAP: Do a random sample of customers. How much revenue do you make per customer in this sample? Then…how much value did you create for this sample? The sample will typically define all customers. For these sample data customers, look at: “What did the customer receive?” “What were they able to do because of the value you provided?” “What was their cost NOT TO SOLVE the problem?” “What was their BENEFIT TO SOLVE?” 

From this value gap, you determine if you have provided more or less value than you should have. Look at where you provided the most value and look to replicate that across all clients.

CALL THEM ‘CUSTOMERS’ NOT ‘CLIENTS:

As a fun way to end the call, Ed reveals why you should the people who you serve “customers” instead of “clients.” Client actually means: “one who leans.” In a sense, they need straightening out. Social workers will use the term ‘client’ much for their troubled patients. Client = patron or benefactor.

Customer, on the other hand, comes from the old days when it was ‘customary for a visitor to come into town and stop in the store.” You want to make it a ‘custom’ for your customers to engage with you! This elevates trust.

There was a lot to unpack in this interview with Ed Kless. How can you start using dynamic pricing in your firm? (Remember, this is a solid first step towards value pricing).
Feel free to email Ed at ed.kless@gmail.com.