Mastering the value conversation with Blair Enns

Speaker 1:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build a Better Agency Podcast, presented by HubSpot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees, and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody. Drew McLellan here with another episode of Build a Better Agency and today the topic is pricing. I know a lot of you wrestle with this. A lot of you feel like A, you don’t have a lot of control over your pricing. Some of you feel like the market that you’re in really dictates the pricing or the industry that you’re in really dictates the pricing. And to some extent that very well may be true, but there may be a different way of looking at this. One of the things I think agencies really have to wrap their head around is this idea of you’re going to do the work and at a certain point in time, what you charge for that work is a variable that you have more control over than you think and that there is an agency out there absolutely that is going to offer to do it for less.

And so I think a lot of times you set your pricing based on what you think other agencies are going to price, and I’m not sure that serves you well in the long run. So my guest today is really an expert in selling and an expert in sales, particularly in the creative services industry. Many of you are familiar with Blair. So Blair Enns runs a company called Win Without Pitching. He wrote the book Win Without Pitching Manifesto, and he’s just written and brand new book. And the brand new book is called Pricing Creativity and it’s not really a book. It’s like a three ring binder full of all kinds of tips, tricks, the psychology of pricing, tactics that you can try. He’s got a rule section, which are, these are the rules that you should follow. He’s got a tool section, which gives you some templates and things to do. But more than anything else, what Blair has always done is Blair has challenged the idea that you have to do business the way everybody else does.

And Blair’s model is certainly forcing agencies to think about how to position themselves differently when they come to talking about selling their services, pricing their services, and how they measure and deliver value to their clients. And so I expect that this conversation is going to get really interesting very quickly because after reading the book, I have pages of notes of things that I want to talk to Blair about, and I have a finite amount of time. So I’m going to try and cram as much as I can into this hour. I am going to pick his brain as quickly and as deeply as he will allow. And he’s a generous guy, so I know he’s going to go into this conversation ready to share and teach. And my challenge to you is I really want you to put aside all of the excuses, all of the rationale, all of the yeah buts that pop into our heads magically, automatically when we start talking about pricing.

Put those aside, if you will, for this hour and just imagine what’s possible. Just listen to what Blair is talking about. And I’m not suggesting that for most of you, you’re going to be able to take this whole thing wholesale and do everything that Blair suggests, but I do believe that every one of you listening will be able to grab elements of this and bake it into how you build out your proposals, how you build out your pricing, the kind of conversations you have with clients, and be able to bake some of this thinking into that process to put more money to the bottom line for you. So the reality is you can sell something for $10,000 or $100,000 and the difference is really the $90,000 you get to keep.

So be open-minded to these ideas and one of the questions I have for sure want to ask Blair is when he talks about all this stuff and when I read it, it all makes perfect sense, but there’s a huge gap between understanding it intellectually and actually doing it. And so I want to make sure we get into that as well. I want to stop talking and I want to jump into the interview because I don’t want to waste any more of your time with just me blathering on. I really want to get to Blair. So Blair Enns, welcome to the podcast. So excited that you are with us to share your knowledge. All right so with that, let’s welcome Blair to the podcast. Blair, thanks for joining us today.

Blair Enns:

No, it’s my pleasure, Drew. I’m happy to be here. Thank you.

Drew McLellan:

So I think everybody listening is probably familiar with you. You’ve been certainly in the space for a long time and talking to us about pricing strategies and sales, but for folks who may not be as familiar with you, give us a little sense of your background. How did you come to be who you are today and sharing the kind of information that you share?

Blair Enns:

Yeah. I grew up in the… Grew up, air quotes, professionally in the advertising business in central Canada. I worked for a bunch of ad agencies. I’m fond of saying I worked for some of the largest ad agencies in the world and some of the smallest design firms later in my agency career. I moved over to the design side. And then somewhere around 2000, 2001, my wife and small family and I moved to this little remote mountain village in British Columbia, and I needed a way to earn a living. So I decided to launch a new business consulting practice. I called that consulting practice Win Without Pitching and it really took off from there. There was something that really resonated about that value proposition, the idea that you can win new business without pitching [inaudible 00:06:28], something I absolutely believed and then learned firsthand in my career.

So in early 2002 Win Without Pitching the solo consulting practice was launched. It was a lifestyle business for many years as my wife and I raised four kids in this beautiful remote mountain location. And then near the end of 2012, I made the decision to transition from a solo consulting practice to a training company. So since early 2013, Win Without Pitching has been a training organization. We run training programs. New business development or sales, depending on your bent and your willingness to use the S word, training programs for creative professionals.

Drew McLellan:

So we’re going to set our conversation today around the new book, which we probably won’t show the video, but if we do, if you folks are seeing me on video, then you’re seeing a copy of Blair’s book, which is really when you say book, it is a misnomer to this tome that you have written. It’s really part workbook, part MBA course in sales and pricing. What prompted you to write the book?

Blair Enns:

Yeah, there were a couple of different prompts at different points in time. And I appreciate you saying it’s more than a book because I charge a lot of money for that book and it’s a lot more than you would charge for a normal book. It’s really more like a pricing system for creative professionals. When I was writing it, I was toying with the idea of, should this be a book or should it be a training program?

It’s really a kind of a training program in a book format, but the dual impetus is at different times where if I go back to the beginning when I was a consultant, I was working with a really highly regarded UX firm in Toronto. And as part of my consulting engagements, I had them share with me copies of their proposals and their proposals were one page. They were one page with three columns. The one proposal I was looking at, column one was $200,000. The column two was 400, I think. And column three was 600 or 650 and I just couldn’t believe what I was looking at. I said, “What does your clients say about these big numbers?” “No, they never say anything.” “They don’t ask you how you came up with them?” “No.” “What did the client choose?” “Well, they chose the middle one with some things from option three. I think we arrived at 475.” And they said, “That’s usually how it works. They usually choose the middle one with some options, some things from option three.”

And for years I had been saying the proposal is the words that come out of your mouth, the document is the contract. And in the creative professions, we’re so in love with the deck and the presentation that when I asked for a proposal, I’m used to getting these 50 or 75 page decks that [inaudible 00:09:22] proposal and contract and sales pitch document.

Drew McLellan:

And by the way, probably give away half of this stuff you should be selling.

Blair Enns:

Oh yeah, yeah. Strategy, free diagnosis, background. Here’s everything we Googled about your company last night. So I’ve been making fun of those things for years. So I’m used to seeing these lengthy proposals and then, “Okay, there’s something we’re going to fix,” because I believe you should come to an agreement in principle with your prospective client, and then you start writing.

But I was looking at this, so I’d asked these questions. This firm, they were skilled pricers and they had worked previously with Tim Williams, who works a lot in the advertising agency space on the subjects of pricing and business models. And that’s where they had learned this. So I started applying… I tacked some of that learning in that moment from my client and consultants are always learning from their clients, right?

Drew McLellan:

Thank God, right?

Blair Enns:

Yeah. It speeds up the learning process. So I taxed some of the learning onto my own neophyte thinking on the subject of pricing, but it wasn’t until 2013, a few years later, when I was onboarding a client into our training program. I was on the phone with the principal of an ad agency in Jersey or outside of Philly. He specialized in pharma and I knew him because he’d come to seminars I’d done before and he’d been a subscriber to our annual webcast for a few years, and we traded a few emails.

So as I was onboarding him into the training program, he said to me, “Blair, I have to thank you. I’ve made a lot of money from your advice over the years.” And I said, “Oh, that’s great.” He said, “No, no. I’ve made a lot of money from your advice.” And I went, “Oh?” So he proceeded to tell me these stories of how he had derailed these million dollar pitches, multi-year contracts and the figures were significant. And I was struck by my own reaction because first of all, I was happy for him, a logical human reaction. Second, I recognized that he was overweighting my role in his success, but I was appreciative of that. But my overriding feeling was, “That’s not fair. You haven’t paid me enough money to have earned millions of dollars from my advice,” because I totaled up what he’d paid me. It was only a few thousand dollars.

And then I had this visceral reaction to my own feeling. And I thought, “Okay, I need to explore this. I need to explore the subjects of value and getting paid based on the value that I create.” So those two moments combined over a few years to just set me on this journey of endeavoring to learn everything I didn’t know about pricing. The end result is years of research. I’m a voracious reader. So I’ve read everything on the subject and applying, experimenting with my own clients. And then a friend of mine who owns a small agency suggested I write the book and that’s how it all came to be.

Drew McLellan:

Yeah. Well, I’m glad you did it. It is a great book. It is thought provoking. It is challenging I think. I think that some of the concepts that you present, it’s easy to nod in theory and say, “Well, yes, of course you should do that.” And very difficult, I think, to apply in real life. And so that’s really where I want to dig in. I want the listeners to get as much counsel on how to actually do this as possible. So one of the sections of the book is the rule section. And actually you just mentioned rule number six, which is any unpaid proposal should be a page or less. Can you talk a little bit more about that? You teed it up in terms of how that idea came to you, but help people understand, what does that one page look like?

Blair Enns:

Yeah. There are six rules. So there are four sections in the book. First is principles and the principles are… The fewest principles that I could distill, all of the pricing theory that I absorbed, distilled down to the fewest principles. So the idea is learn the principles, but then follow the rules. And rules is the second section of the book. And there are only six rules. What I encourage you is to try to follow these rules every time. And as you pointed out Drew, the last one is keep your unpaid written proposals to one page.

So on other rules that [inaudible 00:13:58] would manifest themselves on that one page are the ideas of options. Well, let’s see. The first rule, and it took me a while to determine, if I’m going to order these, what’s the most foundational rule? The first rule is to price the client and not the job. And that means when a client comes to you and says, “What do you charge for X?” You don’t have an answer. You not only don’t have an answer that you share, you don’t have an answer that you tell yourself. You try to let go of any idea of solution, because if you’re charging based on the value you create for the client rather than the inputs of time and materials or the market value, again in air quotes, of your outputs or deliverables, if you’re charging based on the value that you create for your client, and that’s the goal here with the book and that’s the goal with anybody’s pricing strategy, pricing based on the value. Then you will not have an answer to that question, “What do you charge for X?”

Because the answer will be, “Well, that depends.” And it depends on many variables, but the most important variables it depends on are, how much and what forms of value would doing X for you create? That’s the place we want to get to. So that’s rule number one.

Rule number two that will show up, so if I put a one-page proposal in front of one client and then the next day put another one-page proposal in front of another client who has a similar challenge, those prices are going to be different. Not only the prices, but the solutions are going to be different. So I will bundle up specific solutions for the specific client based on their variables and the value that we would create for them and then price it accordingly. So that’s the first thing that you would notice is, and I saw it in that client example I shared with you, the folks in Toronto, their proposals were all different. It wasn’t just a copy.

So that’s the first thing you’ll notice, the prices are different, the solutions are different. The second thing you’ll see is every proposal has options. Usually three, sometimes four, and that’s rule number two. So if rule number one is to price the client, not the job. Rule number two is to offer options because there’s lots of reasons for this, but the most creative firm proposals are essentially take it or leave it proposals. We’ve scoped out your situation, here’s what we would do, and here’s how much it would cost. And the client’s brain isn’t really wired to answer that question. Is what you’re proposing to do worth this much money? Your brain is really wired to make comparisons. So your job is to facilitate the comparison.

Drew McLellan:

Yeah.

Blair Enns:

All your proposals should contain options. That’s the second point. And then the third one that I guess merits talking about here is when you share the proposal, when you walk the client through the proposal, you begin with the most expensive solution first.

Drew McLellan:

Right. [crosstalk 00:17:04] rule number three, anchor high, right?

Blair Enns:

Yeah.

Drew McLellan:

Yeah.

Blair Enns:

Those are those first three rules rolled up in the sixth one of keep your proposals to one page.

Drew McLellan:

So the one-page proposal, because I want to go back and dig into some of those other rules too, but the one page proposal, what you’re saying is basically it’s… And this is something that I’ve been teaching for a lot of time. I think I learned it from Ron Baker, who I know you quote and reference in the book several times too.

Blair Enns:

Stolen shamelessly from, yeah.

Drew McLellan:

He encourages us to do that as long as we say [crosstalk 00:17:40], “Ron Baker taught me,” right?

Blair Enns:

Yeah.

Drew McLellan:

But the whole idea of three options with bullet pointed or whatever the list of the deliverables, not the deliverables, but what are the outcomes? And then with the thought that in most cases, people will choose that middle option. But in any case, it gives the recipient of the proposal the sense that they actually are in control and have some choices and can really customize what we’re doing based on their expectations, needs, budget, whatever it may be. Right?

Blair Enns:

Yeah. And if you’ve never presented a proposal with options in it before, you will immediately notice the difference in response when the client, instead of looking at it and trying to make an assessment and furrowing her brow or whatever it is, immediately goes to work to solve the problem that you’ve put in front of [crosstalk 00:18:38]. Which of these is the best value?

Drew McLellan:

Right, right. Yeah. It gets them over the hump of, “Should I buy?” And now they’re immediately deciding, “Which one should I buy?”

Blair Enns:

Yeah.

Drew McLellan:

Yeah.

Blair Enns:

Yeah.

Drew McLellan:

Yeah. One of the points that you make that I think is worthy of some focus, and I think it’s particularly challenging for agency folks is silence, master silence. It is the most effective thing you can master to get better at sales. Talk to us a little bit about that.

Blair Enns:

Yeah. I think I say it’s the most effective thing that you can easily master. The most effective thing you can master to get better at sales would be the value conversation. And there’s an entire chapter on that. You kind of alluded to… I’ll come back to silence in a second, but you kind of alluded to right off the top, this gap between knowing the principles of value based pricing and applying them. And so the value conversation is where value based pricing theory goes to die. But mastering silence is just one of those things, if you can be the party most comfortable with silence in a conversation, you have a significant advantage because you learn so much in silence.

And so as part of the Win Without Pitching approach to new business, we have people say no, if it’s appropriate to say no, create obstacles in the sale, if it’s appropriate to create obstacle. Voice an objection if you’re thinking. If you think, “I don’t think that’s the right thing to do Mr. Client,” put it on the table and voice it. So whenever you do any of these things, say no, put a hurdle in front of the client, voice an objection. Any of those things should be followed immediately by silence, because in that silence, you learn what the client’s really thinking and you also learn how much power you have in the sale. And there’s, nature abhors a vacuum. So when there’s a silence in the conversation, there’s pressure on both parties to fill the silence.

And in a sale situation, salespeople around the world have been known to fill the silence in that conversation with words like, “But we could do it for less.”

Drew McLellan:

Right, right.

Blair Enns:

It just takes a little bit of practice. If you can learn to be the party that’s… You don’t have to be entirely comfortable with silence, you just have to be more comfortable than the other party. And that’s easy to learn to do.

And every time you do it, you get this… It’s this immediate gratification feedback. So you’ll get better at it quickly and quickly. And you’ll be amazed at the concessions that others will start to give away in that silence, number one. So you’ll obtain concessions. And number two, you’ll just get so much valuable information.

Drew McLellan:

First of all, I think it’s hard for agency owners in general to be quiet and for most of them, it’s just not in their DNA, but you’re right. Especially when you’re putting something in front of another person and asking them to accept it, you immediately want to get to the justification or the negotiation as opposed to just letting it set.

Blair Enns:

Yeah. Marinade in it.

Drew McLellan:

Yeah, yeah. Yeah, yeah, yeah.

Blair Enns:

You said agency principals, it’s hard for them to be quiet. I think that’s part of the creative personality. They’re in problem solving mode. They’re excited. The strength of a creative mind is the ability to bring perspective to problems that others can’t. So you’ve got all these ideas and it’s really hard to shut up and listen or facilitate. If you want to make, back to that gap between knowing how to, excuse me, knowing how to price based on value and actually being able to do it, it’s really mastering the value conversation. And mastering the value conversation, there’s a framework for it in the book, but it’s really a mindset shift because we tend to go into sales conversations thinking about, “Oh, I see the patterns. I know I have ideas for the solutions. I’m going to start matching solutions to the client’s problem or opportunity,” and a creative professional finds it really hard to not share those solutions.

The approach you really want to learn to adopt and mastering the value conversation, which is rule number five, is to just move off of solutions completely. Let go of any idea of what you might do for the client, what you might sell to the client and focus completely on the client. What is the client’s desired future state? How will we measure that? What’s the value that will be created? And if I help to create this much value, let’s say it’s a million dollars in recurring profit, what would be fair compensation for me? So that’s the entire, in a nutshell, that’s the framework for the value conversation. I see the value conversation as the three quarters point of the sale. I see it as the third in the arc of four conversations.

So after that conversation, by the end of that conversation, you still have not thought about solutions and that’s an entire mindset shift. So you painted this picture of the agency principal that has a hard time being quiet, because that person is excited about the solutions that they see [crosstalk 00:24:21] share them. And I’m saying, “Reign it in.” Don’t even let yourself think about solutions until you get through that value conversation. You determine what it is the client wants and how much value you might create by helping them get there. Then you go away, then you start thinking about solutions. So I would hope that if we have these kind of excited agency principals who are excited in the sale and they’re listening to this, one of the takeaways would be, yeah, at that point in the sale, as I’m uncovering what we might do and the value we might create, it’s not about me. It’s not about me sharing ideas. I need to be completely focused on the client.

Drew McLellan:

Yeah. I think every agency owner has had the experience and I know I certainly have where I’ve been sitting across the table and in my enthusiasm have said to the client, “You know what you ought to do? You ought to do blah, blah, blah, blah, blah.” And I just undid my own sale because I just gave it away for free. Right?

Blair Enns:

Yeah.

Drew McLellan:

Yeah.

Blair Enns:

Hands up if you’ve been there. Right?

Drew McLellan:

Yeah, I think we all have.

So value pricing obviously is a hot topic anytime you bring two or more agency owners together and you’re talking about sales. One of the things that I think is interesting is everyone understands it in concept, but the idea of knowing and back to your rule number one, which is price the client, not the project or not the work, how does someone know what the right price is? How does one get from theory to actually putting a dollar amount to the price? So you said, “Okay, if I’m going to deliver a million dollars of recurring revenue for the client. What’s a fair and reasonable cut for me?” How do we figure that out?

Blair Enns:

That’s the magic question. And Alan Weiss, who’s written a book, I think it’s called Value-Based Fees. So Alan Weiss, Million Dollar Consulting, and he addresses that question. He says, “There’s no right answer to it and I’m asked all the time, ‘What’s the appropriate percentage?’ There’s no right answer.” And he says, “If you have to pick a number, start with 20%.”

So if you’re going to create a million dollars in recurring value, or just say… Forget about recurring, a million dollars in value, then start with 20%. So $200,000 as a starting point and then adjust from there. And I really appreciate A, that he threw out a number, especially when I was learning about value-based pricing. It really helped to have a frame of reference. But I also now more fully appreciate why he didn’t want to suggest a number because pricing, if yours is a customized services firm, like most of the firms listening to this podcast, that means you have a small number of clients and every client is a blank slate of opportunities that you could do anything for them and you customize the engagement to them.

If that’s your situation, then you… I don’t know that 20% is the right number. I think you could go a lot higher. So if McKinsey and some of the other large consulting organizations-

Drew McLellan:

Who are eating agency’s lunch these days.

Blair Enns:

Yeah. And so their rule of thumb would be, if we can create ongoing revenue gains or cost reductions, we will take 50% of the first year’s gains or cost reductions. So McKinsey goes, I think it’s irony that if you look at the horrible procurement processes in place, when it comes to procuring marketing and agency services, the irony is in a lot of those procurement services would make it difficult to price based on value.

Drew McLellan:

Absolutely. They want to know what your benefits cost and how that relates to employees and yeah.

Blair Enns:

Yeah. And those strategic sourcing systems or procurement systems were put in place by consultants who sold in that system on a value price based engagement, where they said, “We’re going to come in, we’re going to save you $10 million a year and our fee is $5 million. Half of the first.”

Drew McLellan:

Yeah. We don’t want to go through your process, but we’ll help create it for you.

Blair Enns:

Yeah, yeah, yeah. And we leave this trail of destruction behind us. So I think there’s a lot of irony there, but that’s the… So if you’re proposing to create recurring value or monetary value, 50% of the first year, I would suggest is the starting point.

Now, so I started to make the point earlier that in a customized services firm arriving at the price is more art than science. In a product firm like mine’s a scalable productized services business, it should be more science than art. So if you’re publishing prices on your website, and a lot of agencies are doing that these days, and really shouldn’t be. It’s a big mistake for most of them because they’re tending towards the productized end of the spectrum and I talk about that in the book.

But if you’re putting prices on your website, then you’re probably doing some sort of segmentation analysis of your market and you’re making assessments of how many clients value these things versus that. And if you’re not doing that or you shouldn’t be doing that, if each new engagement is a blank slate of opportunity, then it’s really more art. You’re feeling your way through. You’re using the framework to uncover how much value you might create, but the answer to that question of like, “Well, what’s the price?” If you propose to create a million dollars in value, what’s the price? That’s more art and science. That’s more experience and feeling your way through it. I do have a bit of a hack though that I’m really fond of, and that is at the end of… The fourth step of the value conversation framework is to set pricing guidance.

So before you end the value conversation and go away to assemble, to start thinking about what you would do and what you would charge, you have to offer some sort of pricing guidance and that’s rule number four, I believe. I’m not looking at the book, Drew. Say a price before you show a price.

So you offer pricing guidance and the ideas you offer range. You say, “Okay, I understand what it is that you want. I understand what we will measure to determine if we’re successful. I understand the value that we might create if we’re successful. Now, I’m going to go away and put together some solutions, some different ways that we can help you.” And I’m going to come back with some options and those options are going to be in the Y to X range. So I start with a high number because rule number two is to anchor high.

The first numbers that come out of your mouth should be really high. Start with a wide X range. Now, X might be the client’s stated budget. It might be some other low number, it’s less of an issue of how you come up with the low number. It might be your own minimum level of engagement, but Y is the tricky one. And so my hack is, I call it anchoring against guaranteed value. So here’s the open ended version of the question that you would ask to determine what the highest possibility that Y might be. So if we’re talking about a million dollars a year in recurring revenue, you might say, again, this is the open-ended version, “If I were to guarantee this, if I were to guarantee that we help you create a million dollars in new profit on an ongoing basis, what would that be worth to you?”

And I’m not suggesting you use the open ended version. Let me give you the closed ended version. If I guarantee to you that we created this million dollars a year in recurring value, would you pay us half a million dollars? That’s an example of a closed ended question, but by anchoring against guaranteed value, you’re going to invite a question back from the client. The question is almost certainly going to be, “Are you saying you’re willing to guarantee this?” And your answer should be, “I don’t know yet, possibly. I haven’t thought solutions yet. I don’t know. Possibly, I’ll explore that. But if I’m willing to guarantee it, would you pay us half a million dollars?” And if the client says, “Yeah, if you guarantee it, I’ll pay you half a million dollars, then congratulations, you’re Y in terms of the pricing guidance of Y to X, you’ve just established it.

You’ve established the theoretical maximum that the client’s willing to pay you. So when you come back and present three options with three different prices, each of those prices is going to have an uncertainty discount built in. So if you can guarantee, if you do have a guaranteed option, a contingency payment where client doesn’t pay until you create this value, and that price is going to be 500,000. If you decide you’re not willing to guarantee, it doesn’t make sense, you don’t want to for whatever reason, then you just back the price down. Again, you’re using more art than science saying, “Well, if a guarantee is worth half a million and this is the most we can do, our anchor option, our most expensive option. Or it’s comprehensive where I could take as much risk and uncertainty away from the client as possible, but I can’t guarantee anything.” Maybe you decide that that price of that solution is 350,000.

Drew McLellan:

Right, right.

Blair Enns:

Anchoring against guaranteed value is a way of uncovering the theoretical maximum that the client might pay you for helping to deliver on this value.

Drew McLellan:

Yeah. Awesome. I want to talk about the arc of the conversation and the four pieces of that, but first let’s take a quick break.

I get that Sometimes you just can’t get on a plane and spend a couple days in a live workshop. And so, hopefully our online courses are a solution to that. Lots of video, hours and hours of video, a very dense, detailed participant’s guide, and all kinds of help along the way to make su