I got a great question from a colleague not long ago about value pricing, and as I was answering it I realized that others might have similar questions. What better place to share the info than on our beloved Between Wall and Main!
Switching to Value Pricing
“I’m trying to move all my clients to fixed/value prices (whatever you want to call it) but am struggling with how to make the change from billing hourly after the fact to prepaid monthly fees. It means the client has to pay double at that moment of change. Any ideas about how to handle that?”
That’s a really common concern. Let’s take the process step by step, and if you have any other questions about value pricing, we can have an ongoing discussion in the comments of this article.
Beginning the Discussion
Start with the one client that you think the value pricing conversation will be easiest with. There is no need to try to move all of your clients over at the same time. It took us a full year to get all of our clients transitioned, and that was a good pace for us.
Show that client that you are starting to focus on the Value and Results of your services, rather than the time. Describe the importance of this in a story format that they can relate to, rather than just going over data. Use this as an opportunity to connect on a personal level and demonstrate your collaborative relationship. Billing for time after the fact is a losing proposition on both sides. Be sure to check out our article on our other BWAM article on this topic
for more great info.
Present the client with 3 different levels of packages so that they can discuss options and choose something. This is much more effective than presenting them with just a single “Yes or No” option. If the choice is between Yes and No, the answer will often be No. When you have more than one option it shows that there are collaborative solutions between you and the client. Also, you can demonstrate more effectively that having things stay the way they were (on hourly billing) is not one of the options up for discussion. Click here to check out Polymath’s packages.
Once your client has chosen one of the three options you have presented, you can add extra ease and convenience to the payments process by taking the payment automatically. This saves buckets of time and headache for both you and the client. At Polymath, we facilitate this process by using Practice Ignition
. We now collect all of our payments automatically in advance. As a result, Polymath no longer carries any Accounts Receivable. Goodbye collections!
What about the double month?
That is where we get into the meat of the question above. If there is concern because the client is used to paying after the fact, and now you need to collect up front, that can present a cash-flow issue for the client. There are a couple of options to ease this transition:
- Offer extended terms on the older invoice. We were used to having our clients pay us after the fact, and that presented a bit of a cash flow issue for us. We can offer them a little patience as we eliminate that problem for good. Set up a payment plan so they can kick their final hourly invoice over the course of a few months.
- Let them put the older invoice on a credit card. It is often worth sacrificing that small percent of revenue to just get it done, and then they can owe the credit card company instead of you.
- It doesn’t hurt to talk about it. For our clients, we didn’t have to use either of the options above when we switched to value pricing. We just let them know how the new system worked, and everyone paid without complaint. One client even opted to pay for a full year of service in advance!
Keep in mind that what you are proposing to them is a win-win. Have an open, honest discussion with them about value pricing and how it works, and offer real human connection in the process. It’s OK to tell them that this is a new system for you and that you still need to work out the kinks! The best clients will want to support you in your business growth as you support them. If you aren’t uncomfortable or awkward with the conversation, they probably won’t be either. Be genuine.
When you’re done with introducing that first client to value pricing, evaluate what went right and what could have gone better. Then choose the next client to try. Continue to evaluate and refine your process as you go, one client at a time. Switching to value pricing will take practice. Have patience with yourself, and be open to taking some risks and making some mistakes. Keep in mind that the clients who don’t make this switch with you might not be the best fit for you. It is OK to let them go.
It took us a full year to convert all of our clients from hourly to fixed/value prices, and we’re still making adjustments. Over the course of that year, we “released” about 50% of our clients. (We prefer “released” over “fired.”) In the process we also doubled our gross revenue while taking on very few new projects. We are now focusing on deeper relationships with fewer clients, and it is wonderful. For more info about letting the clients go that may not be a good fit, check out this our articles on learning to say goodbye
and weeding the garden
Switching to value pricing takes time, and it can be a bit intimidating at first. It is well worth the effort!