Below is an article I created with my friend and colleague Simon Tupman in 2007. Working with some professional services firms recently has meant bringing all these insights to the fore. I hope you find them valuable too.
All businesses have a primary reason for existing: to create value.
To be successful in a competitive climate, you have to offer something that is valued by clients more than that of your competitors so that they become the preferred provider in the eyes of the client. How can you achieve this, particularly when the services offered by so many firms are the same?
In this article, we aim to demonstrate that the concept of ‘adding value’ is more than just a cliché. We argue there are six steps to successfully implementing a ‘value-added’ approach.
1. Understand the concept of ‘value’
‘Value’ is a word that has been used ubiquitously and sometimes carelessly by professional service firms to the extent that it has lost its true meaning. We believe that ‘value’ is measured by the extent to which it improves people’s businesses or lives.
However, it is our experience that many firms fail to understand or establish the true value of their services and as a consequence, price their services around the nature of their intervention (it’ll cost you about 10 hours of our time and we charge $300 an hour) rather than the results or outcomes of the service (‘we’ll save your life and the fee will be $10,000’).
2. Believe in the concept of ‘value’.
The concept of ‘delivering value’ has to be a value or guiding principle within a firm. Of course, many firms already recognise the need for articulated values or guiding principles. These are often displayed prominently in fancy frames in reception areas or foyer walls. However, the extent to which these stated ‘values’ truly represent what a firm stands for is debatable. Firms need to have a set of values that are true and transparent and that reflect what the firm stands for. If you believe in delivering value for your clients, then that has to be a value or a guiding principle of your firm. Lip service won’t do. If those values are not consistent with those of your employees (and vice versa), then you will never win over their hearts and minds – something that is critical when delivering value to clients. Conversely when they are, you will attract like-minded people who are motivated to work for your firm and support those values rather than people who chose to work with you because it’s another job that simply pays the bills and adds to the resumé.
3. Make your stakeholders feel valued.
Unless a firm does so, initiatives to deliver value will fail.By ‘stakeholders’ we mean those people who support your business including your clients, your team members and your suppliers.Asthe psychologist and philosopher William James famously observed:
“The deepest principle in human nature is the craving to be appreciated.”
Consequently, simple actions such as expressing your appreciation to your staff for all they contribute or to suppliers for the quality of the products you purchase from them can make all the difference. Unless you make them feel valued, you cannot expect them to deliver value either to you or to your clients.
4. Appreciate what your clients value.
The challenge for every trusted advisor is to get the heart of each matter; to understand what is really troubling the client, to ascertain whether he or she can offer a solution and if so, to offer to provide it at a price that reflects the value. Remember, it’s the outcome, not the time, nor the task that matters. Clients want outcomes not a slice of your time. Simply by asking probing questions, you can better establish what clients value: questions such as:
How would conditions in your business (or life) improve as a result of this project?
What is this project worth to you?
What would you like to accomplish?
What does this mean to you personally?
What would happen if you did nothing?
Why do you think I am the right person to undertake this project?
Traditionally accountants have been in the business of giving tax advice, auditing and filing tax returns so that they accurately give a picture of the financial performance of a business or an individual client. However, while these services comprise the basic service provided by every accountant, relatively few accountants work proactively with each client to help them to create wealth through running their business better or planning to protect their assets. As Ron Baker and Paul Dunn have written in ‘The Firm of the Future’, too many accountants have been in the business of reporting on their clients’ history rather than helping them to create it.
5. Be able to deliver value.
To deliver value, firms must continually ask their clients what results they demand and then intervene accordingly. In other words, while improvements to your service can help to improve perceptions of value, such initiatives need to contribute to the desired outcome or result that the client is seeking. This can be done in a number of ways. Here are just a few examples:
Ask every prospective client the first time you meet them what results they will require from you in order to be overjoyed with your performance.
Ask every client at the completion of every service what he or she believes were the remarkable results you delivered for him or her.
At least once a year ask your clients to complete an online survey about the results you produced for them.
At least bi-annually, have an outside expert interview a selection of your clients to obtain an independent view of the results you produced for them.
End every interaction with a client with this question; What do you feel we accomplished today?
6. Price for value.
There’s enough material to write about here for an entire conference, so we will be brief. Try to be flexible in your pricing, even if it means taking on some additional risk.
Traditionally, many accountancy firms have priced themselves on a cost-plus basis, that is to say, before they set a price, they work out what it costs them; then, they add on a bit for profit and sell at that price to a client. The limitations of this approach are well understood.
Firms that recognise the shortcomings of cost-plus pricing and pricing by the hour have experimented with alternatives with varying degrees of success. For example,
Fixed fees (especially for transactional work)
Fixed fees in stages (especially for work with uncertain phases)
Discounted fees for volume
Contingency fees (no win, no fee)
Base fees plus a success fee
Taking equity in the client’s business
When thinking about how to price your services, aim for a win/win situation so that both parties feel they are getting a good deal: you are making a profit while your client is getting value and a significant return on investment. The price should be fixed with measures in place to ensure value is provided and experienced.
It is not just the level of the fee that counts. Your terms can make an important contribution to the success of value-pricing. For example, you might also consider including a service guarantee and a price guarantee. A service guarantee assures the buyer that a certain level of service is guaranteed throughout a matter. If, for any reason, the client feels the firm has broken a ‘service promise’, then that client has the option of withholding payment or part thereof. A price guarantee guarantees the price as outlined in the initial agreement with the client. You might reserve the right to change the fixed price in the event of unforeseen circumstances including provision in their terms of reference for a ‘changing order’.
Recently, Simon persuaded his accountant to change the way he charged him from a ‘by-the-hour’ approach to an annual, fixed price. This is a much better arrangement for both Simon and the accountant in that he can manage his cash-flow better and doesn’t have to pay for every call he makes throughout the year! It’s also a better arrangement for the accountant in that there is no work-in-progress but a regular monthly payment and improved cash-flow.
We believe that firms can either wait for their clients to call the shots or they can be proactive and take action themselves to define and deliver value. We are confident that, when the day arrives when all firms are defining and delivering value and pricing accordingly, everyone will be better off –the client, the firm and all its other stakeholders. Not only will their lives and businesses improve; they can also become remarkable and in the process more profitable.
Oh, and in case you were wondering, do we follow all these steps in our respective businesses? Yes we do.
© Simon Tupman and Ian Berry 2007