How to build a company – Client Value Pricing

All companies in our industry want to add value. We all want to be associated with the top-line, that is, with successful strategy execution, with growth, with success. Our clients’ success, reflected in our own. No one wants to be part of the overhead, a cost, only influencing the bottom-line. When you help executives implement strategies, or run their projects, when you strengthen their organisation with new talent or bring focus and energy that lead to desired change, surely you deliver value. And surely those benefits can be measured. Benefits management is a well-developed science. Impressive books have been written about it, most notably by Elizabeth Daniel and John Ward, both from Cranfield School of Management (they published a book in 2006 called Benefits Management), and by Gerald L. Bradley (Benefit Realisation Management).

Benefits Management aims to make sure that desired business change has been clearly defined, is measurable, and that there is a water-tight business case for investment – and ultimately to ensure that the change or outcome is actually achieved. The benefits realisation management methodology fits closely with existing programme and project management approaches such as MSP and Prince 2, and we are using it and it is typically the kind of knowledge we are gladly sharing with our clients.

This is all useful, but for interaction with our customers value is almost a sanity factor. If people connect and interact, based one shared worldviews, ideas and interests of course there is a value. Ideally for both. And that is where it gets difficult. A result of the interaction might be a transaction and usually those transactions are based on time spent, or based on the realisation of pre-defined results. They are always measured in dollars or euros. Sometimes there is a fixed price, but this fixed price is then an agreed amount based on expected time spent (as calculated by one party) and desirable results (for the other party).

This does not always make sense. Sometimes people do things just because they are fun, or seem important. Sometimes people want to give and share, and expect nothing back in the short term (as with open source initiatives), and sometimes it might make more sense to ask clients to evaluate the benefits and value of our efforts afterwards (and decide themselves what we can invoice). We could call this Client Value Pricing of PWYW (Pay What You Want). There are many advantages to this way of working with clients (one of them is that you work with people, not for people), but also risks.

There are many examples. Well known ones are freeware software in the early days, where the programmers would kindly ask for donations (not always in the form of cash; I saw requests for pizza’s, too), but also in the Music business it was tried by different artists. Most famous is the Radiohead album In Rainbows. The results were not too bad, although there was a lot of free-loading. For a band that normally gets around 30% of revenues it was definitely a business model worth considering, and more than anything else Radiohead wanted to make a statement in a rapidly changing industry.

The example of the Berlin bar that has worked with pay what you want for a long time is famous, too. Weinerei Frarosa‘s business is thriving.

In The Netherlands, Martijn Aslander is in demand as a speaker for his ideas on the networksociety, information sharing and innovation. He is guaranteed to inspire, and always leaves it up to his clients to determine the value of what he shared with them. We had him as a guest on one of our WhatsQooking events, and decided that we would pay him partly in cash, and – since he is more interested in access than in assets – partly by connecting him to people in our network.

Tom van Bokhoven, owner of Greenclaim, a company that helps travellers claim refunds from airlines when flights have been delayed or cancelled, cites the reciprocity principle of Roberto Cialdini as his reason to start working with Client Value Pricing.

In fact Cialdini has defined six “weapons of influence” as he calls them:

  • Reciprocity – People tend to return a favor.
  • Commitment and Consistency – If people commit to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as part of their worldview.
  • Social Proof – People will do things that they see other people are doing.
  • Authority – People will tend to follow authority figures.
  • Liking – People are easily persuaded by other people that they like.
  • Scarcity – Perceived scarcity will generate demand.

All of these principles play a role in business, in social networking, in the creation of tribes. In our network, we work with people, and clients in our case are people, not companies, based on trust and based on shared characteristics. Call it DNA if you want. We defined that DNA as URUC: Unconventional (as in autonomous, self directive, responsible), Reliable (as in trustworthy and capable), Uncompromising (determined to be relevant and make a contribution) and Connected (to a network of peers). In such a network Client Value Pricing will work, if only to determine where our value lies, with whom we should work, and to see if we are delivering the value that we think we are.

So yes, we are challenging our clients to determine the price of our services themselves, afterwards. Especially in the field of Search and Recruitment, where years of building a network of candidates, following them and coaching them enables us to match a person to a clients needs, and where the hours spent on a search assignment have nothing to do with the value of that match, or the value of that person to the company he is going to work for, this seems the right approach.

But also for training, for mentoring, coaching and counseling, let someone else decide what benefits we delivered, and what price can be associated with those benefits.

Again, a bit scary, but we will learn a lot. I will write another blog about our experiences, and am interested in what others have done in this field.

Is it a good idea to ask clients to evaluate the benefits and value of our efforts afterwards (and decide themselves what they pay)

(polls)

One Response to How to build a company – Client Value Pricing

  1. […] while ago I have written a blog on Client Value Pricing: the Client can determine the Value of products or services delivered afterwards, and decide what […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: