How to get your pricing right
As we head towards a potentially non trail world, creating a sustainable business requires a remuneration strategy based on just one word… value, says Brett Davidson of FP Advance
Everything I’m about to cover here is predicated on the fact that you have done the work on your segmentation, understand who you work for, what their top five issues are and have put together a solid proposition for them. If that is in place then the pricing philosophy I’m about to describe will make perfect sense.
“It’s never about the price, it’s always about the value.” This could just be a throw away line but it’s not. In my opinion, this is the crux of everything when it comes to your pricing strategy – delivering value. Not necessarily what you consider to be value, but what the client (in fact each client individually) considers to be value.
Here is a précis of client thinking in three easy steps:
1. What is my problem (and how bad does it hurt)?
2. Will your product/service solve my problem?
3. What’s it worth to me if it does?
All you need to be able to do is find out the answers to each of these questions and then you can price your service perfectly. Simple enough eh?
Not exactly. You need to work through the questions in a different order from the client. Your order is not 1, 2, 3. But 1, 3, 2.
1. What is you problem (and how bad does it hurt)?
3. If I can solve that problem for you what is it worth?
2. Let me show you how my product/service can take away your pain and discomfort.
The first challenge is identifying what the client’s problem is. (When speaking with a client you would never call it a problem; it would be a challenge).
Asking great questions is the easiest way to find out what the problem is. Just like a doctor asks the patient what symptoms are presenting, you will need to do the same thing. Most advisers don’t ask nearly enough great questions to really diagnose the problem and how bad it is hurting for the client. That is obviously going to affect their pricing power (or closing rate) later in the sales process.
If you’ve got the diagnosis right and established the level of pain or discomfort the client is in you can try to
find out what it would be worth to the client to have the problem removed. This part is tricky because:
• The clients don’t always know how great things will be after you’re done (the intangibility of advice) so they can’t put a fair price on it
• It can vary significantly from client to client
• You can’t just ask “So what is it worth for me to fix this for you?”
• And if you do ask this question some clients may fib.
But asking some searching questions can help you get a flavour for what this might be worth to the client. Questions like:
• What value can I add?
• What are the criteria for a good solution? OR, what does good look like as an outcome here?
• Is there anything we can’t do?
• What are the implications of doing nothing?
• What have you thought of already?
• What concerns do you have about resolving this issue?
• How will you measure our performance? The better handle you can get on what this will be worth to the client, the better you can position your fees and charges in the final step.
Assuming you have a really solid client proposition that addresses their main issues, you can simply explain how you have treated many people with similar challenges in the past and prescribe them a course of your most appropriate service package.
The value for clients
The value that each client attributes to your service will vary from client to client, but here are some common issues that will be considered valuable by clients:
• Saving them time
• Cutting through the jargon
• Giving them a clearer understanding of their choices
• Calculating a figure or target they can work towards
• Validating a figure or target they have come up with
• Providing a second opinion on their own decision making
• Working alongside them as a trusted strategist – helping them set their future course
• Keeping them on track and in alignment with their real goals in life
• Removing emotional pain or fear about a major financial decision
• Helping them manage their emotional baggage around money.
Naturally, there are some clients that just want to do it themselves but to be honest they are in the minority. Most people have got better things to do than muck around with financial stuff and for many it is a pretty scary topic so you won’t be short of people to work with.
But the people that are prepared to work with you will still need help in understanding what you can deliver and how valuable it will be to them.
The value for you
All the value for you and your business is in the lifetime value of the client. If a 52-year-old client pays you £1,000 per year, their lifetime value to you is £43,000 (if we use age 95 as a reasonable life expectancy).
If a 60-year-old client pays you £10,000 per year, their lifetime value to you is £350,000.
The lifetime value of clients dwarfs the earnings you might generate in year one.
Furthermore, when you factor in the sale value of a client that has that sort of lifetime revenue potential (say two or three times the annual revenue) you are starting to talk serious money upon sale of your client bank or business.
So in a perfect world you want to be creating a business that is focused on finding and securing lifetime value clients. And once you’ve got those clients you don’t want to let them go.
For more information on FP Advance
Subscribe to Adviser Business Review for a chance to win a day’s business consultancy with Brett Davidson. Click here to Subscribe