How You Can Set Your Business Apart with Value-Based Pricing

I get asked quite frequently about pricing products and services. My default is to advise people to stay away from the time-and-materials model. It really doesn't make sense to price something based on what your raw materials cost, or even how much time it takes.

If you want to be paid by the hour, there are (according to current estimates) about 3 million job openings in the U.S. that pay that way. Why would you start a business to be paid the same as a job you'd work for someone else? Surely you bring more value to the world than that.

Below is a little something that was tacked to my bulletin board for years. I found it in a file this weekend, and it's just as relevant today as when I printed it off and posted it long ago. The old Dilbert cartoon hit me right between the eyes, and it hit me when I happened to be reading Alan Weiss's Value-Based Fees, a must read for consultants.

If you've trained your customers to pay you by the hour, you may be losing business. Many customers fear that, if they call you, the meter will start running. They then must make the decision to call, do it themselves, do without, or call someone else. Weiss's basic premise is that, by employing value-based pricing, you won't become the lawyer in the Dilbert cartoon.


Does value-based pricing work across the board? Probably not, but if you're in a field where you can easily differentiate yourself (coaching, consulting, speaking, training, graphic designer, interior design, legal, accounting, etc.), then it might be worth a try.

Here are some resources for more info:
http://www.accountingtools.com/value-based-pricing - Argues that competition can offer lower prices and take your market share. Duh! The idea is not to train customers to pay LESS. Plus, you can't eat a market share sandwich.

http://www.investopedia.com/terms/v/valuebasedpricing.asp - Does a good job illustrating how value-based pricing could apply to a specialty product.

http://www.ohio.edu/people/gupta/MKT202Kotler/Chapter%2010.ppt - Good overview of different pricing methods.

http://www.slideshare.net/genewhammett/value-based-pricing-ppt-finalchattanooga - Focuses on value-based pricing for digital agencies. Good application for other industries, too.

Copyright 2014, Russ Seagle. All rights reserved.

In Case You're Wondering What I'm Thinking - Travel Edition

It's been a very interesting week with two trips from NC to NY - the first to NYC, and the second to Niagara Falls. Call it poor planning that I yo-yo'd back and forth, but it is what it is. So I decided to make the most of it. As Yogi Berra said, "You can see a lot by looking around." Here are my observations:

  • One of the standard instructions on airlines these days goes something like, "And as an added security precaution, we ask passengers to refrain from congregating in the aisle." It was a lot funnier to hear the flight attendant from La Guardia to Charlotte suggest we not conjugate in the aisle.
  • Public restrooms are architects' way of thumbing their noses at us. No matter how well designed the building, the restrooms are a joke. Given that your luggage must stay with you at all times in an airport, why are the entryways to the restrooms 28 inches wide? I love doing the dance with other men as we try to slip past each other. And whose idea was it to make the stall doors open INWARD? You have to step back into the toilet to allow enough room for the door to swing wide enough for you and your luggage.
  • It pays to be prepared for just about anything. My presentation this morning went off without a hitch, thanks to a conference organizer who had her PC laptop with her. The location, which bills itself as a premier conference facility, had no projection connector for my MacBook. Yeah, I know I should have taken mine, but am I really the first speaker who showed up with a Mac???
  • Conference facilities that host events drawing people from all over the country who have to fly into a major airport 30 minutes away, and no airport transportation? Really? The car rental lobby must be mighty powerful in these parts!
  • Travel can be a miserable experience if you allow it to be. I've seen two groups and two newlywed couples board aircraft to find they're not sitting together. Travel agents can book seats together, and airlines' online reservation systems allow you to pick your seats. So pick 'em!
  • Some airlines now allow you to upgrade your boarding status for a few extra bucks. If you're boarding in Zone 5 (read: last on, no overhead space), pay the money for priority boarding. You don't want to be the one dragging your carry-on back off the plane for a gate check.
  • When in an unfamiliar restaurant, I skip reading the menu. I've started asking the wait staff what their most popular menu items is, and I order that. Not everyone can do this, but my steel stomach enjoys it immensely!
  • Carry a small container of Vick's Vap-o-Rub or some lip balm with menthol. In crowded airports or touristy areas, you're bound to be surrounded by someone whose culture or lifestyle precludes or prohibits the use of deodorant. A dab of this stuff under your nose will help you suppress your gag reflex. Another option is to offer to buy the offender(s) some deodorant. That rarely turns out well.
  • More and more I see people wheeling children around in strollers that probably cost as much as my first car. These behemoths are enormous - the Hummers of the stroller world. They should put one of those beepers on those, like you hear on trucks that are backing up. It would make it safer for everyone.
  • One way to make the world a happier place is to offer to take pictures. Everywhere you go, there's a couple taking turns with the camera or a family with one member who will never be included because they're the designated photographer
    This kind stranger was supposed to be taking my picture in
    front of Niagara Falls. Do you see the Falls? Didn't think so.
    I kept trying to move her over for a better angle, but my hand
    signals were apparently as good as her English.
    . I've never had anyone reject my offer to take their photo together. Just make sure you use THEIR camera, otherwise it's creepy.

Ambition is Service Before Self

Determined. Persistent. Where would the world be without those ambitious people who were willing to put their nose to the grindstone in dogged pursuit of the inventions and innovations that have improved life for us all?

We would likely still be in the dark.

Results? Why, man, I have gotten lots of results! If I find 10,000 ways something won't work, I haven't failed. I am not discouraged, because every wrong attempt discarded is often a step forward.

You've probably seen this quotation (or some variation) from Thomas Edison. Edison prided himself on his dogged temperament. It allowed him only about 4-5 hours of sleep each night. He loved the structured scientific process that many outsiders would view as neverending trial and error. Rather than shut down for the night, he would often work eighteeen hours or more per day, catching brief catnaps between experiments.

(Of course, Edison did not invent the incandescent light bulb, but he did make it commercially viable.)

He considered work his exercise, his play, and his creative outlet. While many today see ambition as the driving force behind the pursuit of money, fame, and power, these things failed to interest Edison. Here's what he said about his work:

I never perfected an invention that I did not think about in terms of the service it might give others... I find out what the world needs, then I proceed to invent....

True ambition seeks not only the highest good of the idividual, but the highest good of others, as well. The world remembers fondly those ambitious souls who made life easier, brought joy to others, or otherwise improved the world they lived in and the world to come.

It's those who would seek only selfish gain who give ambition a bad name. Even when they reach their goals, the outcome is hollow and short-lived. Edison focused first and foremost on the service he could provide to others.

Tipping as Instant Service Feedback


 I've always believed that tipping is the most direct form of employee feedback. It's the quickest way for a hospitality employee to gauge whether he or she is performing well.

Unfortunately, this feedback system is too often undermined by poor tippers. By "poor," I don't just mean those who undertip. There will always be someone who drops a dollar on the table for a $25 check. This is frustrating (and at times maddening) for the server trying to earn a living or pay her way through college by providing top-notch service.

The system really goes off the rails at the hand of the patron who overtips for poor service. A tip is not an obligation, nor is it a right. It's a free market exchange between two parties - one who offers great hospitality, and one who places a fair value on that level of service. Those who tip from a feeling of compulsion often let poor servers off the hook with a good tip. Worse, they validate bad service by short-circuiting the feedback system.

The following link will take you to an infographic courtesy of Nichole Stennes of Hospitality Management Schools.


Tipping: How to Respond to Hospitality

Take this guided tour to learn how to be a better tipper. You'll be doing yourself, servers, and fellow patrons a favor.


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Do You Fit the Profile of an Insane Boss?


This infographic comes courtesy of Sarah Wenger at LearnStuff.com. If you're the boss, have you ever thought of yourself as a psychopath? Chances are, your employees have.

Be sure to check out my suggestions below on how NOT to be the crazy boss who's the reason great people leave.

 Your Boss Is Insane

Created by: http://www.learnstuff.com/">www.LearnStuff.com


If your employees are losing their hair, gaining weight, and keeping regular appointments with their cardiologists, try taking the following actions to turn things around:
  • LISTEN - You have two ears and one mouth. This means you should be listening twice as much as you talk. If you find yourself talking more than listening, start by letting others finish their thoughts. If you agree with them, take action. If you disagree, thank them for their input, and say nothing. You don't need to demonstrate your intelligence, worldliness or status. You're the boss. You won't appear less so by shutting up.
  • TRUST - If you have rotten employees, quit blaming them. They were either rotten when you hired them (and you didn't catch it), or you made them that way. If you trusted them enough to hire them in the first place, trust them enough to use their judgment and do the right thing.
  • LIGHTEN UP - Activity does not equal productivity. Stop pressing people to be busy at all times. There are very few environments where there can (or has to be) perpetual motion. Pressuring people to always be "busy" will indeed cause them to be busy - busy rewriting their resumes and searching for a new job.
  • ENGAGE - Tough economic conditions lead some bosses to believe that the employee needs the job and will therefore work "scared." Regardless the economic conditions, happy people don't leave happy places. Work on making your workplace a happy place. Focus more on happiness than productivity, and people will be more productive than if you focused solely on productivity. Don't believe it? Take a look at Zappos and Google.
  • GIVE A $#!+ - Do you see your people as just another piece of machinery? A means to an end? Do you think feeding and maintaining that "machine" will cost too much money and harm your bottom line? Is caring and showing genuine concern too much to ask? Read here what Google does to create engaged, super-productive employees, then see if that argument still flies.

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Are You Movin' Up or Movin' Out?


In Anthony's Song (Movin' Out), Billy Joel sings of Anthony, who "works in a grocery store, saving his pennies for someday," and Sergeant O'Leary, who walks his beat by day, and "at night he becomes a bartender." He's really singing about everyone running like a hamster on a wheel trying to get ahead.

Both of these men realize the futility of "the day job." They realize they'll never get ahead working for someone else. Mama Leoni tells Anthony to "move out to the country" (because "working to hard can give you a heart attack-ack-ack..."). Sergeant O'Leary may have traded in his Chevy for a Cadillac-ac-ac..., but he can't drive with a broken back (at least he can polish the fenders).

Are you working overtime, saving your pennies for someday (you know, that "house out in Hackensack")? Are you working a second - or even third - job to make ends meet so you can trade your Chevy for a Cadillac? Are you beginning to think it's all for nothing?

In other words, are you trading your life for dollars? Are you selling your time for a paycheck?

Successful entrepreneurs are made, not born. Entrepreneurship is a set of skills that can be learned. Those who've made it have stopped trading time for dollars. They've stopped trying to move up. They've moved out. You can learn what you need to know to make a successful leap.

Job security is a fantasy. Your friends and family will think you're crazy for striking out on your own. Who cares what they think? What's important is what you believe.

What actions are you willing to take? Moving up and moving out both take effort. The difference is this: The effort to move up benefits someone else; moving out benefits you.



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Run THROUGH the Tape

I remember my track coach stressing the importance of running through the tape. If you've been watching the Olympic track and field events, you've seen how many races were decided at the finish, won by those who refused to ease up on the accelerator and leaned forward as they crossed the line.

Many runners - notably speedster Usain Bolt - ease up in the earlier heats when they have qualified and are conserving energy. In the medal heat, though, they step on the gas and lean into the finish, running full speed until well beyond the finish line.

Are you running through the tape? Are you hustling to complete and perfect the customer experience? Are you reaching for excellence? Are you stressing that your people keep running, or do you allow them to ease up when it really counts?

Examples of running through the tape can be seen when you offer to complete the warranty paperwork for your customer, deliver after hours, keep your doors open for the customer who is running late, submit a proposal even when you're on vacation, or eat the cost when your final bill exceeds your estimate.

It's easy to let the phone ring because you've already closed for the day, ignore the table that's been sitting a little too long since finishing their meal, or locking the door five minutes early because it's been "dead" all day.

Running through the tape and leaning through the finish doesn't ensure you'll come out on top, but taking the easy way out guarantees you won't be on the podium when the anthem is played.

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Are You Getting the Right Wow?

For years we've been talking about how to Wow customers. If you've recently flown a commercial airline, visited a large bank, or dealt with a government bureaucrat, you probably said "Wow!" That Wow was likely followed by your palm smacking your forehead.

Your customers could be saying
"Wow! The food was fantastic!"
"Wow! The service was amazing!"
"Wow! She really cared about fixing that problem!"
"Wow! He made that really easy!"

Or, they could be saying
"Wow! What an imbecile!"
"Wow! I'll never go there again!"
"Wow! Her attitude was rotten!"
"Wow! That was the worst experience I've ever had!"

You may be Wowing your customers, but are you sure it's the right Wow?

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Dr. Atul Gawande on Operating Like a Pit Crew

Last year, I read Dr. Atul Gawande's book, The Checklist Manifesto. Gawande, a surgeon, outlines how effective simple checklists have been at preventing infections, reducing death rates, shortening hospital stays, and reducing recovery times. Checklists also played a major role in the safe landing of US Airways flight 1549 in the Hudson River in 2009.

Gawande discusses how complexity has created a world full of specialists (not just in medicine, by the way), and how these specialists fail to work together as a team. We've known for years that silos keep businesses and other organizations from communicating and operating effectively...but we've done a poor job tearing them down.

A few companies like Apple have done a good job destroying silos and opening up communication (Steve Jobs simply fired those who would not work cross-functionally), but on the whole, ego, pride and the need for authority drive how we get things done.

Gawande recently spoke at TED on "How We Heal Medicine." He discussed how complexity has been a key driver of skyrocketing medical costs. Interestingly, complexity tends to drive up costs in other industries, as well. See Gawande's speech here, and you'll get a glimpse of how we can use a simple tool to create simple processes to deal with complex situations. It may be the most informative 20 minutes of your day.


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Is Your Facebook Effort Really Paying Off?

In case you're wondering why all those people who Like you on Facebook aren't beating down your door to actually BUY from you, this interesting blog post from The Ad Contrarian may hold the answer.

As a preview, a recent study shows that Facebook engagement rates are abysmally low. According to the numbers, you may get a better return on an email campaign to your list, or even an old-fashioned direct mail campaign.

The results of this study have given me pause to wonder if the return on social media is worth all the time it consumes.

What do you think? Are you seeing a substantial return on your investment of time and energy in social media? What do your analytics tell you about the engagement rate of your Facebook fans?

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Is There Too Much On Your Menu?

Have you ever been to a restaurant that had a ten-page menu with a wine list that rivaled the thickness of Moby Dick? When the waiter tells you about the specials, you discover there are six? And when you ask what his favorite dish is, he tells you he hasn't tried everything on the menu? All those options, and not a bite to eat!

We love options. As customers, options give us the power to decide what's best for us. We can choose between the small, medium and large. We can have the red one, the green one, or the black one. We can pick a narrow width, a medium one, or a wide one that fits our foot best. Choice is good. Choices so numerous as to overwhelm are not.

Close to fifty percent of the population are what I would call "processors." They have a need to take in all possible information, consider the pros and cons of each option, and ruminate a while before making a decision. Giving them fewer choices can considerably cut down on the time it takes for these customers to decide. What about the other half of the population?

The other half is less analytical and more intuitive. They are more apt to go with their gut. The problem again is that too many choices muddy the water. Intuitive people like picking targets quickly, then shooting from the hip based on recommendations, past experiences or other factors that do not rely on empirical data. They may not need to process information in as much detail, but they still need a manageable number of choices.

In a tough economy or in a tough market, many businesses increase their offerings, believing they are giving their customers more. Not only does this increase slow the decision process for customers, it can also dilute a small company's expertise. You just can't be good at everything. The more you do, the fewer things you get really good at. This is the reason your family doctor will send you to a gastroenterologist when your bellyache symptoms call for a specialist.

Maybe it's time to pare down your offerings - take some things off the menu to make it easier for customers to decide.
  • What are your top five to ten selling products or services?
  • What are the top five to ten products or services that you believe you're best at?
  • Is there overlap in these lists? 
  • What if you focused solely on those things that showed up on both lists?
  • How much revenue will you give up by taking everything else out of the mix? How much more will you make by becoming expert in what remains?

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What Do You Really Need to Know About Your Customers?

Do you get a birthday card from your insurance company? Like Jerry Seinfeld, I'm a tosser, so my card only makes it the few feet from my P.O. box to the recycle bin. I don't care about a card. I want my insurer to answer the phone when I call and offer help when I'm in distress. Like you, that's when I'm most likely to call my insurance company.

Tell me if you've heard this little gem: "If you don't know your customer's kids' birthdays, you really don't know your customer." I'm not sure why so-called marketers trot out this and other similar examples of what you need to know about your customers to truly know them. I've never had a conversation about my customers' kids' birthday. (Maybe I should. I'm just wondering how creepy it would be to broach that subject. Maybe if I owned a toy store, it would be different.)

Would knowing this information make my customer more likely to buy from me again? Would it make a prospect more likely to make her first purchase? Along the same vein are jewels like:
  • You should know their spouse's (or at least their names)
  • You should also know their anniversary, favorite food, where they went to college, where they grew up, and...
Some of these might make for interesting conversation starters (i.e. college), but most of these are useless tripe. Just because you ask someone for their kids' birthdays doesn't make your relationship any stronger. Done right, you don't know any more about how you can help your customer. Done wrong, you may go on some federal watch list!

To know and help your customer, try thinking like your customer. What would YOU want to know about YOU to better help YOU?
  • What did my predecessor do that helped you? What did he do that made you cringe? (One possible answer: He kept asking if he could come to my kid's birthday party!)
  • What have you always wished we would do, but we've always refused or been unable to do?
  • What chaps your hide when it comes to vendors like us?
  • What can we do to make you look good / breathe easier / sleep better / enjoy your job or life more?
  • What pressures are you under that we can help alleviate?
  • If you had to choose our replacement today, what would you look for?
Many dissatisfied customers will never tell you they're unhappy; they'll just leave. Many happy customers will jump ship if something better comes along. Digging down through the symptoms to the source of their pain shows you're interested in helping. Offering solutions to help them shine shows you're capable of adding value. People pay for help. They pay a lot more for value.

Know these things, and your customer won't care that she doesn't get a birthday card from you each year! What do you need to know about your customers to add value to their work and lives?

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Show Employees the Love EVERY Day

March is National Employee Spirit Month, and today, March 2, is National Employee Recognition Day.

Here's a news flash for you: If you need a specifically designated day to show appreciation to your employees, don't bother. In fact, if you want to show some real appreciation, give them the day off to look for a new job. According to a recent Forbes survey, two out of three employees are searching for something better - and we're not talking about 2/3 of your underperformers, either!

Find a way to show appreciation every day. You don't have to write big bonus checks or throw a party every time someone does something noteworthy. A simple "thank you" to acknowledge you've noticed goes a long way. Studies show employees would rather have their opinions and suggestions validated and acted upon than almost anything else.

And before you question the validity of pay increases, keep in mind that studies have shown pretty consistently over the last four decades that increased pay only goes so far. Once an employee gets the memo that you're trying to buy their happiness with more pay, they begin searching.

Each morning, think of one thing you'd like to catch someone doing right. If it happens, acknowledge them publicly. Don't tell anyone what you're looking for. This way, if it doesn't happen, you say nothing.  No one is the wiser, no one is disappointed, and no one feels like they were set up.

An early 1990's management training video starring NYPD Blue's Dennis Franz called "The Sid Story" illustrated this concept called "Planned Spontaneous Recognition." (I encourage you to find a copy of this parable. It's timeless and quite enjoyable.)

What do you do on a regular basis to let your employees know you appreciate them?

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The Power of Being First


Marketers call it "First Mover Advantage." It's the benefits enjoyed by getting there first.
  • It's why the vast majority of computers run on a Windows operating system when there are better systems out there.
  • It's why most word processing is done on MS Word when there are less expensive, comparably functional options available.
  • It's why Apple fanatics are so fiercely loyal, even when presented with the Android alternative.
  • It's why so many people still use Yahoo or Hotmail as their email server, even though Gmail and others offer more options.
  • It's why the greasy spoon down the street is still open and thriving when new competitors seem to struggle.
You can either get there first, or you can get there better. There is no such thing as just getting there. Just being present in the market is no guarantee of success - or even survival.

If you get there first, you still have to be good. There are boatloads of competitors seeking to do it better. Once they do, customers will begin to take notice, and your little monopoly will be dashed.
  • Sun Microsystem's Open Office, Google Apps, Zoho, and others are encroaching on Microsoft's Office package, as many small businesses are discovering the free, open-source options are highly functional and constantly updated in the cloud.
  • Apple is constantly innovating to come up with the next big thing to hold their customers' attention. The pressure is on from Android devices.
  • Competitors of the greasy spoon will succeed when they clearly differentiate themselves from their established competitor by offering a cleaner, more accessible facility, friendlier staff, higher quality food, healthy options, signature dishes, and a system that creates consistency.
Were you there first? Good! Now, work your ass off to stay in front. Don't squander your first mover advantage. Customers are creatures of habit, but they can be moved when the advantages of doing so hit them right in the face.

Not first? Good! You have an opportunity to do something different - something amazing. It has to be clearly articulated so customers will see the differences and advantages of making a change.

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