Episode 151:

In any trade, mastering the work is just the first of many hurdles. But one of the most daunting for most agency owners is pricing. What is the work worth? Who is my competition, and what if they offer services for less? What is the true value of the work we’re doing and what’s the ROI for our client?

There will always be someone (agency or freelancer) who is willing to do the same work for less. But how does that influence our pricing strategy and should it? This episode is all about the value conversation that leads to identifying a price based on the value you are offering. We’re going to dive into both the theories and principles and how to get over the discomfort of putting these pricing principles into practice.

Blair is an expert in sales, particularly in the creative services industry. He started his career working for a number of Canadian ad agencies and design firms. In 2000, he struck out on his own with a consulting practice named Win Without Pitching. In our conversation, Blair will walk us through a framework developed over decades of learning, trying, failing and perfecting value-based selling for creatives.

Blair is the author of Win Without Pitching Manifesto. He has just written a brand-new book called Pricing Creativity. I have spent some time with it, and the cool thing is, it’s not really a book – or more precisely, it’s not only a book. It’s more of a training manual – a three-ring binder full of all kinds of tips, tricks, and the psychology of pricing strategy.

This is a meaty episode and I promise – it’s going to give you plenty to think about.

 

 

What you’ll learn about in this episode:

  • How to effectively price your creative work
  • Why a one-page proposal beats a 75-page presentation every time
  • The value of silence in the sales process
  • Moving from vendor to valued expert early in the sales process
  • Making the closing on the sale a “non-event”
  • The four-step framework for mastering the value conversation
  • How to discipline yourself to not offer solutions too early in the process
  • The mindset shift needed to improve selling skills to become a pricing expert
  • Having value conversations with the right decision-makers
  • How to move from agreeing with sales principles to making them standard practice

The Golden Nuggets:

“If you've never presented a proposal with options in it before, you will quickly notice the difference in response. The client will try to solve the puzzle: which is the best value?” – @BlairEnns Click To Tweet “The pursuit of efficiencies comes at the cost of extraordinary profits.” – @BlairEnns Click To Tweet “The most financially successful agencies have people who are able to master the value conversation. They're not only pricing based on value, they learn to navigate this value conversation with ease.” – @BlairEnns Click To Tweet “Offering one standard price does you a disservice. The brain is wired to make comparisons. So your job is to facilitate the comparison.” – @BlairEnns Click To Tweet “You can't just master the value conversation by reading about it. You have to fumble forward through multiple value conversations.” – @BlairEnns Click To Tweet “Improving your selling skills really comes down to learning how to master that value conversation, which requires a fundamental mindset shift.” – @BlairEnns Click To Tweet “You need to train yourself away from offering solutions. It's almost like an act of meditation where these thoughts come up, and you let them go for now. You let them go because now's not the time.” –@BlairEnns Click To Tweet “The most challenging part is to move away from thinking about solutions. It requires a big shift in mindset to focus foremost on understanding the client’s desired future state, and leave solutions for a discussion down the road.” – @BlairEnns Click To Tweet

 

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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 sure that you get the learning that you need and apply it immediately to your agency.

Right now, we’ve got two courses that are available. We have The Agency New Business Blueprint and we have the AE Bootcamp. So feel free to check those out at agencymanagementinstitute.com/ondemandcourses. Okay, let’s get back to the show.

All right, welcome back, everybody. We are talking about pricing agency services and right before the break, Blair was talking about that there are four conversations that need to happen inside this pricing arc and he outlines this in the book. Can you walk us through the four stages or the four conversations that need to happen and just give us a little hint of what each of those conversations looks like?

Blair Enns:

Yeah. So I view the sale is simply four conversations and I think of them as these linear discrete self-contained conversations that follow each other nice and neatly and cleanly. It’s not always the case. Sometimes it all happens in one. Might be six conversations, but if you use that four conversation framework, then you simply have to ask yourself at any point in the sale, number one, where am I in the sale? What conversation is this? Number two, what is the objective of this conversation? And number three, what framework do I use to navigate to the objective?

So the four conversations in the sale as I see them are, the probative conversation, the qualifying conversation, the value conversation, and the closing conversation. And so I’ll just give you the objective of each of the four. In the probative conversation, the objective is to move from the vendor position to prove your expertise to the client and to move in their mind from the vendor position to the expert practitioner position. When that happens, that moment it happens is known as the flip and anybody who’s listening to this has experienced the flip, where in the beginning of the conversation, the client perhaps has her arms crossed and is dictating to you, “Here’s what I want to know about you and here’s how the scenario is going to work.”

And then things, at some point, usually through asking intelligent questions, things change, the arms uncross, she starts to write things down and the clients might look at each other, a sideways glance. That’s when you know that the flip has happened in the probative conversation. And ideally the probative conversation happens without you present, through your agents of thought leadership or referrers.

The second conversation, the qualifying conversation, think of that as the typical sales conversation where you’re vetting a lead, and my definition is a lead is a clue to a possible sale, to see if an opportunity exists and what the appropriate next steps are. That’s where we would use a standard sales framework of [inaudible 00:37:33], budget, authority, need, timeframe, just to get all the basic questions around, is there really a project here? Is the project a good fit with us? Have they allocated funds? What’s their decision making process?

The third conversation is the value conversation that we’ve talked about a little bit. The objective of the value conversation is to determine the value that you might help to create for the client and what your share in the form of compensation or remuneration might be. And then the fourth conversation is the closing conversation, and the objective is to seamlessly transition from the sale to the engagement. In agency land and probably in the broader sales world, we tend to put all our chips on the closing conversation. We have this buildup to the closing conversation. In creative firms, we build up to the presentation where we’re on stage and we’re performing.

I’m fond of saying, “You can present to people or you can be present to them, but you cannot do both.” So I think the closing conversation, I sometimes refer to it as the transition conversation, because when you handle the previous three conversations well, the closing conversation is just, “Well, here are three different ways we can help. Which one would you like to do?” And you [crosstalk 00:38:52]-

Drew McLellan:

It’s a non-event, right?

Blair Enns:

Yeah, yeah, yeah, which actually some creative people in agency principals, they have a hard time adjusting to that idea that it should be a non-event.

Drew McLellan:

Yeah. Yeah. It’s opposite of what we were taught in a lot of agencies, which is, as you said, everything builds up to the big RFP presentation where 12 people come out of the clown car and [inaudible 00:39:20] for an hour.

Blair Enns:

Yeah. The big reveal.

Drew McLellan:

Right.

Blair Enns:

Right?

Drew McLellan:

Right.

Blair Enns:

And I talk about that in my first book, the Win Without Pitching Manifesto. We’re hooked on the presentation. We’re hooked on the big reveal and it’s all about us in that moment. And it’s really, I believe because it’s in the nature of creative… Another hallmark of creativity is the ability to think on your feet. So we love being in that situation where we’re at the head of the room and we’re presenting stuff and we don’t know what we’re going to have to deal with. I’ve been talking about this for 15 years. My palms still get sweaty when I start talking about it, because I imagine myself up there and I mean, it’s incredible. My palms are sweaty just [crosstalk 00:40:03]. Because we love that. We live for that moment and what I’m saying is, we shouldn’t live for that moment. There should be no big reveals.

There’s only a series of conversations and maybe some small reveals. And that closing conversation shouldn’t be a big deal. It should be a seamless transition from the sale to the engagement.

Drew McLellan:

Well, the good news about that for the listeners is if you are a little more introverted or if you hate sales, that takes a lot of pressure off because now you don’t have to be the big entertainer and have the big act, but you can really just sit down and have a series of thoughtful conversations that move the prospect along. And at the end of the day, in theory, I’ve always thought of the closing conversation as when the client is saying to you, “Okay, when can we get started?” They’re hungry for it because you’ve laid out what’s possible for them.

Blair Enns:

It’s just so logical when two people are sitting here talking about how this should work, isn’t it?

Drew McLellan:

Yeah. So that actually leads me to my next question, which is, all of this makes such sense. When we’re talking about it or when you’re reading about it, you’re nodding your head and you’re going, “Yes, this is the way it should be.” And yet there’s this huge gap between our head nodding and how agency principals behave. What causes the gap? So many agency owners, and I’m sure you’ve had this conversation 8 million times, “That sounds really great in theory, Blair, but that has not been my experience,” or, “That is not how it is in the real world,” or whatever.

Blair Enns:

Or for my market.

Drew McLellan:

Right, right. Of course, my market. Right.

Blair Enns:

Yeah.

Drew McLellan:

Their one city is different than the rest of the world. What causes that disconnect and how do we connect the theory and the practice? Because a lot of agencies know this stuff, but they don’t pull the trigger. Why [crosstalk 00:42:08]?

Blair Enns:

Yeah. So the source of the gap between what people know and what they are able to bring themselves to do, I believe is rooted in the fact that you cannot talk about the subject of pricing without also talking about the subjects of selling and negotiating. Those three topics are intertwined and it was one of the perspectives that I really hoped to bring to this book. I’m a salesperson or a sales consultant to creative professionals first and I’m coming at pricing from that point of view. So I say this in the book, rule number five, master the value conversation. That is the longest chapter of the book, I believe. It’s the one that I spent the most time on, that I had the most people review, and that I feel personally as the author, I feel the most pressure to get that chapter right, because as I already said, the value conversation is where value-based pricing theory goes to die.

You would have better numbers in this than I would, but just anecdotally, when I look at pricing success or profitable firms, I can put them into three different buckets, those who are succeeding financially. Three different buckets in three different levels. The first level is the efficient firm where you’re capturing as many hours as possible and billing as many as possible. You’re going to run into a limit of how much revenue you can generate as an efficient firm where you’re endeavoring [inaudible 00:43:46] and I talk about that in the book. It’s one of the core principles.

Basically the pursuit of efficiencies comes at the cost of extraordinary profits. So you’ve got efficient firms, but then you’ve got the next level of financial success would be those firms that have let go of selling time and the pursuit of efficiencies and who are pricing based on the value they create for their clients. And you see their revenue, their AGI, adjusted gross income per full-time equivalent employee, their numbers just… They break free of this what appears to be a threshold of around $250,000 per person. They’re just going to shatter that thing. That glass ceiling, I guess, is the poor metaphor.

But the third group and the most financially successful are those agencies who have people who are able to master the value conversation. So they’re not only pricing based on value, they learn to navigate this value conversation with ease. I think mastering the value conversation might be the most valuable skill in business period.

I’ve already given you the framework. It’s a four-step framework. In my language it’s, uncover or commit the client to their desired future state, number one. Number two, determine how you agree on the metrics. How will you measure that we’ve achieved these things? Number three, what is the value? Determine the value of hitting these metrics. And number four, offer pricing guidance. That’s it. That’s the framework. It’s one thing to know the framework. It’s one thing to use it. It’s another thing to master it. And it’s tacit knowledge you have to have. It’s not implicit knowledge. You can’t just master it by reading about it. You have to fumble forward through multiple value conversations.

Because, as I said earlier, really what you’re looking for is this complete mindset shift where you’re going into that conversation not thinking about what you might sell to the client. Just letting go of any ideas you have of what you think the client needs or what you might sell and how much money. The value conversation is not the time and the place for that. It’s the gap between the value conversation, after you have the value conversation and the closing conversation. That’s when it makes sense to start thinking that way. So that’s the short answer, not so short answer to your question. Why the source of the gap? It’s because you can’t become a pricing master without also improving your selling skills and improving your selling skills really comes down to learning how to master that value conversation, which really requires a fundamental mindset shift. And the longer you’ve been selling the old way, the longer you’ve been selling time and materials, the harder it is to change your ways.

Drew McLellan:

As I’m listening to you, I’m thinking about how our brain naturally just goes to… And especially if you’re an owner, so you’ve been doing it for a while, in many cases, you in theory know what you need to do to help them. So your brain immediately goes to the deliverables, the tactics, the strategies, whatever it is, and it really requires a great amount of discipline to not go there until it’s time.

Blair Enns:

That’s the word. You just hit on the word. It really is an issue of discipline. It’s ironic because I’m always talking about expertise, as you are too, and the idea of become specialized expert. For the flip to happen in the probative conversation where you’re seen as the expert, usually somebody is reading your thought leadership or a video or listening to your podcast and goes, “Okay, this person really knows what they’re talking about.” In the first conversation in the sale, they seed the higher ground to them. What do we do, Mr. Doctor?

So we’re in this battle where we’re trying to get what I call the power position where you’re seen as the expert in the relationship. So you’ve got this expert mindset, “I need to be the expert,” then you go into this conversation and you need to let go of these things that are a rise from expertise, such as… As my colleague, David Baker, would say, pattern matching. The ability to see, “Oh, I’ve seen this before. I can almost certainly guess at what your problem is.” And from there, guess at what the solution might be. And you really need to train yourself to let yourself think this way. It’s almost like an act of meditation where these thoughts come up and you let them go for now. You’ll come back to them. They come up, “Oh, I’ve seen that before.” You let them go.

But now is not the time. Now is not the time for this. So these thoughts that are the source that arise from your expertise, the fact that you solve the same types of problems over and over again for similar types of clients, these thoughts keep coming up. They arise from this very honest and honorable place, and your job is to let go of them in that moment. You get to come back to them later, but in that value conversation, you shouldn’t be thinking about these things.

There’s a book called, I think it’s called Expert Mind, Beginner Mind that talks about this. And it’s kind of a Zen dualism idea of how to be both an expert and a beginner at the same time.

Drew McLellan:

As I was listening to you, I’m thinking, “You’ve already been handed the expert position, and yet there is something in us that needs to keep proving that we’re the expert, as opposed to just accepting that we have it.” Now we’re panicked, like, “Oh, if I offer some solutions, they’ll see how smart I am or we’re the right choice or whatever it is.” And the reality is when it’s teed up properly, and especially I think if you have really mastered this idea of thought leadership and genuine thought leadership, not one more blog post about the new Pantone color of the year, but real thought leadership.

They’re already giving that to you. And so now just be the expert and help them solve the, what’s it worth? What could it deliver for you? What would you be willing to pay for that? And then to your point, then go back to the diagnosis of, “Okay, how do I actually help them solve this problem?”

Blair Enns:

Yeah. Slow down, say less, reign in your enthusiasm, use the time that you’re speaking to ask intelligent questions. And again, in a value conversation, the answer to, what should I be saying? Is use the framework. Use the four-step framework and then fail forward. The first couple times might be difficult and there are scenarios where I should say this because there are times when people might listen to this and say, “Okay, I’ve got it. I’m on it. I’m completely motivated.” Next day, I’m going in, I’m having a value conversation, I’m going to let go of all these things I should let go of. And then they go in and just the wheel, it doesn’t work. The wheels come off. And one of the reasons it comes off, the wheels come off and you crash and burn to continue the metaphor is it’s very difficult to have a value conversation with somebody who is not charged with future value.

So executives are charged with creating value in the future. Managers are charged with managing processes and budgets. So when you’re trying to uncover the value that might be created here, some managers might get a little… With somebody less than executive, some managers might get a little fidgety and think, “Well, you can ask me all these questions, but they’re really meaningless to me because my job is to bring this in on time and on budget.” So it’s very difficult to have a value conversation with somebody who’s not charged with value creation.

Drew McLellan:

Yeah, really great point. As I said to you I think before we hit the record button, I was pretty sure that I had three hours worth of questions and I have proven myself correct, that we have just scraped the surface of this, but this has been a really great conversation. First of all, thank you for thinking about this for as long as you have.

Blair Enns:

Thanks.

Drew McLellan:

Clearly, this is not something that you have just stumbled upon and I think the depth of your expertise and that thoughtfulness by which you bring this topic up for agency folks, because this is uncomfortable as you know for many… Most agency people would like to do this stuff for free. If somebody would just subsidize their living, they love the work so much, they don’t like talking about the money and you’ve really boiled it down to simple principles that everybody can wrap their head around. And as you say, begin to fail forward [inaudible 00:52:57]. So thank you for that.

Blair Enns:

Thanks for that feedback, Drew. I really appreciate it.

Drew McLellan:

If folks want to learn more about you, if they want to track you down, if they want to buy the book, I know they can get it other places, but they can get it on your website and you have some options of how they can buy it. Again, modeling your own teaching, you have multiple options of how they can buy the book. What’s the best way for folks to track you down?

Blair Enns:

Yeah. So the book can only be purchased at pricingcreativity.com. And as you said, there’s multiple options. I’m proud that it’s the first pricing book in the world that is priced based on the principles in the book. So my idea is that after you buy the book, you’ll go back to that page. You go back to that site and see the principles that I’ve applied.

And we’re also running some pricing experiments on the book itself, and we’ll be sharing the results with the people who buy the book. Some of the data so far is fascinating. So pricingcreativity.com, that will redirect you to a page on winwithoutpitching.com and I’m Blair Enns on Twitter and LinkedIn. So anybody who wants to reach out to me personally, those two social media platforms, but you can learn more at pricingcreativity.come or winwithoutpitching.com.

Drew McLellan:

Awesome. Thank you so much for your time. People don’t know this if they’re listening, but you got up at the crack of dawn to record this. So I’m grateful for that [crosstalk 00:54:21].

Blair Enns:

It’s nowhere near dawn yet.

Drew McLellan:

Okay, at the pre-crack of dawn. Thank you for doing that as well.

Blair Enns:

Yeah, my pleasure.

Drew McLellan:

All right, guys, this wraps up another episode of Build a Better Agency. Blair has given you a lot of things to chew on and to think about. And by the way, this is not something that you need to own completely by yourself in your shop. The book is not really a book. It’s more like a guide. It’s much deeper than an average read of a book. It gives you things to think about. It gives you things to do. It gives you tools by which to do them. One of my goals with this podcast is I don’t want this to be theoretical. I want this to be something that you go and apply and Blair served up a lot of things today that you can go and apply. So please grab some of these ideas, take them back to your leadership team, talk about them, play with them, experiment with them. But without a doubt, I have yet to meet an agency owner who has said to me, “You know what? I just wish we were not making so much money. I’m bummed that we are making as much money as we are.”

So if that’s you, then disregard this episode altogether, but if it is not you and you would like your agency to be even more profitable and if you would like to step away from having to justify how many hours you spend on things, this is it. So go apply it, put it into practice. No, you’re not going to be awesome at it in the beginning, but start and start today. So with that, I’m going to wrap up for today. I will be back next week with another guest who’s going to help you stretch your thinking, add new value into your shop and hopefully help you build the agency that you want to run. In the meantime, you know how to track me down. I’m Drew at agencymanagementinstitute.com. I’ll talk to you next week. Thanks.

All right, that wraps up another episode of Build a Better Agency. Can’t tell you how much I love spending this time with you. Thanks so much for listening. Hey speaking of thanks, another way we want to give thanks is we’ve built a new tool that I would love you to check out. We’re calling it The Agency Health Assessment and basically you’re going to answer a series of questions and based on those answers, the tool is going to tell you in which aspect of your business, maybe you need to spend a little extra time and attention to take your agency to the next level. We’ve identified five key areas that really indicate an agency’s health and we’re going to help you figure out where you need to spend a little more time.

To get that free assessment. All you have to do is text the word assessment to 38470. Again, text the word assessment to 38470 and we will send you a link so you can do that at your leisure. And hopefully that will give you some new insights and some direction in terms of your time and attention in the agency. In the meantime, as always, I’m around if I can be helpful, Drew at agencymanagementinstitute.com and I will be back next week with another great guest and more things for you to ponder. Talk to you soon.

Speaker 1:

That’s all for this episode of AMI’s Build a Better Agency, brought to you by HubSpot. Be sure to visit agencymanagementinstitute.com to learn more about our workshops, online courses, and other ways we serve small to midsize agencies. Don’t miss an episode as we help you build the agency you’ve always dreamed of owning.