Decision Vision Episode 45: Should I Increase My Prices? – An Interview with John Ray, Ray Business Advisors, LLC
“Should I increase my prices?” If this question makes you pause, then this “Decision Vision” episode is for you. Price and value authority John Ray speaks with host Mike Blake on the importance of pricing in a business, how to negotiate prices, why hourly billing is the wrong way to price, and dealing with the “it’s too expensive” objection. “Decision Vision” is presented by Brady Ware & Company.
John Ray, Ray Business Advisors, LLC
Because pricing is the fastest way to change the profitability of a business, John Ray advises business owners on the “should I increase my prices” question, how to change their pricing, and moving to a value pricing model. His clients include attorneys, CPAs, consultants, other professional services firms, and technology companies. His blog, “Pricing for Profit,” regularly features examples and stories which help business owners in their own pricing journey. John is also a speaker on pricing and value at numerous chambers, business events and seminars. John also helps small to mid-sized companies achieve their profit and growth goals as an outside CFO.
John also owns and operates the North Fulton studio of Business RadioX®. John is the host of “North Fulton Business Radio” and “Alpharetta Tech Talk.” He also plans, produces, and promotes radio show/podcasts for businesses and entrepreneurs.
John is extremely active in the North Fulton community. He is on the board of the Greater North Fulton Chamber of Commerce (GNFCC), and serves in a variety of capacities there, including Chairman’s Circle, member of the Finance Committee, and Chair of the Awards Committee. John was named the 2018 Harry Rucker Jr. Volunteer of the Year by GNFCC.
For more information on John and his firm, find John’s LinkedIn profile here, go to raybusinessadvisors.com, or call John directly at (404) 287-2627.
Michael Blake, Brady Ware & Company
Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.
Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.
Brady Ware & Company
Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.
Decision Vision Podcast Series
“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.
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Show Transcript
Intro: [00:00:01] Welcome to Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional full-service accounting and advisory firm that helps businesses and entrepreneurs make visions a reality.
Mike Blake: [00:00:19] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic from the business owners or executives’ perspective. We aren’t necessarily telling you what to do, but we can put you in a position to make an informed decision on your own and understand when you might need help along the way.
Mike Blake: [00:00:39] My name is Mike Blake and I’m your host for today’s program. I’m a director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton, Columbus, Ohio, Richmond, Indiana, and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator and please consider leaving a review of the podcast as well.
Mike Blake: [00:01:03] So, today, we’re going to talk about adjusting your prices. And this show is going to be published shortly after the secular New Year. So, for those of you who celebrate Christmas, I wish you a merry Christmas after the fact. And those of you who celebrate the Catholic Protestant New Year, Happy New Year to you. If you are a Kwanzaa celebrant, I will wish you a happy Kwanzaa and readers as well. And happy Hanukkah. This will probably come out, I guess, a few days after the last evening of Hanukkah. And if you’re an atheist and don’t believe in any of this, I’ll just wish that you have a nice day.
Mike Blake: [00:01:49] But anyway, we wanted to make sure that this particular program started off the new year because it’s a topic that I think most business people are thinking about revisiting. And if you’re not, you probably should. And that is the topic of pricing. Pricing, I think, is one of the hardest things to get right, particularly, but not limited to professional services. Figuring out the price that you need to charge your clients, your customers is a challenge.
Mike Blake: [00:02:26] And it’s a challenge as much as anything because the market is not very transparent. Our competitors, at least in professional services, we don’t know exactly what they are charging except on rare occasions. And even if you do, you’re not exactly sure necessarily how to equate the value propositions. You may or may not be sure how your client equates those value propositions. And because pricing is so difficult, it is important, I think, to revisit that on a regular basis at least every year. Because that way, if you’re getting it wrong, you only have to live with the mistake for about a year or so.
Mike Blake: [00:03:07] And on the other hand, if you’re getting it right, great, you revisit it, you think about it for five minutes, “I’m good”, and you move on. And pricing has some interesting psychology to it as well, because we are making a statement to the market that we believe our product and service is worth X. And when somebody decides not to buy, whether it is a product or service, they are telling us that they don’t agree that it’s worth X. And that requires some mental toughness in order to kind of sustain yourself through that.
Mike Blake: [00:03:44] So, it’s an important topic and we’re going to get into it today. I was thinking about relaying an anecdote, actually, of a pricing challenge, an event that I just have. Now, I’m going to wait until we do the interview, because I think it will flow better. So, let’s jump into it. Joining us today is John Ray, who is the owner of Ray Business Advisors. John helps small to mid-sized companies, including law firms and CPA firms achieve their profit and growth goals, and God knows we need help.
Mike Blake: [00:04:16] John’s clients come to him to reduce the stress and anxiety, which often comes with day-to-day management of a business. John works with businesses to enhance their pricing strategies and make more money. John also relieves the burden of accounting and bookkeeping and improves business processes. John holds a Bachelor of Arts from Vanderbilt University, a school with a terrific baseball program, an okay basketball program, and a football program that’s lousy and that’s to see what probably is good in almost any other conference.
John Ray: [00:04:46] The longest bear market in history.
Mike Blake: [00:04:47] The longest bear market in history. Although Tennessee maybe giving them a run for their money now, interestingly enough. With honors in English and economics, John is also a studio partner for Business RadioX, voice of the Fortune 500,000 and produces this Decision Vision podcast. He helps business owners plan, produce, and promote their own radio shows and podcasts. And I can tell you that we’ve been very happy with John’s service and the impact that we’ve had and have the opportunity to make in the marketplace and sharing our knowledge.
Mike Blake: [00:05:18] So, you know, as an aside, maybe we’ll probably do a show on this. Should I do a podcast? I can tell you that for us, it’s been a successful activity and one that’s been well worth doing, we’re going to continue doing it for a while. So, if you’re hoping we would go away, sorry. John is very active in the North Fulton community. He sits on the board of the Greater North Fulton Chamber of Commerce and serves in a variety of capacities, including the chairman circle, member of the finance committee, and co-chair of the awards committee. John was named the 2018 Harry Rucker Junior Volunteer of the Year by the Greater North Fulton Chamber of Commerce. John, welcome to the program.
John Ray: [00:05:55] Great to be here. Great to be on the other side of the mic.
Mike Blake: [00:05:58] Yeah. So, I know you’ve been chomping at the bit to sort of jump in here, but I have to ask you, do you know who Harry Rucker Junior is and why the award is named for him?
John Ray: [00:06:08] I have no clue.
Mike Blake: [00:06:09] Okay.
John Ray: [00:06:10] I Googled him, but I couldn’t find him.
Mike Blake: [00:06:12] That’s an honest man right there. So, I guess he was so generous, he wanted all of his volunteer activities to go anonymously. So, there you have it.
John Ray: [00:06:22] Yeah.
Mike Blake: [00:06:22] So, let’s jump into this. I mean, why are we talking about this? You make a living off of helping companies figure out their pricing and correct their pricing, why is it so hard?
John Ray: [00:06:33] Well, first of all, it’s hard, I think, a couple of things. Well, first of all, I don’t know that folks get much training, if any, in pricing. And that’s really odd because of what an impact pricing has on the bottom line. So, studies from folks like McKinsey show that pricing has the biggest variable impact on the bottom line of the business. This is an accounting fact. So, it’s more than cutting expenses, it’s more than let’s do a better job with marketing or converting leads or what have you. So, pricing’s got the biggest impact whatsoever.
John Ray: [00:07:12] Yet, business schools, the last that I saw shows that only less than 10 percent of business schools out there actually have a course, just one course on pricing. So, we put entrepreneurs out there into the marketplace, get them going, and they’re good at customer discovery and they’re good at a lot of things that have to do with the business and if they’re not, they can go easily get those skills outsourced to receive those skills, but pricing is always a problem, because of this lack of training and education that they have once they start a company.
Mike Blake: [00:07:55] Yeah. It’s interesting. You know, going back to my own MBA experience, which was a very long time ago, my diploma is on a cave painting in France someplace. But we learned almost nothing about price. And the only time I remember it ever really coming up in a rigorous way was we did a marketing simulation and we had to do pricing and that was fine as far as it went, right?
John Ray: [00:08:17] Sure.
Mike Blake: [00:08:18] But there’s a limit to that. And I mean, I think you’re so right. In one respect, price is the easiest thing to change about your business, right? You can just decide to do it.
John Ray: [00:08:29] Sure.
Mike Blake: [00:08:30] Now, you may not do it correctly, but you can’t do it almost instantaneously, right? Whether it’s just changing the number you put on your engagement letters or going off the price gun-
John Ray: [00:08:39] Right.
Mike Blake: [00:08:39] … it’s fairly easy to change. In your experience, when people or businesses mispriced their offerings, do they tend to overprice or underprice them?
John Ray: [00:08:50] Underprice. And I’m an example of this, I have to say. I mean, I got passionate about this because-
Mike Blake: [00:08:56] You’re gonna testify, aren’t you?
John Ray: [00:08:57] Yes, I am. I’m going to confess right here. If anybody’s listening, I’m confessing. So, no, I mean, it’s, you underprice what you do, particularly, as you said in the intro, in professional services. Because in professional services, we price our sales and there’s these voices that speak to us that sit on our shoulder and whisper in our ear that says, “Oh, that person’s not going to pay that much. You know, that company is talking to other people”, or what have you. And, you know, you need to knock a little bit off of that. That’s not going to work. And we talk ourselves out of the way we should price.
John Ray: [00:09:42] I think there’s a misconception also that if you lower your price, you’ll get more business. And actually, the opposite is sometimes true because price is an indication of quality. And I could relay a lot of anecdotes about how increasing prices actually increase sales, because suddenly, that the customer base, that product or service was aimed at, saw a lot more quality in what they were being presented than they had previously. So, price is a signal, and it’s actually a marketing signal.
Mike Blake: [00:10:23] There’s a great episode on Frasier, where Frasier and Niles were talking about, I think it was some sort of massage therapist or something. And they’re bragging, basically bragged in terms of the hourly rate, right?
John Ray: [00:10:42] Right.
Mike Blake: [00:10:43] So Niles was saying, you know, “My massage therapist is $500.” Frasier comes in and says, “Mine is a $1,000-an-hour.” And Niles goes, “She sounds fantastic.”
John Ray: [00:10:52] That’s right. Yeah.
Mike Blake: [00:10:54] And, you know, I remember, earlier in my career, you know, one of the services we provide is something called a fairness opinion, which is an appraisal of a business where we have some fiduciary responsibility attached to it. So, there’s liability, so we tend to charge more. First one I ever did or maybe the second one I ever did but for a very friendly client. And I want to make sure I got the business, I underpriced it.
Mike Blake: [00:11:20] I got the business, but my client told me after the fact, he said, “Look, I appreciate the price, but I got to tell you, you almost didn’t get the work because your bid was so much lower than everybody else’s. We were concerned or the board was concerned that you actually knew what you were doing and you could put the requisite time and effort into this exercise. And I had to go to bat for you and say, ‘No. He knows what he’s doing in valuation, he just don’t know anything about pricing.'” I said, “Thanks.”
John Ray: [00:11:49] Right.
Mike Blake: [00:11:49] Right?
John Ray: [00:11:49] Yeah.
Mike Blake: [00:11:50] But, you know, we rarely get insight into that process. But I can tell you that, you know, A, I left about $35,000 on the table, no doubt, a minimum. And B, I nearly got nothing because I was so good at negotiating with myself-
John Ray: [00:12:05] Right.
Mike Blake: [00:12:05] … that I almost negotiated myself right out of that business.
John Ray: [00:12:09] And we’ve all looked at something and said, “That’s too good to be true”, in terms of the price. There’s something wrong. But we rarely take that sentiment and turn it around on our own product or service, right?
Mike Blake: [00:12:23] Right.
John Ray: [00:12:23] So, I think that’s what you’re getting at and it makes tons of sense. And I have never seen anybody. And if you’re out there, please write in and let us know and we’ll stand corrected. But I’ve never seen a business start out by overpricing.
Mike Blake: [00:12:44] We have no e-mail free to write in, by the way. We’re trying to fix that, but write in sort of metaphorically.
John Ray: [00:12:50] That’s right.
Mike Blake: [00:12:52] Or John will give you his e-mail at the end of this podcast, so you can write into there, I guess.
John Ray: [00:12:55] Yeah, there you go.
Mike Blake: [00:12:57] So, we’re over-thinking it, should pricing just be simple as, “Here’s what it costs me to deliver this product or service, here’s the amount of profit I want to make off of it”?
John Ray: [00:13:11] Well, certainly, your revenues have to exceed your costs. So, let’s just start with that. So let’s make the accountants happy and we’re going to agree to that. What I find, particularly in professional services, is that when a professional services provider focuses on pricing relative to the value that they deliver and just getting a piece of the value they deliver and that’s their equation, then they make a lot more money and they really don’t have to worry about their cost because they deliver so much value, generally.
John Ray: [00:13:54] So, sure, it’s important to have a profitable business, but that’s not really what we’re talking about here in getting our pricing right for professional services providers, it’s really about getting a piece of the value that you provide such that you can have a more focused business working with the best clients and not be so stressed, really running a business where you’ve got a bunch of clients where you really don’t want to service a bunch of them, right?
Mike Blake: [00:14:25] Yeah.
John Ray: [00:14:26] 20% or 30% of them, you really don’t want, but you’ve got them simply because you’re getting the revenue out of them. But they’re very low margin clients.
Mike Blake: [00:14:34] And that’s where you get back in the podcast number two, how should I fire my client?
John Ray: [00:14:38] That’s right. My favorite of the series, so far.
Mike Blake: [00:14:42] So, can different clients have different prices for roughly the same product or deliverable? And is that okay?
John Ray: [00:14:50] Absolutely. So, different clients have different values. And it’s okay to price based on those values. And it’s okay to offer options that clients can select, the options based on service levels, speed of delivery of the service, et cetera. In fact, I highly, highly recommend, in fact, demand of my clients that they offer options because that really helps ferret out what you’re getting at. So, I think the biggest mistake a lot of folks make is here’s my price, it’s kind of a fill or kill adversarial situation, right? Either you accept or you don’t. That’s the way the client looks at it, right? I think, Mike, what folks need to understand is that clients love options. They like to select. They like to see what your panoply of services are and come out with what they want.
Mike Blake: [00:15:59] And, you know, I think, perhaps, the best example, and I do this more and more, I offer choices as well, because I find that it enables clients to then choose what they want to do, right?
John Ray: [00:16:12] Right.
Mike Blake: [00:16:12] And when you’re with our clients, you make the relationship less adversarial. But, you know, that rule of three has been embraced for a long time by who I think is the king of price in the airline industry.
John Ray: [00:16:23] Yes.
Mike Blake: [00:16:24] Right? I don’t think there’s an industry anywhere that is more sophisticated about pricing than the airline industry.
John Ray: [00:16:30] Right.
Mike Blake: [00:16:31] And what do they offer on most of their flights? Business class, first class-
John Ray: [00:16:36] Coach.
Mike Blake: [00:16:36] … economy/surf class-
John Ray: [00:16:40] Right.
Mike Blake: [00:16:40] … or steerage. And, you know, they let you choose, right? If you want to have the first class experience and the glass of champagne before the flight even leaves a gate, you pay that. And, you know, if you don’t mind taking an elbow to the back of your head every once in a while on a five-hour flight to the West Coast, you can do that, too, right? And so, you know, the funny thing is, in my experience—and I’m just going to say this sort of on the down low, because nobody’s listening except for the two of us, right?
John Ray: [00:17:11] That’s right.
Mike Blake: [00:17:12] Most often, the most profitable service I offer is the lowest priced one.
John Ray: [00:17:18] And that means you’ve got it correctly priced, right? It’s important to understand that different clients have different values and will value things differently across the spectrum. So, here’s an example outside of professional services, coffee. So, I’m a cheapskate on coffee. I mean, I may buy the dollar cup at racetrack, I’d prefer to wait until I get wherever I am and hope they’ll give me a cup of coffee for free, right?
John Ray: [00:17:46] Then, there’s my daughter at college who’s racking up $5 charges at Starbucks seemingly every half-hour on the half-hour, right? And then, the most expensive cup of coffee sold in the United States the last time I looked was $75 a cup. And it comes from some “exclusive farm in Panama, where they get one crop a year and they have a big party and a tasting at this coffee place in California that serves this coffee and they sell out”. So, I think that’s crazy. But there’s some people that look at coffee as fine wine. So-
Mike Blake: [00:18:28] Yeah.
John Ray: [00:18:28] Right? And that’s cool. That’s their value system. They may have other things that they look at and they’re cheapskates about, but we all have a panoply of values that we ascribe to a lot of different products and services. And so, as professional services providers offering our services, we have to recognize that and price accordingly.
Mike Blake: [00:18:51] So, everyone saw an article pops up, it’s probably click bait, but I’ll probably take that click bait, which is on why hourly pricing is the wrong price for professional services. Do you agree with that and why?
John Ray: [00:19:08] Absolutely. So, hourly pricing, well, it’s wrong on a number of levels. One is that it’s not really the end price. It’s not what a client pays. Clients are interested in what they’re getting in to pay. So, when you deliver an engagement letter and it says, “We’re gonna charge you, the partner time is to $250 or $300-an-hour and the associate time is $125”, or whatever, fill in the blanks, that’s not a price, that’s just half the equation.
John Ray: [00:19:44] It doesn’t tell me how many hours each of them were gonna put into that. It doesn’t tell me what happens when the project blows up and it takes longer than what we thought it was gonna take, which is almost inevitable because things never go the way they are supposed to go, right? So, it’s wrong from that point of view. It is a relic of the industrial age when industrial companies were trying to price get their professional services providers to deliver pricing that they could equate with their inputs, basically.
John Ray: [00:20:20] I mean, I could go in the whole history of it, but the point of it all is that it’s from another age and another time. And what clients are really paying for is not how much time you spend on a project, they’re paying for the grey matter between your ears and your experience and all the things that you’ve seen with other clients. That’s what they’re paying for. I mean, I had this experience with one of your colleagues where I brought a client in. And this was just an exploratory meeting on whether this client ought to sign up to be a Brady Ware client, right?
John Ray: [00:20:56] And in 15 minutes, they gave tremendous help and advice that I think pushed that engagement over in terms of getting that client to sign up. But the point is, is if that were a paying client at that time and that client had been paying by the hour, then the value-to-price ratio would be ridiculous. That client would have gotten much, much, much more value relative to the price they paid than they should have if you’re billing in 15-minute increments.
Mike Blake: [00:21:30] Yeah. And, you know, one of the fallacies then also is that you’re punished for being more efficient-
John Ray: [00:21:36] Right.
Mike Blake: [00:21:36] … which is not the way economics are supposed to work. And, you know, use the accounting example, you know, I don’t think any of our clients are paying for our time or they should not be.
John Ray: [00:21:48] Right.
Mike Blake: [00:21:49] Right? On our tax side, they’re paying for one of two things. One, I’m bulletproof against an IRS audit, right? Or two, I’m exercising my civil obligation to minimize what I pay to Uncle Sam as much as I possibly can.
John Ray: [00:22:12] Sure.
Mike Blake: [00:22:12] Right?
John Ray: [00:22:13] Sure.
Mike Blake: [00:22:13] When you’re a tax client, the client’s are one of those two things, right? They either are terrified of Uncle Sam, they want nothing to do with them or they want to go into combat with Uncle Sam.
John Ray: [00:22:23] Right.
Mike Blake: [00:22:24] Right? And man, if your client would like to go into combat with Uncle Sam, please call us, because, boy, we make a lot of money there.
John Ray: [00:22:31] Sure.
Mike Blake: [00:22:33] And, you know, whether that takes one hour or fifteen hours, it’s the outcome you’re buying.
John Ray: [00:22:37] Right.
Mike Blake: [00:22:37] Right. Not the inputs.
John Ray: [00:22:41] Not the inputs.
Mike Blake: [00:22:41] Who cares? And also, it has to sort of go both ways, right?
John Ray: [00:22:49] Yes.
Mike Blake: [00:22:51] The client’s not going to let you suddenly charge more if something that was supposed to take you 10 hours, you know, takes you 100.
John Ray: [00:22:58] Right.
Mike Blake: [00:22:58] First of all, well, that’s not my problem if you couldn’t get your act together, right?
John Ray: [00:23:01] Right. Exactly.
Mike Blake: [00:23:02] So, by definition, you know, for the most part, some industries are not like this, but many industries, that hourly notion is a one-way street.
John Ray: [00:23:14] Yeah. And, you know, I think technology is such, artificial intelligence is such that I saw one study that this study said was, “In five years, 99% of all bookkeeper jobs would be eliminated.” Then, I think it was the same percentage for tax-prepared jobs. Well, I don’t know that that’s true, but directionally, it’s probably correct because of technology.
Mike Blake: [00:23:39] Absolutely.
John Ray: [00:23:40] Right.
Mike Blake: [00:23:40] I mean, we don’t have people cranking out tax returns by hand and-
John Ray: [00:23:44] Right.
Mike Blake: [00:23:44] … with slide rules and so forth.
John Ray: [00:23:47] Yeah. And so, as technology and particularly, artificial intelligence, links between institutions get more robust, I could foresee a time when tax returns are real time. You can see your tax return in real time as the year goes on, right?
Mike Blake: [00:24:02] Yeah.
John Ray: [00:24:02] And so, the value of a tax preparer, let’s say, comes from the advice they give around that return, not for the preparation of the return. And so, as you say, if you’re pricing by the hour and based solely on preparation of return, your business is headed straight down over the next few years.
Mike Blake: [00:24:25] Yeah.
John Ray: [00:24:25] Period. The pig is in the python, shall we say.
Mike Blake: [00:24:30] Yeah. So, how do you help your clients respond when they have their own customer, client or prospect that pushes back on price? You know, you’re charging me too much, I don’t want to pay that. What are some of the approaches that you advocate to engage in that conversation?
John Ray: [00:24:50] What I tell folks is that if you get that response to a proposal, typically, you’ve not had a great value conversation, because the client’s comparing that price or those prices relative to something other than the value that you’re providing. So, you’ve not done a really good job at marketing your value to that client or getting that client to understand that value. And you don’t have a good sense of where their values are.
John Ray: [00:25:23] And again, you know, it’s kind of interesting. I’ll give you an example of this. I had a client who I was having an exploratory meeting with and, you know, it was going well and he was almost downplaying what he really needed until his wife came in the room. And she was talking about how screwed up he was and how they needed to get their financial act together and their books were a mess and she was sick of it.
John Ray: [00:25:52] And it occurred to me at that point that this man’s value was getting his wife off his back. That had nothing to do with the services that I may have been providing, really, in terms of the way he looked at value. So, the point is, if I had never had an in-depth discovery session with him, I wouldn’t have understood that value and I might have priced my services a lot differently and he might have given me the “it’s too expensive” response, right?
John Ray: [00:26:27] So, you know, I think it’s really important to understand client value. And then, the other thing I tell folks is when a client says it’s too expensive, I say, you know, “Too expensive relative to what? Relative to doing nothing?” Meaning is, what’s the cost of doing nothing for this problem that you were sitting here talking about? Is it too expensive relative to you doing it yourself? See, when you ask those kind of questions back, then you get to the root of where the value really is in that client’s head.
Mike Blake: [00:27:03] So, you know, a lot of it, it sounds like is doing your homework upfront and then, if you get that push back, it means you have more homework that you have to do.
John Ray: [00:27:10] Absolutely.
Mike Blake: [00:27:12] And, you know, that makes sense to me. And, you know, in every case, this goes back to the right client provider match, right? And in some cases, you know, it’s also about letting clients sort of select themselves out, right?
John Ray: [00:27:29] Right.
Mike Blake: [00:27:32] You know, I know you and I have a slightly different viewpoint on this, so I’m going to raise it because I think it will provoke an interesting sidebar here, you know, when a client calls me and they say, “Hey, you know, I’ve got this valuation project, you know, here are the basic parameters, what do you think it will cost?” I will tell them because I want them to then self-select, right?
John Ray: [00:27:57] Sure.
Mike Blake: [00:27:57] In my view, if they have a heart attack over that price, right? Then, there’s no amount of value exploring I can do that’s likely going to bridge that gap, right? And it just saves both of our time. I know you take a different view on that. So, why don’t you explain your view, how you respond to that discussion or what?
John Ray: [00:28:19] I do take a different view on that. And here’s the issue, I’ll look at it and I say to a client, “Look, I’m not sure we’re a great fit, because what I’m sensing here is that you’re looking for a transaction because that’s your first question is what the price is. And I’m interested in relationships, I mean, you know, the way my practice is based. So, we’re probably not a good fit. Let me recommend some folks that might be better fits for you that you ought to have a conversation with.”.
John Ray: [00:28:55] And usually, what happens is, first of all, people are taken aback. Sometimes, they’re insulted. And I tell them I don’t mean to insult them. It’s just, you know, we have different ways of looking at a potential engagement. And I’m not offended when they start with that question. As a matter of fact, I’m happy because they’ve told me that they’re very price-sensitive and it’s probably a client I don’t want.
Mike Blake: [00:29:21] Yeah, absolutely.
John Ray: [00:29:21] Right? So, they’ve done me a favor. So, that’s the way I typically respond. Now, what I would say to you is if you’re going to respond to a price, I think the first price you should name is the absolute highest price you can come up with. So, I don’t know what your engagements cost, but let’s just make this up, okay? So, let’s say the biggest engagement you could ever imagine having is, you know, $150,000. What the way I would respond is, you know, “Hey, our engagements could range from $300,000 to $500,000.” Do you see what I just did?
Mike Blake: [00:30:04] Right.
John Ray: [00:30:04] Right? “On down. So, tell me what what we’re talking about and then, I can quote you a more accurate figure.” And so, then it adjust that conversation back around to where it needs to be.
Mike Blake: [00:30:19] So, let’s talk a little bit then about negotiating price. How do you do that, right? You can’t do business without some sort of negotiation. And, you know, people will haggle over. We’ll haggle over prices for, you know, where they can for things like cars and professional services. What are some tips you can offer to people that maybe aren’t all that comfortable haggling over price?
John Ray: [00:30:49] So, a couple things, I really think it’s important, this is where options come in. If you offer folks options, the good, better, best model, then it really gets into negotiating around service levels, or it should, not price. So, that’s what I highly recommend, is take your services and break them down into a good, better, best, and price around that. And then, the negotiation is about how we’re going to engage. It’s not, first of all, yes or no. And it should not be around price. The levels of negotiation should be what services we’re going to include or take out, depending on which option, either good, better, or best you’re interested in.
Mike Blake: [00:31:48] Well, actually, let me touch on one thing here, because one implicit assumption we’ve had about this entire discussion is that you, as a provider or as a producer, don’t want to compete on price.
John Ray: [00:32:05] Right.
Mike Blake: [00:32:05] But there are some businesses in which the thesis of competing on price is exactly your value proposition, right? And there’s nothing wrong with that as long as that’s sort of the strategy that you’re embarking on and you drive your business in that direction, right?
John Ray: [00:32:21] Sure.
Mike Blake: [00:32:22] You know, just as you mentioned, you’ll tell a prospect that leads off with price that, you know, here, maybe providers that are a better fit because price is sort of the start of their value proposition. I have those in my world as well.
John Ray: [00:32:34] Sure.
Mike Blake: [00:32:37] So, there’s nothing wrong with that, where you can run askew from that as if you don’t want price to be the lead of your value proposition. And then, you get sucked into the trap of the next thing you know, you’re negotiating on price and not on value.
John Ray: [00:32:51] Yes.
Mike Blake: [00:32:53] So, I just had this happen. I posted this on my LinkedIn profile last week and actually gets a post that got me the most engaged in the whole year. So, people felt my pain. And I basically said, “I’m never going to do this again”, which means I’ll probably screw it up in a couple of months. But-
John Ray: [00:33:11] You’re going to tell the story, right?
Mike Blake: [00:33:12] And I’m going to tell the story.
John Ray: [00:33:13] Okay. Good. Good.
Mike Blake: [00:33:13] And the story is that I was asked to bid on a project where I had a relationship with the company, but not the executives, they had some turnover. But we’ve done some work with them before. So, what we were going to do was effectively an update, not a de novo valuation exercise. And they submit a competitive bid, which is fine again, because I didn’t have a relationship with the people, just the company. So, it’s weird. There is institutional relationship, but not personal relationships.
John Ray: [00:33:43] And, you know, they came back to me and they said, “Look, you know, love to work with you, but, you know, this other provider came in a little bit lower, will you match that? You know, if you’ll match that, we’ll work with you.” And I wrestled with that. I slept on it overnight. I’d tell myself, “Don’t do it, don’t do it, don’t do it.” I’m like, “Oh, but the work is going to be fairly easy to do and I hate to lose a client”, right?
John Ray: [00:34:10] Sure.
Mike Blake: [00:34:10] Different from a new client because to me, losing a client is more painful than not getting when you could have.
John Ray: [00:34:16] Yes.
Mike Blake: [00:34:17] I think for me, psychologically, that was part of it.
John Ray: [00:34:20] Right.
Mike Blake: [00:34:22] The word is ego. And against my better judgment, I said, “You know what, yeah, I’ll do that.” But I did one thing right, which is I made them give me back something for the price. I didn’t just match it because I think when somebody says, “Can you do better?” and you just match and don’t give up anything, you’re telegraphing to the world that you’re trying to rip them off, basically, right?
John Ray: [00:34:42] Yeah. Yeah. I couldn’t agree more.
Mike Blake: [00:34:43] Right?
John Ray: [00:34:43] Yeah.
Mike Blake: [00:34:45] But if I can get something back from them, right? Then, it’s a more empowered discussion. I said, you know, “As long as we can do something where I get paid more if the work gets more complicated and you’ll agree to a multi-year contract with us, then I’ll go ahead and do it.” And two days later, they came back to me by email and said, you know, “Another provider came in, they matched your price and they’re not going to charge more even if the work gets more complex.” And for a second, I was a little upset because I did what they said and they didn’t. But after I took a deep breath, I wrote them an email message, “You know what, I think you found the right match for you. All the best.”
John Ray: [00:35:29] Right.
Mike Blake: [00:35:30] And, you know, as I thought about that, it occurred to me that they did me an enormous favor.
John Ray: [00:35:37] Yes.
Mike Blake: [00:35:37] Because that was not going to be the last time that happened between me and them.
John Ray: [00:35:42] Right.
Mike Blake: [00:35:43] And they were going to find some small thing, a spelling error inside of a footnote some place that to them was going to constitute a material error and find a way to break the contract anyway.
John Ray: [00:35:56] Right. Right.
Mike Blake: [00:35:57] And, you know, what they also told me is that their time was not viable. Because of the fact we’ve done work with them before, they’ve been working out to tell us about how their business worked and we had models built, they’re going to have to do that with a new provider. And it is frightening to work with a client whose time is not viable to them.
John Ray: [00:36:18] Oh, yeah.
Mike Blake: [00:36:18] Because they’re going to think my time is not viable.
John Ray: [00:36:21] Oh, exactly.
Mike Blake: [00:36:21] So, I posted it on my LinkedIn that I didn’t get burnt, I got singed because I dropped a few more hours into the proposal process than I should have. But it was actually a good ending, in that, I didn’t get the work and one of my competitors did.
John Ray: [00:36:37] And that time you put into it was tuition.
Mike Blake: [00:36:41] That’s right.
John Ray: [00:36:42] Right?
Mike Blake: [00:36:42] That’s exactly right.
John Ray: [00:36:42] That will help you next time.
Mike Blake: [00:36:44] That’s exactly right.
John Ray: [00:36:45] But what happened there is if you hadn’t had that conversation, right? If you hadn’t had that back and forth, then that client would not have revealed themselves. And it’s really important to get clients to reveal themselves to you.
Mike Blake: [00:36:59] Right.
John Ray: [00:36:59] Right? So that you understand what you’re dealing with. And if you’re okay having, you know, a business where, you know, you’re dealing with misers, because that’s what I call those folks—and by the way, just as an aside, statistically, for goods and services, studies show there’s about 25% to 30% of buyers are misers that they don’t want to pay. And so, it’s really important to understand them. So, because you had that interaction with them, because you had that back and forth, you got a real good picture on a client you really didn’t want at the end of the day. And all you really had to do was deal with, with your own psychology of saying, “Hey, it’s okay to let that one go. I’m better off.”
Mike Blake: [00:37:46] Yeah, that’s exactly right.
John Ray: [00:37:47] Yeah.
Mike Blake: [00:37:48] And I made it public for two reasons, number one, because I thought it was instructive. And number two, I was inviting mockery and the trolls of the internet so that I would be emotionally battered and bruised so much that I’d never, ever, ever do it again.
John Ray: [00:38:05] So, the bad memory of that would keep you from doing that ever again.
Mike Blake: [00:38:09] It was-
John Ray: [00:38:11] Yeah.
Mike Blake: [00:38:11] … intentional PTSD.
John Ray: [00:38:13] I love it.
Mike Blake: [00:38:13] Because I think in that case, it serves a process. So-
John Ray: [00:38:16] And you got all this love from people that have this problem, right? See, that’s what’s so revealing.
Mike Blake: [00:38:21] That’s right.
John Ray: [00:38:22] Yeah. I mean, that’s what’s so revealing to me about that story. One of the things about that story is people come back and say, “Hey, I’ve got that same problem.”
Mike Blake: [00:38:30] Yeah. That’s right. And you and I are both business advisors and, you know, one of the things, I think, a good business adviser does is understand that they make mistakes, too.
John Ray: [00:38:41] Yes.
Mike Blake: [00:38:41] And that they don’t know everything.
John Ray: [00:38:43] Right.
Mike Blake: [00:38:44] Because really, who wants to be around a know-it-all all the time, right?
John Ray: [00:38:49] Right. Particularly, when you know they don’t know it all, right?
Mike Blake: [00:38:51] Yeah, that’s right. It’s one thing if you can back it up.
John Ray: [00:38:54] Yeah.
Mike Blake: [00:38:55] John, we’re running out of time here, but thanks so much for coming on, especially, we’re recording this Christmas Eve here. John, how can people reach out to you if they want to learn more about pricing and get some advice on pricing in the new year?
John Ray: [00:39:08] yourpriceistoolow.com. How about that?
Mike Blake: [00:39:12] I love that.
John Ray: [00:39:13] I’d just put it out there.
Mike Blake: [00:39:15] Okay.
John Ray: [00:39:15] And if you want to go the old-fashioned way, raybusinessadvisors.com will get you to the same place and/or you can call me, 404-287-2627, or I put that challenge out there about folks that feel like they’ve priced adequately from the very beginning, so if you want to email me, let me know about you, we’ll do a podcast with you, maybe.
Mike Blake: [00:39:39] Absolutely. We’ll read your story online as you gloat to the rest of the internet.
John Ray: [00:39:43] That’s right. But jray@raybusinessadvisors.com.
Mike Blake: [00:39:47] So, that’s going to wrap it up for today’s program. I’d like to thank John Ray so much for joining us and sharing his expertise with us. We’ll be exploring a new topic each week. So, please tune in so that when you’re faced with your next executive decision, you have clear vision when making it. If you enjoy these podcasts, please consider leaving a review with your favorite podcasts aggregator. It helps people find us so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision podcast.
