Key Takeaways
- Value is subjective and defined by the customer, not the seller; it’s essential to understand what the customer perceives as valuable.
- Effective selling involves uncovering the customer’s definition of value through careful questioning and active listening.
- Pricing should not be based on the seller’s costs or time but on the value the service or product brings to the customer.
- Return on Investment (ROI) analysis is crucial when discussing pricing; it helps demonstrate how the benefits outweigh the costs.
- The process of selling should focus on creating value for the customer, not just communicating the features of a product or service.
Got Value?
Just like my fictitious card scenario, when it comes to selling our services, many of us agonize and debate over what we’re worth. Here are some actual comments gleaned from a SitePoint forums thread on what to charge: “I would say the minimum for a high-quality, top-of-the-line, static content site with about 10-20 pages would be $1,000.” “You wouldn’t need $1,000 for a 10-page site. I would say more around $175-$200.” “I did a site for a non-profit that had 9 pages, very basic, a form and a guestbook. The cost: $2,500.” “Someone actually paid you $2,500 for 9 pages, very basic, a form and guestbook? I couldn’t do that to someone—it’s like highway robbery.” “A very basic site, no fancy programming, some roll-overs, some framed pages, and some writing. This site cost my client $7,500.” “We generally charge $1,000 for the first page, and $200 for each subsequent pages … we would normally charge at least $3,000-3,500 for a 9-page basic site. And I still think we’re cheap.” “Charging $1,000 for the first page and $200 per additional pages is nonsense when you know how fast this can be done. I think many web design businesses around here are just profiting from the client’s ignorance …” Sales guru Jeffery Gitomer says that, “people don’t like to be sold, but they love to buy.” Concealed within that statement is the fact that people do so only when they find an item that’s valuable to them. It didn’t matter that my Carl Yastrzemski card believed he was worth “at least $150,” and that bent-corner Willie was actually worth a lot more than his fellow cards. Their value is not for them to determine; rather it’s about what the buyer is willing to pay—based on factors such age, condition, availability (that is, scarcity), and popularity of the player. When considering value and worth, many web designers think like this: “If it takes me 20 hours to complete the site and I charge $50 an hour, the site is worth $1,000.” They think that clients are paying for their time—but they’re not. Like bent-corner Willie, they underestimate what they’re really worth. Others are like Carl Yastrzemski. They always think that they’re worth more than the client is willing to pay. They believe that the client should value their services because they spent four years in design school studying for their degree; they’ve mastered Photoshop, XHTML, CSS, Javascript, PHP, and MySQL. They consider their time to be valuable, and deserve to be paid $200 an hour. Guess what? They don’t! In business, you get what you negotiate, not what you deserve. The fundamental point that people miss is the economic reality of pricing. Value is not about you. Price is not a function of your costs or your time involved, it’s about value to the buyer. It doesn’t matter to the client how long it takes you to complete a project, or what it costs you to provide it, or what you think you “deserve” to be paid. What matters is: what’s it worth to the client? Clients buy for their own reasons, not anyone else’s—not yours, and not mine. The bottom line is this: you’re worth exactly no more and no less than the value you can provide to your customer. That’s why you should never base your pricing on “how much your time is worth” or how long it will take you, because your time is irrelevant to your clients; it has no value to them whatsoever. They’re only concerned with, “What’s this website going to do for me?” What will they gain out of it in terms of increased sales, reduced costs, time savings, and so on?Value is in the Eye of the Beholder
So what is value, then? That’s the easy part. Value is whatever the customer thinks it is. Jill Konrath, author of Selling to Big Companies, says that a value proposition always includes movement. She describes that movement in terms of words like “accelerate,” “improve,” “reduce,” “shrink,” and “grow” among others. Here’s a simple definition that sums it up nicely: “If you are increasing or decreasing something that your customer wants increased or decreased, then you are creating value.” Can you save clients time? Can you save them money? Can you increase sales? These economic consequences are called “value.” Value isn’t always about money, but it is always about increases or decreases. So if you can increase or decrease an item that the prospect wants increased or decreased, you have the potential to create value. You see, clients don’t buy your time or your skill at creating user-friendly, aesthetically pleasing, XHTML/CSS-validating websites. Clients buy outcomes, or results. Value is based entirely on the outcome your client wants produced. If you want to be paid “what you’re worth,” you must know what these economic consequences are. Once you understand this—and base your pricing upon it—you’ll truly be one step closer to providing real value to your clients.What’s Truly Valuable to Your Prospects?
I’ve been saying that “value” means different things to different people. If you don’t know what that value is, the solution is not to default to a lower price, but to learn what the perceived value is for each individual prospect you meet. It’s only through collaborating with your prospective client that you’re able to determine what that value is and how it will impact the client’s business. If you ask the right questions, you can easily establish the client’s definition of “value.” I once had a client who wanted me to redesign his existing website (built by a nephew) because he was “too embarrassed” to put the URL on his business card. So what’s the value of “not being embarrassed”? Apparently very little, because my price came in about four times higher than he’d imagined. But over the course of the conversation, I showed him how a website could help him develop new business—not just save him embarrassment. So we began talking about what that meant to him, and his objective changed from “not being embarrassed” to “four new clients a month.” The result? He ended up agreeing to my price, because four new clients a month more than exceeded the higher price I’d quoted.Two Indispensable Tools to Uncover Value
So how do you make your prospect to tell you what you need to know? It’s really easy, actually. Ask questions … then listen for the answer. The purpose of asking questions, or fact finding, is twofold: [1] to discover what your client’s objective is (what they’re trying to accomplish) and how you’ll measure success; and [2] to uncover what the value of achieving that objective means to them personally, professionally, and financially. Remember how we’ve been saying that value means something different to each person, and that you must define what it means to each prospect you meet? With fact finding, that’s exactly what you’re doing. You’re defining an objective or target to hit. One way to do this is ask questions like: “If you’re going to invest money towards internet marketing, what do you want to get back in return?” or “How much do you need to increase business?” For commercial clients, you must quantify that “target” into a dollar amount. If the prospect answers with a statement like, “Five new clients a month,” ask: “What does that represent in additional revenue?” His answer in dollars and cents is an objective definition of the value he places on the solution you’re offering. Once you have all your questions answered, you should have a clearly defined objective from the client. Bryan Eisenberg of FutureNow has compiled this helpful list. The second tool you’ll need to use is the return-on-investment analysis. Why do I consider this so essential? Because if your customer says your price is too high, it’s too high! Unless you have proven value, any price is too high. If your prospect hasn’t considered return on investment, he’ll be focused on price instead of value. The subject of cost must be discussed and agreed upon, but never outside the context of achieving objectives and the return on investment. The goal of a return-on-investment analysis is simple: once you know your prospect’s objective, the return-on-investment analysis will show how the increase/decrease could result in a return that exceeds the cost. Should you quote the price before or after the return-on-investment analysis? I believe after, and here’s why: When my partners and I first started out in the web business, we sat down with a client at a lunch meeting and handed him a copy of the proposal we were there to discuss. He immediately flipped to the last page … you know, the one with the price. He never saw the first 10-plus pages explaining the value of the project, how we were going to met his objectives, and what he’d gain as a result. That’s exactly what you’ll be doing if you talk price before ROI. And if the client thinks your price is too high, you’ll be in the position of having to “prove” value in order to justify the price.From Theory to Application
Let’s have an actual example. This is based on a client meeting I had early in my career. I’ve included what I did ask the client, and what I should have asked, but didn’t. During fact finding, I discovered that, due to lower barriers to entry, new competitors had sprung up. As a result, the client’s market share had begun to shrink. My prospect, the general manager of a structural steel company, told me that he had about six major competitors in the US; that he wanted his site to look more professional than these competitors; and that he wanted to take some business away from them by reaching the top of the search results. Our conversation went a little like this: [JT] : Based on what we talked about, I’m going to build you a 10-page site with case studies showcasing how you solved other clients’ structural steel challenges. We’ll also have a quality assurance page, an FAQ page, and a page where customers can request a quote. We’ll optimize the site for search engines. Once the site is launched, we’ll begin working on ranking you high in the search results. That takes approximately four to six months. When you begin to see an increase in traffic and sales, we’ll move into a maintenance stage, to make sure you keep the ranking you have. We’ll also host the site on our server. How does that sound? [Prospect]: Sounds okay. How much is this all going to cost? [JT]: Creating the entire site, including the case studies gallery, will take me 60 hours. It will take another 30 hours to optimize the site. After that, maintaining your ranking will require about 10 hours a month. So at my hourly rate of $60 an hour, the total cost for the project is $8,000. [Prospect]: Eight thousand? That’s a lot more than I expected to spend! [JT]: How much did you expect to spend? [Prospect]: No more than two or three thousand. Besides, $60 an hour seems fairly outrageous. [JT]: Well, that’s what I charge and my time is valuable. I’ve spent a lot of time perfecting my skills so that I can provide top-quality websites for my clients. You get what you pay for. Would you rather pay less money to produce a lower quality site? [Prospect]: Of course not, but I’m sure I could find a web developer who’ll do just as good a job for less than that. And he probably will. Remember, without value, all you have is price. I went the time-based billing route and failed to do any return-on-investment analysis. Now, let’s imagine that instead thinking about what my time was worth, I’d been thinking about the value I could create for the client. That conversation could have gone like this instead: [JT]: You said that you’ve lost market share over the past few years. How much? [Prospect]: About 10 percent. [JT]: So, if we could generate an additional 10 percent more business, would that make up what you’ve lost? [Prospect]: It would. [JT]: What does that represent in actual dollars? [Prospect]: We’re a three-million-dollar company, so about $300,000. [JT]: What would it mean to you personally if we could accomplish that? [Prospect]: Well, besides making me a hero to the owner, I also receive three percent commission on sales. [JT]: Really? So you’d make another $9,000 a year? [Prospect]: That’s right. [JT]: I imagine that would help towards sending your daughter to college, like you were telling me earlier. [Prospect]: Yep. [JT]: Let me ask you, how much does your average customer spend? [Prospect]: It depends. An average steel job can run about $10,000 to $20,000. [JT]: So if I take the lower figure, that means you need about 30 new customers to make the additional $300K, is that right? [Prospect]: Sounds about right. [JT]: What about repeat business? How many total jobs do you have each year from a typical customer? [Prospect]: Oh, two to three, on average. [JT]: So we really need to gain about 15 new customers, and if those customers buy again at least once more during the year, we’ve reached our goal. Does that sound right? [Prospect]: I think so. [JT]: Okay, let’s talk about what we need to do to make that happen. First, we’re going to build you a 10-page site with a case studies gallery showcasing how you’ve solved other clients’ structural steel challenges. We’ll also have a quality assurance page, an FAQ page, and finally, a page where customers can request a quote. Next, we’ll optimize the site for search engines. Once the site is launched, we’ll begin working on ranking you high in the search results. That takes approximately three to five months. Once you’re ranked where you begin to see an increase in traffic (and sales, of course), we’ll move into a maintenance stage, where we make sure you keep the ranking you’ve attained. We’ll also host the site on our server, so you don’t have to worry about that, either. How does that sound so far? [Prospect]: So far, so good. [JT]: The entire cost for the project is $8,000. In the course of the conversation, we established that the potential value of this project is $300K a year and that, based on the average sale, one new customer will pay for the entire cost of it. So it’s going to be hard for the customer to claim that the price is “too high.”What’s the ROI of Free?
The subject of ROI can be challenging enough with a commercial site. But what about a non-profit client, like a charity, church, or community/government organization? While money is important to these organizations, making a direct profit is not their primary purpose. Remember … value is not always about money. It’s about increasing or decreasing an item your prospect wants increased or decreased. So what type of increases might, say, a church want? How about:- build a strong congregation
- increase their exposure in the community
- reach people new to the area
From Communicating Value to Creating Value
But sales is more than just communicating value—it’s about creating it. Neil Rackham of Spin Selling identifies four value drivers for creating real value for the customer:Uncover an unrecognized problem
Help customers recognize a problem of which they were previously unaware.Offer an unanticipated solution
Help customers arrive at better solutions than they would have on their own.Create or reveal an unseen opportunity
Help customers exploit unseen or unexplored opportunites.Act as a broker of capabilities
Leverage your capabilities and expertise to create value for your customers that your product alone couldn’t have produced. The crucial component to both communicating and creating value is realizing that how you interact with your prospect is more important than what you’re selling. The meaning of value, to paraphrase Rackham, is changing from what the product is to how the product is acquired. In other words, customer perception of value is a result of how they were sold, not what they were sold. Remember, your product or service may be a commodity, but you are unique. Capitalizing on that uniqueness is the key to moving from merely communicating value to actually creating it.Ready, Set, Go!
So, are you ready to adandon time-based billing and embrace value selling? Remember, people don’t buy what we sell, they buy the consequences of what we sell. So go create some value!
John TabitaFormer owner and partner of web firm Jenesis Technologies, John is currently Director of Digital Strategy at Haines Local Search, a company providing local search marketing solutions to SMBs, including print and Internet Yellow Pages, web design, and local SEO. When not working or spending time with his family, John offers great sales and marketing advice on his blog, Small Business Marketing Sucks. When not working or spending time with his family, John offers great sales and marketing advice on his blog, Small Business Marketing Sucks.
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