LinkedIn Article by Tim Williams
Published October 31, 2018
The work and solutions provided by your firm have likely created millions of dollars of value for your clients. How much of that value have you captured?
When we leave money on the table, it’s not just because we have under-priced the work. It’s also because we have under-communicated our value. Worse still, we have likely not focused on value at all; rather, we engage our clients and prospects in discussions about our costs (hours and hourly rates). We construct, explain and defend the fee we’re charging based on the costs of our inputs rather than the value of the outputs or outcomes.
The inventory of a professional firm
Many of the clients we serve have warehouses. These are typically stocked with products these companies draw upon to fill orders. But what’s in the warehouse of a professional firm? Based on the way most professionals sell their services, we would have to conclude their warehouse is stocked with hours. Managers walk up and down the aisles pulling hours off the shelves to fill client orders. When all the hours are gone, they’re gone.
But what’s really in the warehouse of a company like a law firm or an ad agency? The answer is intellectual capital. And there’s an almost inexhaustible supply of that. Professional firms sell units of value defined as solutions to business problems, not units of cost defined as time.
As legendary economist Adam Smith taught, no one ever buys a product or service; we buy the utility the product or service produces in our lives. As an example, contemporary behavioral economist Dan Ariely us invites to consider the utility we derive from a locksmith when we find ourselves locked out of our house. We’re not purchasing time, we’re buying the ability to regain access to the comfort of our living quarters. If the average hourly rate for locksmiths is $75, would you rather pay the full $75 to a talented locksmith who regains entrance to your home in two minutes, or $150 to a less talented locksmith because he worked longer to produce the same result?
The forgotten step: framing your value
What your clients buy from you is not effort, but a result. When framing and selling your value, the question you should be asking is not “How long will this take,” but rather:
How will your client be better off by what you are proposing to do?
How will this help increase their revenues or profits?
How will it help them save costs or reduce risks?
What is the client’s cost of not solving this problem?
Don’t count on your client — especially if it involves a professional buyer like procurement — to make these arguments on your behalf. Professional buyers will focus on costs — that’s their job. It’s your job to focus on the value.
In addition to the tangible value you create for your clients, there is always an accompanying amount of intangible value. When you help solve an important business problem, you’re also helping your client enhance their growth prospects, protect their reputation, reduce their stress, and secure their future. These are not inconsequential benefits.
When describing what your firm does, the language and context are immensely important. Pricing expert Hermann Simon tells the story of two young immigrant masons in California who were able to provide more perceived value to homeowners by describing themselves not as masons but as “European bricklayers; experts in marble and stone.” One of these youthful immigrants was an Austrian named Arnold Schwarzenegger.
Author and consultant Alan Weiss offers this perceptive pronouncement about framing value: “Most consultants place their value proposition at the wrong end of the equation; they focus on their ability to do rather than on the client’s ability to improve.” He goes on to observe that any professional service that is not directly tied to a desired result is simply an input that can be judged as a commodity against someone else’s similar input. But when you change the focus to the client’s outcome, the commodity mentality disappears.
Describe your solutions, not your services
In a standard background questionnaire, I once asked the principal of a successful advertising agency to respond to the question, “What does your firm do?” Instead of supplying the typical bullet-point list of agency services (creative development, media placement, social media management, etc.), she had the wisdom to provide the real answers to the question:
Competitive advantage / Category control / Price level justification / Market expansion / Successful product introduction / Brand recognition and favorability / Behavior change / Benefits of leverage-able reputation / Community acceptance / Qualified lead generation
An astute agency in Ontario, Canada avoids the easy temptation to simply enumerate its service offerings and instead focuses on communicating what they call “Sources of Buyer Value,” which includes such assurances as “Better customer experiences that improve acquisition and reduce churn,” “Speed to revenue,” and “Intelligent systems that produce a stronger return on marketing investment.”
Effectively communicating value is especially important in a service business. As Harry Beckwith observes in Selling the Invisible, when buying a tangible product like a new car, “You can hear the steady ramble of the engine, the faint hum of the electric windows, and that special thud of the car door.” But you can’t intuit the value of a service in the same way. “You cannot hear the hum of a tax return being prepared or smell a good divorce attorney.” Service businesses have a special responsibility to help prospective buyers envision and understand the value they will receive.
Report on your value, not your activities
Firms that submit a report of monthly hours (essentially a “cost report”) would be much better served providing a “value report.” In place of a detailed list of inputs (hours spent), present a summary of the outputs and outcomes you have achieved on behalf of your client.
Remember, value is a judgment, not a calculation. In professional services, you will never capture your share of the value you create by simply adding up and charging for your costs.