🎙️Show Notes for Episode 086 of the IC PodcastNov 03, 2022
You probably either have it in place, been thinking about putting it in place or you might be curious about value-based pricing and its benefits.
This is a term that is very widely used in our industry and one of the things I see so often is that there is an underlying fear of value based pricing. And so I want to break it down for you in a way that can help you to overcome the fear of value based pricing, whether you decide to implement it or not.
The concepts that I'm going to share with you today are very applicable and will help you to increase the quality of your sales process, regardless of the pricing model that you choose.
Key points in this episode
- [01:06] Why this topic is important
- [02:54] Today's Agenda
- [03:57] Check out the Rate & Pricing Megatutorial: https://www.melisaliberman.com/blog/independent-consultant-rates-and-retainer-fees-guide
- [05:37] Check out the Independent Consulting Pricing Assessment: https://ICpricing.com
- [06:46 What is value-based pricing
- [08:59] Why you should consider value-based pricing
- [11:55] Why this topic is relevant regardless of your current pricing model
- [12:53] Why there is fear and overwhelm toward value-based pricing
- [17:18] The two part framework to overcome the fear of value-based pricing
- [19:04] Mindset to effectively fuel your action
- [26:40] Strategy to help get you into action
- [31:28] Episode Recap
MENTIONED IN THIS EPISODE —
- Check out the Rate & Pricing Megatutorial: https://www.melisaliberman.com/blog/independent-consultant-rates-and-retainer-fees-guide
- Check out the Independent Consulting Pricing Assessment: https://ICpricing.com
- EP. 050 - 5 Methods To Uncover If You’re Undercharging as a Consultant
- EP. 051 - 4 Root Causes for Undercharging as a Consultant
- EP. 052 - The 5 Steps to Overcome Undercharging
FOR MORE RESOURCES SPECIFIC TO THE INDEPENDENT CONSULTANT —
- Discuss working with me as your coach - Click here to schedule your consultation
- Check out my YouTube Podcast Channel https://www.youtube.com/channel/UCUrsHqeAFDkcI8Kqc4QssEQ
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**note: This is an automated transcript, so please ignore spelling errors and grammar mistakes*
Welcome to the podcast. Today we're talking about overcoming value-based pricing fear. I wrote this particular podcast episode on vacation; it was so nice, we went to San Diego for the last nine days or so for fall break, took the kids to Lego Land, and we saw every single inch of Lego Land. Because we were there for three days. So like a one-day place to go to, we were there for three. And then we went to the beach on Coronado Island. And I wrote this episode for you because I've been thinking about it. And this is such a hot topic, value-based pricing; you've probably either have it in place, or you've been thinking about putting it in place, or you might just be curious about value-based pricing seems to be a term that is, you know, very widely used in our industry. And so today, I want to talk with you about one of the things that I see so often hang up my clients when they come to me is the fear of value-based pricing; it feels like this really big thing. And today, I want to break it down for you in a way that can help you to overcome the fear of value-based pricing, whether you decide to implement or implement it or not. This is or has actually already been implemented it. The strategies that I'm going to share with you today are very applicable because not only do they help you to get to the place where you want to be in a value-based pricing model, I'll help you to get over that fear. But also, the concepts that I'm going to share with you today will help you overall to increase the quality of your sales process, regardless of the pricing model that you choose. So that's what we're working on today. I love creating these episodes for you that address the real-time challenges that my clients are facing. Because for two reasons, really, I love writing episodes that can supplement what they're working on. And just give them a different perspective, in addition to the calls that we have every week. And then also I know that they are not alone, that you are facing these types of challenges too. And so I want, I know that the topics are always timely. So that's why it's on my mind today. So let's talk about our agenda. Let's set the agenda for today, overcoming value-based pricing fear. So first, we're going to talk about just all level set, what is value-based pricing; there's a lot of misuse of this term. And so, let's just level set on what I believe value-based pricing is and the way that it's worked very effectively, both for clients and for me. And then, we'll talk about why this topic should matter to you, regardless of your current pricing model. I touched I gave you a little taste of that. But we'll work on that some more. And then we'll wrap it up with a two-part framework that I'll share with you that you can use to overcome the fear and start making progress toward value-based pricing or to improve what you're already doing, or generally improve the overall sales quality of your sales process like I mentioned. So that's what our agenda is for today.
All right, now let's talk before we get started; I just wanted to point you to resources that will be very helpful for you as a complement to this episode. The first is what my SEO expert calls he helps me really write this and name it the rate and pricing mega tutorial. So he gave me the outline from this I'm kind of going down a rabbit trail at the moment, but I do have an SEO expert at them that I'm working with right now. And so he's been helping me really pull together so much of the content that I've been creating and the concepts I've been sharing with you and really putting those into really SEO keyword-rich mega tutorials so that more of you can find me and the resources that I have to offer. So anyway, a bit of a side note there, but the point here is that I am We put together a really thorough in-depth rate and pricing me give a tutorial; it's on my blog, and we'll put the link in the show notes. But essentially, you can go to my websites, and then go to Resources, find the blog, and there you'll find the rate and retainer speed fees guide. So that is a fantastic resource to give you. So you know a lot more in-depth about value-based pricing overall, as well as other pricing strategies that you might consider for your consulting business. So go check that out. And then the other resource that I wanted to share with you today, that's a very important complement to today's episode, is the independent consulting pricing assessment. So you'll go in, and you'll answer a handful of questions. And then it will provide you with a scoring scorecard of how your business and your pricing rates as compared to some of the cons, you know, the standards that you want, might want to consider in your business. So that is really powerful as well because it really gives you a visual understanding of where your pricing, you know, is doing well. And then areas of improvement for your pricing so that you can prioritize the work that you're doing on your business. And, of course, pricing is always one of the top priorities because it ultimately ends up impacting how much revenue you're making. So you can go grab that assessment at I see the letters, I see pricing.com. So the letters I see pricing.com. Okay, my friend, let's get started with our agenda. So let's start off and just level set what is value-based pricing. So value-based pricing, or can value-based consulting fees, where you are basing your fees, that what you're charging what you're proposing. Based on you're calculating those off of the client's perceived value, which is tangible, a combination of tangible and intangible. So that perceived value that they expect to
experience to receive from the services that you provide. So let me say that, again, value-based pricing is where you're basing your consulting fees on the client's perceived value of the services you provide. So when they think about the outcomes that you have been discussing with them as part of your sales process, the outcomes being tangible and intangible, what did they see as the perceived value of those services, the outcomes of those services to result for them? That's essentially what value-based pricing is. So to be clear, I also want to separate this out from success-based pricing. So success-based pricing is a concept where it's you calculate some amount of money that you view, and the client, you and the client, calculate some amount of money that you expect your work to result in; perhaps you are impacting their sales cycle in some way. And so you can calculate the impact on revenue. And then you take a percentage of that; that is success-based pricing. That is not what we're talking about today. What we're talking about today is value-based pricing, which is where you really understand what the clients perceive value is of the outcomes that you're delivering for that client and helping that client to achieve over some period of time, both tangible and intangible, and then basing your fees off of that. So with that, let's start talking about why this even matters and why to consider value-based pricing, especially if you haven't yet started dipping your toe in this water or implementing this in your business. Three reasons, three main reasons. The first is it can just simply be more lucrative for you. So that's important. Obviously, you're running a business number two, it can't it so much. It aligns so much better with your lives, your goals, I should say, with the client's goals in such a better way than time-based pricing, for example. So what I mean by that is to your goals, which is for you to drive outcomes for your clients, and for you to create revenue for your business, those are your prime, you know, two of your primary goals. And another of your goals is to not have to work at, you know, more hours and more hours to create that revenue. Those are typically very common commonly would be your goals, right? And then your client's goals are wanting to get the outcomes, they shouldn't care about how much time it takes you to create the outcomes, in fact, they should actually want you to create the outcomes faster for them. But when you're compensated based on time, naturally, your motivation now becomes taking more time in order to have, you know, more billings; I'm not saying you're doing anything wrong, I mean, it's human nature, right? Our normal human nature would be to take, you know, to, to take more time to deliver something that makes more money for us. And the client then ends up getting, you know, pay charged, charged more potentially, for something that could not have taken quite as long. And then they're also questioning how much time you're taking and diverting themselves from the real questions, which are, what are the outcomes looking like? Are we on track with the outcomes are we aligned on what the outcome should be? So that explains, you know, that concept of really out aligning your goals, better aligning your goals with the client's goals, through the pricing model, and making sure that you're that we're not trying going after something that is irrelevant, like time. And then the third reason why you might consider value-based pricing is having a value-based pricing frame of mind, even if you haven't necessarily implemented it yet, is going to help you to improve the quality of your sales process overall. So what I mean by that is you really understand the value and the outcomes and why the client cares about the outcomes all throughout your sales process.
Whether you end up charging them based on value, or based on time, or based on something else, at the end of the day, you're getting a much deeper understanding if you're applying these value-based pricing concepts throughout your sales cycle, you're getting such a much better understanding of what that client really truly wants, and why they care about it. And what it will mean for them in the short run and over time. So even if you don't go ahead and implement value-based pricing right away, that can be such a powerful skill to develop for yourself as having that frame of mind. That, you know, is created by thinking about the sales process slightly differently and really understanding at a much deeper level the outcomes and what value the client attaches to those outcomes. So those are some of the reasons why you might why this matters why today, this topic matters. So with that, let's talk about fear. That's what we're focused on because that tends to be one of the initial blockers for consultants to start moving forward within value-based pricing, which is the fear and the overwhelm that is preventing you from moving forward or moving into or even toward value-based pricing. As I mentioned, this is what applies to you whether you've implemented value-based pricing; what I'm going to share with you in a moment is going to just help you fine-tune some more. And think about value-based pricing in some ways that you may not have considered before. If you want to implement value-based pricing, this is going to help you make it easier to overcome these fears. And then finally, if you're not even ready yet, and something that you haven't even decided if that's where the direction you want to take and the value-based pricing. Again, what I'm saying is today is going to help you to drive more understanding of the client's perceived values and why they care about things. So that's why it's so important for you to listen to today's episode and really, no matter which stage of business you're in, essentially. So that's why we're talking about overcoming this fear. So, about the fear. The idea of moving into value-based pricing creates this paralysis so often, and it can feel risky, right, can feel risky, it feels our kind of standard mental construct is that charging by the hour oftentimes feels the least risky. Because we don't have to, you know, we're just basically getting compensated for a unit that everyone understands. And so you there, you know, if there's no scope creep, there's no, it really nothing to define at any level, typically, you can just start working with the client, and then it feels like there's very little risk, there's certainly a risk, you know, you know, that too, right? There's a risk of the client feeling like they aren't getting their money's worth; there's really, there's a risk of the client feeling like it shouldn't have taken you so long. I mean, there's definitely a risk, but for whatever reason, our you know, the way that we that our brains are wired, especially during, you know, during our corporate years, it can feel less risky to charge by the hour versus or day versus value-based pricing. It can also just feel big, right? That fear can come from this is just big; it feels overwhelming, it feels like such a big change. And so that also creates that paralysis. And it feels it can feel really hard, it can feel very hard to shift from something you're really used to, such as hourly or daily billing, or even more of milestone-based billing, which really, you're building up based on numbers of hours, right? It can feel really overwhelming to make this kind of shift. And so what I find is that this fear just ends up keeping you stuck; it ends up keeping you stuck. And it feels like such a big kind of hairy ball of yarn. I don't know, that's not the right, the right saying, but you know what I mean, just a big hairball. That's the word, just a big hairball. And oftentimes not something you really, really want to kind of peel apart and tackle. The other thing that I wanted to point out here, too, that gets consultants stuck so often, and you may be falling into the same bucket is you just want to do it the right way.
If you're listening to this podcast, you probably fall into that bucket, I just want to do this the right way. And that also creates this paralysis as well, because we're perfectionists, and we want to do things correctly. And we don't want to make mistakes, we don't want to want to look stupid, especially in front of clients. And so that also can become that it had to that fear and, and paralysis about moving into value-based pricing. And so all of this combined these unexplored con pre preconceived notions about value-based pricing, and, and these ideas that we need to do it correctly and new do it the right way. And it feels hard; all just create this sort of swell of fear and end up prevent preventing you from getting started or preventing you from being as effective as you could be as you move into value-based pricing. So with that stage being set, let's talk about the remedy here. The remedy is I'm going to break this down. So that we can help you start making a transition into value-based pricing in a way that is it feels doable and doesn't it takes that fear down several notches; I'm not going to tell you today, the fear is going to go away. Because that's not realistic. Anytime you're doing something new, there's going to be fear associated with it. So we're not trying to get rid of the fear. But we're trying to break it down into in a way today that makes the fear manageable so that you can move past it you can start making progress. And that progress could either be implementing value-based pricing or up or start putting elements in place in your business that allow you and set the foundation. So when you are ready when and if you are ready to move into value-based pricing, you've got that strong foundation
in place. So like I said, this doesn't mean you have to convert
right away or but it will really put you on that path. So we're gonna talk about it this remedy, like I said, in a two-part framework, and that means you hear me talk about this all the time, you probably know what the two parts are if you've listened to this podcast for any period of time, but the two parts are a strategy to help get you into action and mindset to effectively fuel your action. So these have to go hand to hand, hand in hand, especially when we're working on overcoming Fear, that fear is created from our mindset. And so therefore, we need to work on the mindset to really address the root cause and allow ourselves to move past it, right? So we're going to start with a mindset. First, let's just be the process here, from a mindset perspective, is, to be honest with yourself about your thoughts about value-based pricing. Without any judgment, you might be thinking that you're that you won't be successful in selling. If you propose value-based pricing, you might think I'm only capable of being successful. If I am proposing the types of pricing models I have been proposing, you might also think that you're not someone who's capable of delivering a value-based pricing engagement profitably, you might be thinking that your clients are not resistant to value-based pricing. Or that, you know, I hear this so often this is, this is not what we do in our industry. And so then when I work with clients who say that to me, and we pick it apart, we realize that their assumptions and their data points are not really an industry, you know, an industry set in the stone process. It's just what they might have talked about with one other consultant. And the two of them came up with these conclusions or a couple of other, you know, they've seen a couple of other engagements. And this is what they're assuming, or maybe they bought this type of work when they were in corporate, and this is what they're assuming. And then, we work past it and start creating a new process. Even if it is more widely used in your industry to have time-based billing, it doesn't mean that it's set in stone. So you're asking yourself these questions, I would just recommend very highly just sit down and write out a stream of consciousness of all of the thoughts that you have about value-based pricing, both about the thoughts about you being able to be successfully selling it, you that thoughts about you being successful, delivering it profitably, your thoughts about your clients embracing it, your thoughts about just value-based pricing in general, is this good or not good for your business? What are all of your thoughts about value-based pricing? Getting that out on the table then helps you to understand what is essentially the operating manual that's driving your current, the current way you're thinking about your client during the sales process, and the way you're pricing your work today. So then you really understand what is all happening behind the scenes subconsciously, that is driving the way that you're thinking about your pricing and selling it. And so then you're able to, once you know what that is, start shifting into the thinking of a business owner who has already embraced value-based pricing. So once you know where you're at right now, then you want to step into that version of you, who is the business owner, who has already successfully been operating with the model that you want to move into. In this case, we're talking about value-based pricing, that that business owner, that version of you, who's the business owner who's been doing this for the last year or two, and is really comfortable with it, and really clear about how it works and why it's a benefit to them, and why it's a benefit to the to your clients. And really getting clear on what that version of you is thinking and how they're feeling about value-based pricing, and how that contrasts with what you're currently thinking.
So I'll give you a quick example of this. But this is really the type of work that an example of the type of work that I do with my clients is really to help them work through this process. And that's why so often I hear the word transformational, it becomes a transformational process. Because you're not just putting a process in place. We're not just putting value-based pricing in place and hoping it works. We're transforming you into the type of business owner and the type of salesperson and type of consultant who's delivering successfully. In these types of engagements, you become a different version of yourself who's really successful at doing this and thinks in a different way. So the example that I'll give you is I had a client who came to me, and she was really at the place where she was kind of on the cusp of really ready to implement value-based pricing, but I'm really nervous and anxious about this. I'm not quite sure where to start. And all of these feet, you know the description I gave you earlier about all of the fear that was coming up for her. And so we started Breaking it down. And we realize that at the end of the day, she was so fearful that she would start down a path with a prospective client, get herself in over her head, and then ruin that relationship with the client, lose the business, with that potential client, lose the business. And, you know, and just feel humiliated, essentially. And so that's, that's what was holding her back is that fear of humiliation and the fear of failure in such a way that, you know, is kind of catastrophic in a way, it's going to ruin this relationship with the client. And I'll never be able to propose work to them that again, essentially. And so, as we started digging through this, we realized that number one, as we started working on the transformational process and helping her get to the place where she was able to overcome the fear, we realized that, you know, she was just looking at this thing in such a broad way, I've got to go implement, you know, I want to go implement value-based pricing, without really thinking about the micro steps involved in getting there. And when we broke it down into the micro steps and got there, she realized some of those micro steps she had already done before. This isn't a brand-new process for her. This isn't something she's testing out on a prospective client, and it's kind of a pass-fail grade that she had actually done some work on this already without even realizing it. So that made her, you know, that gave her the first step in the process. If you know, you're kind of thinking about it as almost like a staircase, right? First, we found some evidence of where this isn't brand new for her, then we found some evidence of that, I can do this thought I can figure this out one step at a time, I'm going to work with this, I'm going to map out my you know, she and I sat down and work together to map out what the sales process would look like and what kinds of questions she would use for each step of the process to elicit the value. And then she went through this really methodically one step at a time in a micro project to get that experience under her belt and start seeing herself as a business owner who's capable of figuring out how to sell value-based pricing as compared and that that became her new business owner identity the way she thought about herself, as compared to when we started, which was I'm not someone who's going to be successful at selling this, and my industry isn't open to it. So hopefully, that gives you a flavor of an example for yourself of what that would look like to really understand what your current thought processes are that are keeping you playing smaller and open in the process to transform to open into a wider perspective as a business owner, who is capable of implementing and being successful at value-based pricing.
So now that we have the mindset side underway, let's end the episode with the strategy side of the equation. So this touches on that example that I just gave you. Look, the first thing you're going to want to do from a strategy side is reverse engineer your sales cycle. And use your most well-understood offer. For example, if you do know what strategy work for you. I'll just make up an example. If you do strategy work for the system, you know, system implementations, for example, setting up the strategy, not executing on the implementation. And that's your most that is a well-understood offer. You've done it a couple of times, you might have done it in corporate, and you've done it a time or two for clients. That's a great place to start. It's an unwell-understood offer, it's got a pretty clear scope, and you've got experience with it in the past. And so you're going to start asking yourself questions to reverse engineer the sales cycle from a value-based pricing perspective. Examples of questions would be what do I need to know in order to quantify the value of the outcomes I'm creating for the organization? We'll put these in the show notes as well. What kind of vat of outcomes do I need to understand from a qualitative perspective and a quantitative perspective? Another question you would ask yourself is, what would I need to know to get the client's agreement on The value? So what would I need to know from that clients as I go through my sales process, to know that they're agreeing with me about what this calculation of the value is? And then what you're going to do from there, once you understand kind of the big picture of all the things that you need to know for this well-understood offer, then you're going to break that out into the agendas and the checklists for the meetings that you typically have in your sales cycle. Then the next, so that's really the way for the strategy in terms of starting to break down the value-based pricing and incorporating it into your sales process and making it into incremental bite-sized pieces versus this big, ambiguous thing. Thinking about it as more of a big ambiguous thing, value-based pricing, now we're looking at, okay, now how am I going to reverse engineer my sales cycle to get all of this value and understanding and alignment with the potential client all along the way. And by the way, even if you've never implemented value-based pricing, this is what I'm saying about you being able to use what I'm sharing with you today in order to elevate your sales process because that reverse engineering to really better understand the value and the outcomes that a client, the value a client places on the outcomes that you're creating for them, or helping them to create, you need to know that regardless of what pricing model that you create for yourself, and the better you can get at that. Ultimately, the higher you know, the higher-level impact you make in the end the pricing that goes with it. So from there, you want to identify an opportunity. So go identify an opportunity in your pipeline that will be your first test, go find a micro project, something smaller, something that feels well understood like I was just describing, and then commit to it and be okay with failing, be okay with being bad
at it. Be okay with that client doesn't move forward; you're not going to close 100% of the clients. And I've said this before on the podcast, if you're closing 100% of your clients, then you're doing something wrong because that means that you're undercharging, most likely. So use this as a way to experiment. For the purposes of transitioning into value-based pricing, improving what you're already doing as value-based pricing, or just simply improving the quality of your sales process, the types of questions and the way that you're understanding why the client cares about what you're doing more deeply. The other thing you're going to want to do after you select this project is to test out this new pricing strategy, you're going to want to capture your learnings throughout the process. Be okay with really looking and examining and holding up the microscopic scope as you go so that you are memorializing what's working and what's not working. That's such an important part of this process or any process in your business. So you're going to want to refer to the strategy. Let's just recap here. We'll start from the beginning, fear value-based pricing is normal. We see I see it all the time. That's typically the barrier to moving forward with value-based pricing; the barrier is not, you know, my industry won't accept it, or I'm not good at it or any of those excuses. It's you that almost always comes down to fear. And so to overcome the fear, you're going to want to have a combination of shifting your mindset into the CEO's perspective. And also taking action even when you're afraid or overwhelmed, or confused. So I'll just break this down. Again you for the strategies that I shared. Number one, you just want to start now. Start now even if your final proposal doesn't the pricing in your final proposal isn't valued base. Starting now with this journey to value-based pricing is going to help you strengthen your foundation. So that you're, you know, improving the quality of that sales cycle and ultimately freeing yourself from a time those time-based pricing models. The second is being honest with yourself about your current mindset and how it's keeping you boxed in. By that, I mean, what you're looking at right now and thinking are facts about, you know, whether you're good at something or not or who's receptive to it or not. And see In that, that those are mindset and perspective things that can be shifted. The third, then from there, is cultivating that productive CEO mindset. Figuring this out one step at a time and loosening your grip on doing it right. And then fourth is reverse engineering your sales process so that you can elicit the value all along the way from first meeting the contracts. And then, finally, you're going to want to choose and commit to an upcoming project where you just decide, even if you don't feel ready, that you're going to implement this new approach. Again, that doesn't mean that you end up having to propose value-based pricing, but incorporate this all along the way. So that you understand their problems and why they care about them, and the value that they attach to the outcomes that you'll help them create at a much deeper level, and set yourself up with that strong foundation. So you can begin decoupling the pricing that you have from the time you spend delivering against the projects. All right. So that's what I have for you today, my friend, be sure to go download those two resources that I gave you. I'll repeat them here. Actually, a one-sided download is just a simple blog; go find that blog, the mega tutorial, we'll put the link in the show notes, and then go take that assessment. I see pricing.com, and I will see you again next week. Take care.