This blog answers a question posed yesterday:
How does a world-renowned consultant handle a common objection to value-based pricing?
In his case, as you may recall, he charges $100,000 for 6 days of work over a year (proving once again that capitalism is an amazing system).
Sometimes prospects say, “Hey, isn’t $100,000 a lot to pay for only a few hours every month?”
Most of you who posted the responses were correct that the way to approach this is by focusing on value. However, his response is a bit more elegant, and worth remembering:
“Well, I’m happy to spend as much time as you want to get the result, but aren’t you busy with other things to do? Wouldn’t you rather get the result using as little of your time as possible?”
I love that answer! Please file it under your “how to handle objections” file….
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I can appreciate the answer. It is short and to the point. But doesn’t put a slight guilt trip on the person posing the question? If the client was trully focused on this project, then ‘other’ things would be irrelevant.
-Joe
November 23rd, 2004 at 9:03 am
Yes, I’m not sure if his answer is really THAT elegant.
“Wouldn’t you rather get the result using as little of your time as possible?”
Sure, and I’d rather not pay $100k for it, either. ;)
But I appreciate the approach, and understand how it works. Similar ‘value over volume’ approaches have worked for me in the past.
November 23rd, 2004 at 10:00 am
I’m not sure that answer would clinch it for me either. It’s an obvious answer to the objection, but still sounds slightly dubious. But then, I’m highly suspicous of nearly everything.
November 23rd, 2004 at 10:03 am
The answer is witty, but doesn’t really answer the question. The question is more or less “Why are you worth $100k?” The answer is “Because paying me $100k will make you $1M.” Or whatever other value proposition you offer. Entrepreneurs think dollars and cents (sense). Being witty with them will only work on those of them who can appreciate it. The rest will think you’re being condescending and will probably fire you on the spot. Unless you’re a world-renowned consultant, I don’t suggest using this approach.
November 23rd, 2004 at 10:42 am
The answer is witty, but doesn’t really answer the question. The question is more or less “Why are you worth $100k?” The answer is “Because paying me $100k will make you $1M.” Or whatever other value proposition you offer. Entrepreneurs think dollars and cents (sense). Being witty with them will only work on those of them who can appreciate it. The rest will think you’re being condescending and will probably fire you on the spot. Unless you’re a world-renowned consultant, I don’t suggest using this approach.
November 23rd, 2004 at 10:42 am
Part of my “needs analysis” that I do when first talking to a client is to find out the average transaction. If possible, I find out how many customers per day they usually serve, etc. This lets me ask questions like, “If my services can bring you just 3 more customers per day (which results in $x), would my services be worth the price I’m asking?” Oftentimes, $x is a fraction of what I’m charging.
The question needs to be tailored to the client, but oftentimes, asking a couple of questions early on can give you the information to create these types of questions.
Another example. If a business gets phone calls asking for directions to their location or for basic information like, “Do you carry product y?” and gets 15 of those calls per day and pays the person answering those calls $12/hr, you can figure out what reducing those calls will save the client.
If you’re doing value based pricing, you need to state the benefits in terms of the value as well. That’s part of doing value based pricing.
November 23rd, 2004 at 11:43 am
It doesn’t actually answer the real objection. In this situation I think the real objection is that the buyer doesn’t believe that they will receive $100k value in those few hours. His handling of it does little to convince the buyer they will realise this value IMHO.
November 23rd, 2004 at 1:41 pm
I am sure that the consultant is very proud of what he is getting paid and his snappy reply more than shows the extent of his ego. I believe that the recipient of his services would do well to do a bit of research before plunking down that sum of money for so little time spent.
Unfortunately, people are sold on the idea that if it is expensive, it has to have value associated with it. Would you pay a barber $600 to cut your hair? Obviously not, because you know that you can find the same service for about $10 most anywhere. Yet there is a barber (not hair stylist, mind you) in Beverly Hills who charges $600 for a simple haircut. I am not making this up, this guy claims to be the hair cutter for the stars in Hollywood and charges this outrageous fee. Incredibly this guy actually stays busy charging this rate. Personally, I don’t give a rat’s ass whose hair this guy cuts, he is not going to bilk me out of $600 for a lousy haircut. It is only common sense.
Now my point here is that most of society, at one level or another, is incapable of making an educated decision about how to spend their dollars. Hence the effectiveness of advertising and why so many people feel the “need” to drive expensive SUV’s and to keep up with the Jones’s.
Automatically equating high prices with value is nonsense. In truth, most people are just to lazy to take the initiative to do a little homework and extract true value from their money spent.
You can expend all your energy arguing over how much that consultant’s work is worth by how much money he saves his client. If this is true, then why doesn’t he offer the client to work on a commission basis, say 10% of money saved (or earned) for the client as a result of his work AND be willing to pay out of his own pocket should his advice fails to produce results. Betcha he never offered that for anyone! Wonder why . . . :)
November 23rd, 2004 at 4:06 pm
EvilDog,
Would you rather be right or successful?
November 23rd, 2004 at 4:08 pm
If the consultant could give the advise that only he would know and no one else knows, that’s one reason. The other thing is, maybe also that because he’s a world-renowned consultant, it will somehow boost the company’s image for hiring him, maybe intimidate other competitors.
November 23rd, 2004 at 4:34 pm
Yes.
I’d rather be honest and successful. And frankly, what this executive is doing must truly work. If the market bares $100,000 per client, that’s awesome!! Coaches with this much talent are in high demand so it’s a good way for him to know if his client is really serious about changing. Also, as the saying goes, “It’s not how much you spend, it’s how much you save.” $100,000 for coaching or $600 for a hair cut is nothing in comparison to what these guys already have in the BANK.
November 23rd, 2004 at 4:50 pm
I think a lot of you have missed the point that Andrew was making …
“Well, I’m happy to spend as much time as you want to get the result, but aren’t you busy with other things to do? Wouldn’t you rather get the result using as little of your time as possible?”
Read it carefully, it actually does answer the question. It forces the client to think about the value of the service to them not on in terms of money they are investing into the project, but also in terms of time. Money is not everything in the definition of value.
Dont forget that the consultant actually says I’m happy to spend more time with you if you want (dont know if this alters the price any).
But, if the client thinks this through and comes to the conclusion that for a small amount of effort on their part, plus a monetary investment (which is potentially hard to measure when the service is personal development), that they get the results faster, then the consultant has done a very good job of answering the question.
Dont think about the answer like a web developer, think about it as if you were the CEO of a huge multinational company. Time is money. If you spend more money, to get results faster, this is going to be a much more appealing proposition.
And for those of you questioning the credentials and skills of the consultant, he has the backing of the Wall Street Journal and the awarded title of “one of the top 10 executive coaches”. With an award like that, people expect results, they would most likely expect to pay big money for those results as well, because they know (based on testimonial) that this guy is good at what he does.
November 23rd, 2004 at 4:51 pm
I missed the blog post yesterday, so I didn’t see who the consultant is or what he does. I naturally assumed that he was a merketing consultant, considering the theme of this blog. If he’s a coach, his value can’t be directly measured in terms of increased revenues or decreased expenses.
November 23rd, 2004 at 8:48 pm
I agree with mrsmiley. If he would be coaching someone that means he is sharing his knowledge but you are actually applying it. Therefore, you would be learning his knowledge as well and that isn’t just a one time use. It is hard to put a price on an expert who shares knowledge, the value can be well worth the price if he teaches you methods you can apply to several areas and use them again in the future. It all depends on the reputation and experience the coach has and it looks as if this guy a lot of both of those to justify his charges.
November 24th, 2004 at 1:24 pm
Who cares if this guy is worth it or not, people are still paying him $100,000 for a couple of hours a month. Doesn’t that tell you something.
November 25th, 2004 at 6:11 am