The Freelancers' Show 109 - How to Determine Value and Set Pricing with Kirk Bowman
The panelists talk to Kirk Bowman about how to determine value and set prices for your business.
CHUCK: Hey everybody and welcome to episode 109 of the Freelancers’ Show. This week on our panel we have Reuven Lerner. REUVEN: Hello, from Chicago. CHUCK: Curtis McHale. CURTIS: Good day! CHUCK: Eric Davis. ERIC: Hey. CHUCK: Jeff Schoolcraft. JEFF: What's up? CHUCK: I'm Charles Max Wood from DevChat.tv, and this week we have a special guest and that is Kirk Bowman. KIRK: Hey, Chuck. How you doing? CHUCK: Doing alright! Do you wanna introduce yourself really quickly? KIRK: Sure. My name is Kirk Bowman. I run a couple of different businesses – mightydata.com is a customs software company and artofvalue.com is a value pricing consultancy. CHUCK: Cool. Now, I remember I met you at New Media Expo and we were talking about how you do your pricing, and you mentioned that it was value-based pricing. I was like, “We have to get you on the show to talk about it,” and then the next week, Brennan Dunn came on and talked about value-based pricing. The thing that I thought was interesting is we talked a lot about how value-based pricing works in that episode, but it sounds like you have a little bit more of a system around this to figure out what the right value or price is? KIRK: Well, I listened to the show that Brennan did and I thought he did a great job of talking about value selling, selling it to the customer, but I think there's more on the pricing side. When I define value pricing, I define it as two skills – the ability to identify value, and then the ability to sell a price. And you can put as much creativity on the pricing end as you do on trying to figure out what is the value. CHUCK: So what kinds of things do you need to know in order to set a proper price on your work? KIRK: Well the first thing is you wanna understand what is the value that’s going to be created for the customer? What is the end result that they're seeking and how is that going to impact their business? A lot of times, you can determine at least some type of financial impact, but there's also other intangible things that can have an even greater impact – quality of life, productivity, customer morale, those kinds of things. Once you understand the value, then you're in the position to say, “Okay, what's a fair price to capture a fair return on that value?” An example that I like to use is if you're going to imagine a bar chart with three bars, and the smallest bar is the cost that you have to deliver, the second bar is the price that you're going to set, and then the third bar is the value for the customer. Obviously, the price needs to be higher than the cost so you have a profit, but then the value to the customer needs to be higher than the price so that they have a profit. REUVEN: Kirk, just so I understand, so you’ve been doing software development for a while as a consultant, and have you always done value-based pricing? KIRK: No. I've been in business for almost 20 years; for the first 14 years I did billing by the hour, which is almost everyone in our industry does. But then I participated in a panel discussion in an industry conference and I was actually the advocate for hourly billing, and there's another consultant on the panel, who was advocating value pricing and he said one thing that rang true to me. He said, “If you bill by the hour and there's an arbitrary limit on your income.” And being an entrepreneur at heart, my internal reaction to that was, “Hell no.” CHUCK: Interesting. So, what did you change? KIRK: I spent about 90 days studying value pricing after that panel discussion, and at the end of that 90 days, I decided I was going to switch my business to value pricing within the year. We started value pricing with new customers right away, but it took time to actually transition existing customers over. But we saw a 56% increase in gross revenue the first year, and a 79% increase the second year. REUVEN: That 79% was over the increase you had the previous year? KIRK: Yes. REUVEN: Alright, I could go for that. CHUCK: Yeah, you have my attention. REUVEN: [Chuckling] Let me ask you this, though. Did you change what you were doing, or just how you were measuring and pricing it? KIRK: Well, we also changed our processes to match. I think value pricing is really a set of beliefs; it’s a philosophy, it’s a business model, and so I think the way that you run a business based on value pricing is going to force you to do things differently than hourly. It’s going to force you to manage projects differently; it’s going to force you to communicate with the customer differently; it’s going to force you to approach the process of writing proposals differently – it changes everything. So, yes. Not only did we change how we were doing pricing, but we changed our internal processes to match that. And we didn’t do it all at once; we kinda learned and adjusted, and of course, we’re still adjusting even today. CHUCK: Let me back up just a little bit. So, how do you determine what the value is for the customer? KIRK: I try to get to that in the first phone call. One of my favorite questions to ask is, “Why are you doing this now? Why not six months ago? Or why not wait another six months?” Obviously, we have to talk about what it is they want, but I wanna try to get the why behind the what and understand what's the pain they're having or what is the result that they think they can achieve? Sometimes I have to probe and ask that question in different ways, but that’s what I'm searching for – whether they're trying to increase revenue, whether they're trying to increase their margin, trying to control cost, trying to improve morale, trying to get away from paper – there's a variety of things, but I wanna understand the why behind the what. CHUCK: It seems like to me that it would be easy to figure out what the value is if it’s well, it’ll save us so much processing power or whatever you can kinda convert it to dollars, you know – you don’t need as many servers, you're not paying for so much bandwidth, or you need less space in your co-lo. The intangibles that I think would be a little bit trickier are things like it would be easier to maintain, or it would help us gather this information, but it’s not really clear what the dollar value is for that. Is there a way for you to boil that down so that you kinda have that number where it’s worth it to them and then you could do it at some point lower than that where it’s worth it to you? KIRK: So essentially you're asking, how do you price the intangible value, the things that are harder to put a dollar amount on? CHUCK: Yes. KIRK: Those are, to be honest, a gut feel. It really is. That’s the reason I call it the art of value – it’s not a science. There are principles, guidelines, you can follow, but at some point, there are times where you just have to say, “You know what? My intuition, my instinct tells me the price should be –” and go with it. The one thing I found is once you start experimenting with your pricing, you develop your pricing skills. I think pricing is something you can learn just like you can learn to code, or learn to do public speaking; and the more you practice, the better you get. And I found, now, after pricing for five to six years, my pricing instincts are really, really good. REUVEN: One of the things that I found in reading and hearing about value-based pricing – I don’t see this as a bad thing for the freelancers and consultants is it allows us to increase our rates a lot. Not because we’re just being piggish, but because we are bringing a lot of value to the table. Does this automatically though mean that we’re not going to do work with, say, small companies where their budgets are inherently constrained, that it only works with larger companies? KIRK: No, we’re actually, predominantly, nowadays, with smaller companies. We actually used to work with larger ones, and I actually chose to work with smaller ones because I actually find their easier to work with and I enjoy working with them more. But you are right – it does not work for every customer. For example, if a customer is not willing to share the why – I had one of these discussions today, literally. I had a phone call where about 15 minutes into it, the customer literally said to me, “Why are you asking these questions?” and I said, “Well, I don’t just take what you tell me at face value; I wanna dig deeper to understand how this is going to impact your business, because quite frankly, I'm the consultant, I'm the one who’s got the experience. I wanna make sure that we’re approaching this problem from the best point of view.” He wouldn’t answer the question, so unfortunately, that was a mismatch that didn’t work. But I think that this is something that could be done with both small and large customers. CHUCK: It’s really interesting – I mean, what it really boils down to is if you can make their desire align with your value basically, so that you're getting what you need out of it and they're getting what they need out of it – yeah, I really like it. So, when you come to a price, do you do the dreaded *tan-tan-tan* fixed bid? KIRK: I do. I do. Kind of a trick question is, “Are all value pricing quotes fixed bids?” But not all fixed bids are value-based, essentially, although to the customer, they may appear that way. I think one of the advantages of giving the customer quote a fixed price is that you're taking on risk form them, and they are willing to pay for that. You are providing more certainty, which I think also speaks to your positioning and your professionalism. I love giving a customer fixed price now and I'm, “Look, I'm doing this because I want you to be able to buy what I do the same way you buy a car or you buying milk – you go to the store, here’s the price, and let’s do it.” Now obviously with a fixed price comes a fixed skill, and so you have to have the project management skills to handle that, but for us, it’s worked extremely well. CHUCK: Very nice. JEFF: Well on the other hand too, even if you do a ton of materials or hourly here – something based on time – almost every customer I know, when I talk to them about it, they do the calculations in their head. Like, 100 hours at this rate is going to be an informal fixed bid of this much, and so by being clear upfront, you can say this is what your price is going to be, and if you need to build into that the risk that you're taking on as a consultant, it’s easier for you instead of you giving an hourly figure and the client working out the math and they're behind you. KIRK: I agree, and quite frankly, I don’t want the client doing the math in their head that way, because it focuses [inaudible] on the inputs rather than the outputs. I want them focused on results; I want that what they're looking to, what they're thinking about, and what I'm focused on, and so Chuck, I'm now going to use the word ‘alignment’ and that’s the thing I love about value pricing is because it forces you to align your interests – meaning you, the professional – your interests, with the interests of the customer. If you don’t do it, then you can’t price, because you're basing your price on what is the end result that they're achieving. When a customer’s focused on hours, they're just looking at the wrong thing, and it leads to just the wrong conversation, in my opinion. REUVEN: Right. So just earlier today, a client whom I've done some work over the last number of months asked me to give him a proposal to extend his extending software, which I know, to do something new. And this new functionality would allow him to get a contract, which I have to assume, is going to be worth hundreds of thousands of dollars. So, I did the standard time-materials weighing where I said, “Well, I estimate this is going to take me x number of days to do, and so the price is y.” And the whole time I was writing this, I was saying, “Well, if he’s going to get a lot out of it and so it would be nice to share in that.” And so, if I'm understanding correctly, the value-based way of going about this is saying, “Listen, I want you to get this contract because it’s good for both of us, and this contract is going to be worth a lot. Thus, I'm going to give you a fixed bid,” and I don’t just state it this way but like, “I'm going to do a fixed bid of some proportion – it could be a small proportion of that – and that way we can get it and succeed together.” Am I sort of in the right direction? KIRK: Yeah, you're exactly in the right direction. I mean, let’s say that the contract is worth a million dollars, and what you're going to do is going to help them land that, seems to me a fair price for that would be $100,000 – that’s a 1-10 return or 10-1 return. Who would spend a dollar to make 10? CHUCK: Somebody who thinks they can spend 50 cents to make 10. KIRK: True, but then they’re looking at it from a cost perspective and not an investment perspective. That’s where the discussion’s gotta go and that’s another reason I don’t like the hours because it focuses on a cost factor, and when you're doing it value-based, the discussion has to do it toward an investment point of view. And not everybody will look that way, but the customers I wanna work with do. CHUCK: So if they start heading the other direction, you know, if they start doing math in their head and they're thinking, “Ok, well we can find a guy, and he could do for $100 an hour and he’s not going to put in a thousand hours on this. Reuven’s bidding me $100,000; I could probably have some guy do it for $50,000 or $60,000.” How do you steer them back towards the conversation about the value? Or do you just give up and walk away and find somebody who’s thinking the other way? KIRK: First of all, we’d just prefer to somebody who’s thinking the same way I am, who’s not resisting yet, right? But there are customers who they’ve ever had that conversation before – they're resistant to it, and I'm willing to take the time to try to have that conversation. And if they will come around to that line of thinking, part of what I'm trying to do when I'm talking value with them is build my position in their eyes: do they see me as the expert and can I increase that? The more they want to work with me, the better for both of us. My friend Ron Baker said something along the lines of, “The way you solve is the way you sell.” I'm getting the quote bad, but he basically is saying customers should get an idea of what it’s like working with you during the sales process, and that's what I try to do. By having this discussion, I'm trying to actually show them I am interested in your best outcome and here’s how I'm going to do it. CHUCK: I think that’s really interesting. How does that affect things like estimates and stuff? Because most of the estimates that I do, I have to say – I'm billing hourly right now – most of the estimates that I do basically boils down to I think that’s going to take this long or the timeline’s going to look something like this, give or take a certain percentage. It’s going to cost you this much because I'm going to spend this many hours working on it. So what do you're estimates look like? I mean, you fix the price, so you're just giving them timeline estimates or milestone estimates? KIRK: First of all, I don’t “give traditional estimates” where I put an outline [inaudible]. I don’t list that there's 20 features on it and I’ll put a price out for 20 features. What I do is I try to give the customer three options; this goes back to what I was talking about earlier about pricing is a skill. I try to give the customer three different prices to pick from so that in their mind, there's a shift from “will I work with this person” to “how will I work with this person.” And actually, ideally, we try to give them one option that’s what they're looking for, another option that’s scaled down to something so if they have a tighter budget, they can pick that, and then I’ll also try to give them something above what they're asking for. Actually, I try to dream and think and throw out something that maybe somebody else has not even mentioned or offered to them, so I try to price it three different ways. To get back to your question about effort, I look at two different things. There's effort and duration – effort is how much, in this case, time it’s going to take to do whatever it is we’re going to do; duration is how long the project’s going to run – and those aren’t the same thing, right? Our quote project is going to take 40 hours to accomplish, well I'm might schedule that over two months, depending on the price of the customer or their timeline and other commitments and so forth. We generally tend to estimate things either by days of effort, or maybe half days of effort, depending on the size of the project now – we don’t go down to the hour. The other thing that we do is we actually schedule the time we’re going to be working on the projects in advance. Our project manager for each of our developers knows what their load is and what those commitments are and actually schedules out, “Okay, this half day, you're going to be doing this.” Our developers, when they start a week, they know what they're going to be working on throughout the week, because we try to schedule big blocks of time. CHUCK: So the other thing that I'm curious about is with your developers. I mean, do you have salary workers, or are you paying them by the hour? How does that all work out? KIRK: Our full-time developers are salary; we also do profit-sharing. For a contractor, [inaudible] contractors that I work with, I ask them to give me a fixed price. CHUCK: Oh, that makes sense. So then since your income is fixed on the project, then you know how much it’s going to cost you to have the work done. KIRK: Exactly. And the other thing I should point out about value pricing is if you're doing it well, you should be pricing higher than you would be if you were pricing it based on hours. And that’s what we found, so we actually have more margin on the project, too. CHUCK: Yeah, that makes a lot of sense. REUVEN: Well, I'm wondering though, are you able to price at higher –? I mean, at a certain point, I would think that the customer would say, “Wait a second, this is going to be costing me a lot more than if I went down the street.” So you could just, assuming helping them they’ll see that you're looking at partnering with them will really help them, give them that value, and by the combination you talk to them that way and during your questions, your deep questions, and also the multiple prices – the combination of all these things will convince them that it’s just not worth going and getting a cheaper option somewhere else? KIRK: Essentially, yes. I mean, one of the ways you stand out and position yourself is to do things differently than everybody else does it. That's one of the things I love about value pricing – it makes it easy to stand out because most people aren’t doing it. And second, we try to do it really well. We’ve been doing it a long time. Like many of you, we’ve had our businesses for two years, we’ve built up our credentials and our reputation and our expertise, so that carries more weight – it’s all those things combined. If there's a customer that’s shopping solely on price, I'm just upfront with him and I say, “Look, we’re not the cheapest and if you're just shopping based on price, I don’t wanna waste your time.” CHUCK: Yeah, that makes sense, and I can definitely see that. I see some other things that work out well for them. I mean, I bid projects where I give them an estimate and then I wind up blowing the budget, right, and I start talking to them as soon as I realize I'm getting close to the budget and have not done enough. So then we start having conversations and with this, your risk isn’t blowing the budget. You might push the timeline a little bit, but that’s the only way you're not going to deliver as agreed, and so I really, really like that. And the other things is that a lot of my clients, they do kinda have some budget sensitivity, and so if I can make that number fit what their limitations are, then they know that they're not going to go beyond them. They know what the cost is going to be for the given project. KIRK: Exactly. And how easy it is to standout from your competition when you're willing to say, for this scope of work, that is the price? If the scope changes, we’re going to give you something with a new pricing scope. CHUCK: Mm-hm. How do you usually do that? KIRK: If when there's a change? CHUCK: Yeah. KIRK: We just simply say that “This is the change. Would you like for us to price that?” And we set the expectation; we put in our proposals that – we actually call it a guarantee; we call it a price guarantee. We say, “This is the price for this scope of work. If the scope of work changes, we will write you with a change request with a new scope and price.” And so we set the expectation upfront. CURTIS: Yeah, that’s where I've always struggled with anything fixed rate like this, because you end up in a heated discussion sometimes with the client about what was in scope and what wasn’t. In the original document, maybe had one sentence that they felt referring to this feature that you don’t think is in scope. KIRK: True. And so first thing, I write the scope. I don’t take the customer’s scope. Second, I clear with the customer – and smart customers will actually ask the question. They’ll say, “What's the change? Define a change.” And I’ll say, “A change is something where you're asking for something that I didn’t intend in the scope that I wrote in price,” because I basically say, “ultimately, what is the definition of a change? It is different than what I intended to deliver. Why? Because I'm the one who wrote the scope and I'm the one who set the price.” Now, I try to be very clear; we try to go over it; we do discovery. A lot of times, I remember Brennan was talking about that, about doing the discovery phase upfront as a paid engagement – that’s frequently what we do with projects where it’s not just very clear what the scope is. REUVEN: You’ve never, or you haven't often had push back from clients? Because I've also had similar problems to what Curtis was describing. The very few times that I've done fixed price, if we had to do a change request, or they have a change request and if it changes the price, there's a lot of haggling over what was or was not included, then it becomes too much of a pain. KIRK: Again, I think it’s a skill that’s practiced, but we try to set the expectation upfront that’s why in our proposals it clearly says fixed scope for fixed price, if it changes, we’re going to price it. What we found is it really forces customers to think hard about what they wanna add – do you really need it? Is it really something? Another couple of techniques that we use – first of all, we create what we call a wish list, right? First of all, we like to add things to the project because one of the things that I think is really critical to our industry is to try to do smaller chunks; smaller projects delivers success. I think it’s easier to build a bunch of smaller successes than have one big one; there's less risk too. But also, just say, “You know what? That’s a great idea. I don’t think right now is the time, let’s put it on a wish list and once we get phase one done, then we’ll look at it.” The other thing we do is we do something called a change bucket, or we actually say, “Okay, I've got an attorney right now that has a customer and basically he’s engaged us because he’s expecting a large suit kinda go forward, he’s going to need a system to help manage that.” And he said, “Look, I can’t answer all your questions right now.” I said, “Okay, fine. Let’s do a change bucket. Let’s have you pay us upfront x thousand dollars and we’ll just put that on deposit. And then there's things come up that are new, or wanna change, or price it, and if you agree to it, we’ll just pull it out the bucket.” So both a wish list and a change bucket are tools to help with that, but again, I think setting the expectation upfront is the most critical thing. And yes, there are some customers who are – the first time there's push back, but once they see that you mean what you're going to say and that’s how you do business, most of the time it’s not an issue. And if it is, if it does become an issue, then they're probably not going to be a customer. CHUCK: Well, I've had plenty of clients where consistency was more important than pricing. KIRK: Yeah, I mean, the only reason somebody challenges your price is because they don’t see the value. CHUCK: Yup. ERIC: I've actually used the wish list myself with clients and they like it because some of those ideas they have – it’s like a flash in the sky idea. “Oh, I wanna do this,” but once you let it settle for a little bit, they actually come back at it with fresh eyes, “Well, it’s not really that big of a deal.” But a couple of projects where basically a phase two, phase three, phase four was basically just going through the wish list and just assembling things into logical blocks and then pricing it out and doing the work, so that worked really good, and that you knew what was in scope, because we were able to talk about the wish list things before we actually worked on them. KIRK: Yeah, I totally agree. That’s been our experience; it’s a great, great tool. CHUCK: Do you ever get longer term projects? I mean, something that may last a year or two and how do you price that? Do you just price one chunk at a time? How do you work that out, where they're going to give you – if they pay for it all upfront, they're going to pay for a year or more’s worth of work? KIRK: If it’s project-based work where we can have a clear scope and a clear outcome, then I just wanna break that up into a lot of smaller projects. Say it’s a two-year project, I would try to divide that up, say, into four three-quarter projects or – I guess I'm doing the math wrong – eight 90-day projects, so to speak if it’s two years. We’ve had some situations where customers come to us and they just want commitment and they really don’t want to worry about scope; they just wanna start working on it, they wanna be able to change their mind. Basically they want us to take on more risk to work with, right? In my mind, an unclear scope is more risk. So in those situations, we’ll do it on a retainer. In my opinion, retainers should be almost the highest price you charge, because retainers basically are saying, “I want you, I want all you have available – your time, your skill, your effort – whatever. Focus on this. I'm going to require you to change, you're going to have to help manage this” so yeah, we had an engagement that was an extremely large, monthly retainer. We did it that way for almost two years, so we have done that, but it has to be the right customer. Most customers are not ready for a retainer; not the kind of retainer I'm talking about. This is not, “Hey, give me five hours a month.” No, this is, “Hey, I want a significant commitment and I wanna be able to be flexible, and to me, being flexible [inaudible].” CHUCK: So one other thing we’ve talked a little bit about the nature of the bids that you're giving and here’s the value you're going to get, and here’s the price you're going to pay – in other words, here’s the scope and here’s the price. Have you ever had things work out where you misread what the scope was, or you wound up spending a whole lot more time or money meeting the proposal as opposed to what you thought it would cost? KIRK: Yeah. CHUCK: [Crosstalk] people see fixed bids as risky, because you may wind up spending more time than the price makes it worth it to you. KIRK: Yeah. I think the question you're asking is do we make mistakes, right? Do we underprice it? Do we miss the scope? Sure, we do. Not every project goes the way we want. Whether it’s because we engage a customer who seems like a good fit, but then we get into it and find out they’re not, or there's a change of personnel, or I just wrote something that I thought was clear and yet it wasn’t. Yes, we learn, we get better. We don’t nail every one, but we’re doing better on the majority of them, and typically what we learn from one [inaudible] the same mistake twice. REUVEN: And the value-based pricing means that you have enough of a cushion there that if you're off for a bit, you're not going to suffer too terribly. KIRK: Exactly. And obviously, part of those discussions we go, “Okay, we got a question about scope.” Whether I think it’s clear or not, the customer’s perception is reality, right? And so I go, “Okay, well what's the value of this customer for this year, for next year? Do I like working with them? Am I willing to do this just because I love the relationship and love the customer, or is this clearly something that’s way, way out of scope?” I’ll give you an example. We had one recently where the customer, we did work for them a year ago and they came back to us just recently. And something happened like right in [inaudible] and they're going like, “What about that?” and we’re like, “Well, that was in-between two projects. We didn’t even touch the system then.” Right? So sometimes, like that, it’s very clear. Other times, you gotta make some decisions, and that’s why there's an art to it. But this is a framework; it’s a business model that helps us make sure we’re working with the right people in a way that we lose uncertainty for the customer. I'm taking on more uncertainty, but I'm removing it for them. REUVEN: Right. It’s funny; I've been doing hourly or daily pricing for a long time now, and I can understand why having a fixed price bid is more reassuring for the client. They don’t think that they're basically opening a blank check and they have no idea what they're going to write at the end of the project. So that’s fixed price, but it comes with a cost. The cost is, they're paying for their security; they're paying for a price for knowing how much they're going to pay in the end, for not having to absorb the risk. So I can see what you're saying, but at the same time, I guess I'm just nervous because I've been on so many projects where things change and then there were arguments over the scope – it was so incredibly unpleasant. It’s easier in many ways for me to just work on an hourly or daily basis, at least for now. But you're pretty convincing, let me tell you that. KIRK: Well let me throw out one other thing to think about, too. One of the things we do with value pricing is we ask for 100% upfront, and the majority of the time, customers are willing to do that. I know some customers, they wanna hold back payment because they feel like it gives them control, but we found just the opposite. We found that the customers that we will go more all out and we will actually go above and beyond are the ones who pay us upfront, get the money out of the way so that we can just serve the hell out of them – and that’s what I love. It’s people who trust me enough to say, “You know what? We know you're going to do it.” And then we go above and beyond. We also look for ways to take a new look at something and go, “Okay. What's valuable in what we do from the customer’s perspective?” For example, I think the actual coding that we do is the least valuable thing. The most I feel like, for example, the support we do in the end is more valuable. The helping them [inaudible] how to test, that it functions the way they want is more valuable. So one thing we’ve done recently in proposals is we’ve actually kind of split testing into two categories, and at a lower price they do more of a testing, at a higher price we do more of the testing. Why do we do that? Because we found out that testing is something that’s extremely valuable to them and so we tied it to a price. And also, what that does is it clearly shows that if they pick the lower price, well if we offered it and they did not pick it then by definition it’s not included. CHUCK: Yeah, that makes sense. I really liked that where they can choose what level of service they want. KIRK: Exactly, exactly. Because customers are going to have an idea of the budget, but here’s the thing: those budgets can change. They can and will change. I've had several experience where going into [inaudible] x, and so x went into being the middle or the lower option, and they wound up picking a price higher. Why? Because they saw more value. CHUCK: So for things like testing, we’ve had a conversation before about how to convince our clients that they need testing or that they ought to have testing. Is the testing you're talking about like unit tests in the code, or are we talking about more along the lines of having a person or an automated script load the page and go click through it? KIRK: Unit testing could be part of what we offer, but really, what we’re talking about is what is our level of internal review. We always do an internal review, but we offer that we will do a secondary, extra internal review. We also provide test cases to our customers who use cases and we say, “These are the things you need to test, and if you don’t test them you miss the deadline.” And we follow up, we say, “Look, great. You’ve tested these eight things, but these five others you haven't tested, we need you to test those and give us feedback.” So we’ve actually tried to be proactive in putting more effort into helping them do that, holding them accountable. One of the reasons it works so well for us is we got an outstanding project manager, and she’s dedicated to managing projects; she’s not a developer. And she’s able to focus and say, “Okay, how’s this customer doing on testing? Are they running behind?” or those kinds of things. With our approach, you have to be willing to hold the customer accountable to those deadlines, and you have to be able to be consistent, like you said earlier. CHUCK: So you mentioned that there were some other things that changed in your process, both of your sales process and your development process, based on value-based pricing. We’ve talked about a lot of those, have we missed any, or are there any that are not as obvious? KIRK: I would say that probably that one of the biggest changes is just kinda reiterating what I said earlier, even in the first conversation, there was a point when I first started doing this where I did start the value conversation early; I kinda felt like I had to talk more about what they wanted. I kinda got into the point where the first conversation, I really wanna talk more about why. I had to let them talk a little bit about what so I have some context, but I really tried to go talk about why as early as possible because not only does it differentiate, but it helps me qualify them. Are they willing to have the conversation? Do they have a real problem that I can help solve and that should be solved? So that’s one thing, it’s just getting confidence to have that value conversation. It’s definitely [inaudible] project management process; I've talked quite a bit about that already, but yeah, everything that we’ve done. The way that we do business now is so different; very few things that you see now which you’ve seen five years ago. It influences everything; for example, in our proposals, on the first page, I tried to put in the proposal a section that says, “This is the value that the customer will receive by completing this project” and I try to have bullet points. I go back to my notes from those early conversations and I try to write out the things that I thought or the things they said they [inaudible] and that’s where I get some of the most positive feedback, is when I'm walking a customer through a proposal and we go through that section and I say, “Look, is that on target? Do you think that's right? Would you revise it? Would you change it?” Usually, I get one of two answers – either you're right on target, or they say, “Most of it is good, but here’s something else.” And here’s the cool thing: nine times out of ten, that extra thing they add is not something I heard about before, because by focusing on that, it got their mind going and so they actually brought something up I heard before but wasn’t aware of. So to find a specific example to your question, I’d say it’s just rolling all through our conversation over the show. REUVEN: So Kirk, I do, in addition to software development, I also do a lot of training and teaching of programmers. I feel like they're adding a huge amount of value to a company, because I'm coming in, I'm teaching 10 or 20 developers either a new technology they did not know before and lets them work faster, or they're improving using that technology. And I'm tempted to use value-based pricing there, especially since I know what the timing scope is, so it’s a fixed price, but I'm not quite sure when to attack that. And I even thought about, well maybe I can make the training part of a larger package where I say, “We’re going to make your programmers more productive and I’ll work with them before, during and after the training to improve their processes” and call that. Do you have any advice on how to apply value-based pricing to training? KIRK: Sure, so training and/or coaching? Again, I think one of the best tools you can take into that type of business is options where you say, “Okay, the base thing they're asking for is they want four sessions for eight coders on this” right? Well, one of the things you can add value – so for example, you could offer to do pre-interviews. You could do screening. You could offer to do post-coaching. You could offer to make yourself available once a week, question and answer thing, like Cliff does in Podcasting A to Z. You could offer possibly videos; you could offer to do code-sharing; even the access they have to you. For example, in the past, we have said, “Okay, access is done my email is this price; if you wanna be able to do phone call, it’s this price.” So just think about what are the different ways that you could provide access to your knowledge, and what are the things you can add – you can ask them. Say, “Look, what would make this training more valuable? What do you think in addition to just the training education sessions, what else would help you succeed? What else would you like to see?” Those kinds of things. There's so many online training programs, and one of the things I'm always looking for is where somebody who’s being really creative. I saw one the other day, it was a couple that does marriage counseling, and so all their products are around marriage and [inaudible]. And they had something really clever: they will answer one question via email for $10, or you can ask an unlimited number of questions via email in a month for 99 bucks. I just thought that was creative; I doubt hardly anybody takes the $10 option. What are they doing? They're anchoring, right? They're saying one question’s worth 10, you can have an unlimited for 99 – and they set parameters, right? They say, we only answer questions Monday to Thursday, we only do one question at a time, we only answer between 9 and 5 [inaudible] workable for them. But look for that type of opportunity, and try to find something you can offer that maybe nobody else is doing, and one of the best ways to do that is go to the people you’ve done it for in the past and have a conversation and say, “What could we have done to make it better? Now that you’ve been through it, is there something that you can see that if I’d offered at you, it would have been better for you?” So again, my short answer is options. REUVEN: Very neat. CHUCK: That’s really an interesting way of thinking about it too where you have the different value adds, and again, I mean, they can kinda pick what they care about. I really like it, and there are so many ways to apply it to so many other things too. REUVEN: Kirk, is there a chance that – I don’t wanna put you under the spot here – is there a chance that you have a sample price proposal that’s in the [inaudible] that we could maybe share with our listeners? KIRK: I would be happy to –. REUVEN: Obviously I don’t want you to violate the confidence of your clients; I'm just curious to see what something like that would look that. KIRK: Sure. I’ll tell you what, I’ll make the commitment to kinda look through past proposals, probably once that are turned down. So I’ll look for one where we actually didn’t sell it, and maybe see if I can find one of those and strip some of the things out and try to give a framework or something like that. REUVEN: Yeah, that’d be great. CHUCK: That would be really interesting. And then if you can give that to Mandy, we’ll put it in the show notes. KIRK: Yeah, yeah. CHUCK: Alright. Well anything else before we get into the picks? KIRK: I appreciate you guys having me on. This has been a fun discussion. I’ll just say I really enjoyed listening to the episode you did with Brennan, because I thought he did a great job of talking about how to sell value. I also really enjoyed the episode that you guys did – I think Curtis, you're on the call, but I think you were the one that was kind of a guest that [inaudible] pricing. I actually learned some things out of that. I've known you’ve done some writing and stuff about pricing as well, but I've enjoyed those two shows [crosstalk]. CURTIS: Thanks. CHUCK: Yeah, this show and the weekly pricing show have really made me think about how I'm doing things, so. Alright, well let’s go ahead and do the picks. Eric, do you wanna start us with picks? ERIC: Sure. So a pick today I found is a blog called No More Forever Projects. It’s a short blog where someone wrote about how you'll start a project and your intention is kinda do it either forever, it’s never going to end and all that, and just kind of the guilt you get if you decided stuff for you, or it turns out the project – it’s not as interesting as you thought. So it’s a nice kind of change of perspective about when you start something new, or anything that’s kind of long term. CHUCK: Alright. Curtis, what are your picks? CURTIS: Just [inaudible] one, [inaudible] Ghostery; that’s a Chrome plugin that blocks all external scripts if you don’t want them to run. I was quite surprised at a few sites that all the ads they're running and everything else, all the ways they want to track you – I can only think of one that was really useful, but that’s what I installed. CHUCK: Cool. Jeff, what are your picks? JEFF: So I have two, I would have had three – the third – I have three, but we can’t have a link to the third one. It was SoundSource by Rogue Amoeba, and it lets you switch input from speakers to headphones. I had to [inaudible] old Mac to put on my new one; I couldn’t find a download link on Rogue Amoeba, so. The other two, one’s Cyber Acoustics Speaker System, and I’ll pass the link along. They're not the best speakers in the world, but the interesting things is they have this little puck you can put on your desk and it has a headphone jack and an aux jack, so I don’t have to dig around to sort of plug in my headphones, and if I wanna listen to a podcast on a phone, Bluetooth – I haven't figured out – Bluetooth [inaudible] so I can aux input the phone. And the last one is Good Reads. I don’t know if we’ve ever picked that before, but it feels that my fiction reading list, I go to the top space [inaudible] novels or something and start at the top and work my way down; it keeps me busy. That’s it. CHUCK: Yeah, in fact, if any of the rest of you guys have Good Reads accounts, go ahead and put your links in there too. Reuven, what are your picks? REUVEN: Okay, I've got only one pick for this week, and you will not be surprised to hear it. It is PHD Comics. For those of you who are familiar with it – basically, it’s like the Dilbert for graduate students, and I can tell you it’s all true. Press is not true enough. I think even people who are now graduate school can enjoy it. CHUCK: Very nice. I had somebody introduce me to a new blogging platform and it’s called Ghost. It’s based on Node.js. On top of that, another thing that I found that he pointed out to me was the DigitalOcean actually has a ghost image, like an image that has ghost on it, so you can set up a machine and it already has ghost on it and it’s ready to go. They have a bunch of other ones too like Redmine and stuff like that, so it’s pretty cool too. I've been pretty happy with them and I've actually been using the DigitalOcean plugin to [inaudible] servers with [inaudible]. Anyway, Kirk, what picks do you have for us? KIRK: So I've got three picks kinda related to our topic, and I think at least one of these might have been mentioned on the show before. The first is guys at Freshbooks.com called Breaking the Time Barrier, and it’s really just – it’s kind of a parable about value pricing and it’s done from a web developer’s perspective, and it basically is he’s a web developer and he bills by the hour, kinda having a conversation with a more experienced web developer who does value pricing and so it’s just a great way to kinda introduce yourself. The second pick is by a gentle man who’s kind of a sales and marketing consultant in the design agency space, a guy named Bair Enns. His online book, basically you can buy the ebook or hard copy, or you can just read it for free in his website, it’s called Win Without Pitching, and he calls it a manifesto, so that’s also another great resource. Both of those are free. The third pick is by Ron Baker. Ron is kinda one of the leading thought leaders for value pricing. He’s been writing about it for 20 years. His latest book, it’s been on a couple of years, it’s called Implementing Value Pricing. You can find that on Amazon; a $50-$60 book, but if you wanna go really in-depth into this topic, it’s a great read. He spends the first two-thirds of the book talking about what is the history and the case for value pricing, why should you do it. He basically tries to handle almost any objection somebody might have, and then the last third of the book he says, “Okay, here are eight concrete steps to implement value pricing.” It’s about a 300-page book and it’s also kind of a personal favorite, because my software company’s mentioned [inaudible]. CHUCK: Cool. Very nice. So if people wanna get a hold of you, they wanna know more about you [inaudible] your company, what are the best ways to do that? KIRK: Sure. Probably two best ways: first, our website is artofvalue.com and then on twitter, @artofvalue, so you can find us both of those ways. Would love to get feedback from people, what they thought of the episode, what questions they may have; I would love to continue the conversation. CHUCK: Alright. Well, we’ll go ahead and wrap up the show then. Thanks again for coming, Kirk. I really appreciate your input and hopefully this will get some folks thinking about other ways they can set prices for their client and serve them well. KIRK: I appreciate you inviting me on the show; it’s been a fun discussion and again, thank you very much. [Hosting and bandwidth provided by the Blue Box Group. Check them out at BlueBox.net] [Bandwidth for this segment is provided by CacheFly, the world’s fastest CDN. Deliver your content fast with CacheFly. Visit cachefly.com to learn more]