Pricing - Part Two: Practices
Following up on Pricing - Part One: Principles, we continue the pricing discussion as a critical strategic piece of leading a successful service-based business. Pricing is all about signaling the economic value you are delivering to your customers and this session will challenge you to look at your pricing in a whole new way.
This series is both strategic as well as very practical so that you can make immediate changes to your business and make pricing a stronger part of your firm's health and growth.
For professional firm owners to apply specific principles when pricing their clients
To learn the key competencies a firm owner needs to price and deliver their services successfully
To learn practical next steps and changes any firm owner can make in deploying their new key competencies to the ecosystem of the pricing in their firms
Speaker(s): Jason Blumer - CEO, Thriveal CPA Network and CEO, Blumer CPAs
Hello, everyone. Welcome to another great webinar from CPAacademy.org. My name is Vaughn Smith. I will be your moderator for today's session on pricing part two with practices. And no, that's not me on the screen. That would be Jason, our presenter. I'm just a girl behind the guy just making sure everything is running a Hey for you guys.
So glad that you guys have taken time out of your day to spend the next hour with us. We have some great information from a fantastic presenter. We really appreciate you all being here with us today and of course we definitely like to thank our sponsor of this great content, bill.com. They always bring a lot of great information to our platform. So we're glad that they are with us today.
Want to make sure that you guys can hear me. You can also see the title slide of the presentation. You can see Jason up there on the screen. So if you don't mind telling me where you're tuning in from and hello in the questions panel, that's over on the right hand side of that go to webinar interface. So go ahead, expand that out. Tell me where you're coming in from so I know we're working.
Oh wow. That just went really quickly. We had a whole bunch of people time in at the same time we had a, let's see west Palm Beach, Florida, not far from Gainesville. Wow. We've got quite a few Floridas in here, but we also have Sacramento, California. We have London, Ontario Canada, Milwaukee, Wisconsin, Boulder Colorado, and some other ones I'm not even going to try to pronounce because that just wouldn't be good. So anyways, thank you guys so much for letting me know that things are working.
If at any time things stop working or if you have any questions for me, go ahead and let me know here in this questions panel. I'll do my best to answer your questions quickly as possible. There are a bunch of you in here today, so it might take me just a moment to get around you but I will address you as quickly as possible. Also, this is a place where you can put questions for our presenter at any time. Go ahead and just put that right into the questions panel.
If we don't have time to answer all your questions, we do send copies over to them after the presentation to see any items that may have been missed. You have a handout available for you to download and follow along with. And this handout will also be available in your CPAacademy account after or well, actually it's in there right now. But you can always check out your account afterwards to see your issued CPE credit within about 24 hours. And you have a copy of this webinar.
Speaking of CPE, this does qualify for one CPE credit. You need to remain logged in for 50 minutes. You will have polls that pop up throughout this presentation. Make sure you answer the poll in that box, hit that submit button so it registers for your credit. I went over my normal introduction, so I'm pretty sure I covered everything. So now we're going to go ahead and welcome Diana from bill.com to go ahead and let get this party started. Thanks.
Hi, I'm Diana Ivet, marketing manager at bill.com. I'm pleased to welcome you to today's webinar Pricing-Part 2 Practices with Jason Blumer. For those who aren't familiar with bill.com. We're a leading provider of cloud based software that simplifies digitizes and automates complex back office financial operations for small and midsize businesses. Our customers use AI enabled platform to manage their end to end financial workflows, process payments, manage cash flows and create connections between their businesses and their suppliers and clients.
We partner with several of the largest US financial institutions, including the majority of the top 100 US accounting firms. And we integrate with leading accounting software providers, no matter what success looks like to your firm, technology and automation have become a necessary a part of the equation. So we've created the automating success masterclass program to introduce you to industry thought leaders who have adapted and thrived to walk you through what it takes to redefine your business for today's world.
I'm excited to introduce today's speaker Jason Blumer. Jason founded Thriveal in 2010 as a way for firm owners to connect. Together with his partner, Julie Ship and their team they support firms in reaching their goals through live events, monthly podcasts, written content, webinars, coaching, consulting, and more. The heartbeat of Thriveal is the online community where firm owners gather to ask questions and share ideas. So please join me in welcoming back to our series, Jason Blumer, CEO of Thriveal Networks and Blumer CPAs.
Very cool. Thank you, Diana and bond for having me again. Love hanging out with bill.com and these automating success webinar series. Of course, this is a part two so we did a Pricing Part 1 which was very fun. So this is actually, I've been diving into pricing, just I've been teaching pricing and doing value pricing for a decade, probably something like that. So this is new content.
I've revamped a lot of things to teach pricing in a whole new way. And I'm real excited that you guys are coming some close to 400 people on the call today. So hello from Greenville, South Carolina, that's where I'm coming from right now. So well, let's dive in a little bit to the agenda and talk through what we're going to be looking at today. So I do want to mention a case study in a minute Klein, Rowe & Co. This is a great case study that bill.com has come up with to give you the context of what a real firm kind of goes through in like a pandemic and their growth story.
It's a really cool case study. So you really do need to read that as you go through this webinar series. And then we're going to talk about pricing. We're going to get a little high level, talk about the conceptual part to pricing competency, pricing concepts, and what those mean. And when people struggle with it, I want to help compartmentalize as to what they're talking about when we get into that.
And then we want to dive into the ecosystem of billing for services and how that's different from the ecosystem of pricing. So that's what we introduced in part one. There's an ecosystem to pricing. It's a lot more than just giving a price to somebody. And so then we're going to go into some of the practices part one, then talk about capacity and efficiency, which has a lot to do with scalability of creative services companies. So the capacity and the efficiency part then we're going to dive into how the ecosystem talks about that.
Then we'll hit a practices part two, and then we're going to do some takeaways and question and answer. So probably my favorite part is question and answer. So I hope you guys will shoot questions into the chat all the way through the end of the webinar. We're going to try to have about 10 minutes at the end to answer a lot of pricing questions that you have. So make sure you do that.
So Diana at bill.com is going to pop this in the chat, but if you will just read this case, study Kline Rowe & Co. That's a fake firm, they made up, but what they did it's a really long story of a firm's growth. It really is. It's a pretty cool case study actually pretty complex, really how it was written, how these people hired, the struggles they hit and a lot of the webinar series that bill.com is doing is intending to solve things that you'll see in this case study firm, Klein Rowe, and Co. So make sure you do read that as you go through this webinar series.
Okay. Let's dive in. All right. So pricing concept and competency. I did this video not long ago. I was starting to... We were working with a client or something. I started talking about the concept of something and then really the competency of something and what those mean basically. And it just hit me that pricing really is a simple concept and it's a difficult competency to master. And so why do I say that? Because in our profession, the accounting profession pricing has been... That's been a hot topic for a number of years. I think all of you know that.
You hear value pricing and how to do it and it's hard and people don't understand it. It really does go pretty deep into a firm. The firm's psyche, it's processes, it's beliefs and value and things like that. It does get pretty deep. What I was going to do is show you a cartoon where one snail was asking another snail, "What's your hourly rate?" And the other snail said, "I don't have one." Now we couldn't publish this cartoon. So I got to explain it.
And when the other one said, "I don't have an hourly rate," the other one just stood there and stared at them. They said, "Well then how do you price services?" And the other snail in this cartoon just said, "I give you a price." And that really is how simple pricing is. It really is in its conceptual value, it is really simple. And so what is a concept? It's really just a general notion or idea to understand what pricing is, but a competency is an adequacy.
It's a possession of a unique skill. So what people are dealing with is when they say, "I don't know how to do value pricing," what they're saying is the competency of pricing is difficult to master. And it is there's a lot of practice and experience you need to go through to figure out how to figure out this competency.
Now it is a simple concept though. There really isn't anything more complicated than giving somebody a price. If you want to charge somebody a thousand dollars for a tax return, you get to charge them a thousand bucks for a tax return. And the client doesn't have to understand why you came up with that price. You don't have to understand it. Your price is not going to be right or wrong. It is going to be simply what you want to get paid. So the conceptual part of understanding pricing is we will exchange something economically and that value is determined by here's a price and here's the thing you get. It is that economic exchange.
With the simplicity of the concept, one foundational thing to understand is that if you don't price, meaning if you bill for services, then you are debunking a lot of the economic value that pricing brings. And you're going to see that in some of the depictions here in a minute. But it really is simple. Just give somebody a price. It doesn't have to be right or wrong, it's not going to be right or wrong because your price is not going to be my price. The competency may be what people are struggling with. Figuring out actually how to do it. Do you make a pricing spreadsheet? How do you roll that into a scoped contract? How do you project manage and manage that contract that you scoped? All those things are difficult.
So a client really doesn't have to understand your price and you don't have to explain it to them. And you guys understand this, you guys deal and live within a world of prices all the time. So you go buy eggs at the store. When you go to the shelf to get eggs, you don't go, "Wait, where did you get this price? And why do eggs cost different prices? Why is one carton priced one thing and another carton is priced another?"
Really they're eggs, they're the true definition of a commodity. And so maybe it's one is free range if that's valuable to you, you'll pay more for that price. But what you don't do as a consumer is you don't go, "You need to show me how you calculated that price for those eggs."
And I know this sounds crazy, pricing is pricing economically. It doesn't matter if it's professional services, a car, eggs, milk, or a house. The point to pricing is it is a signaling of economic value to the world and it's saying, "Do you want this thing for this price?" That's the simple concept of pricing. It's not going to be wrong. It's not going to be right. So this is the conclusion. Accountants simply have to agree that what they want to work with a client for the price they want to get paid in exchange for the work the client wants them to do the work.
All it is is a barter of exchange. That's what it is. And you just have to spend time educating a client to help them understand that the pricing is a simple concept and you don't owe them any explanation as to how you calculate something. But you as a firm owner, the competency to master it is pretty difficult. So Vaughn let's do a poll number one, and then we'll dive into the meat of this webinar.
Okay. Sounds like a good plan. Let's bring that up on your screens now. Nice to know. Where does your firm stand on its journey of embracing the competency of pricing? We have five pools total in this webinar today. This is our first one. Give you guys about 60 seconds to get your responses in. We're about halfway through, we're almost to our voting thresholds. You guys are voting quickly. Thank you everyone. We'll give you guys about another 15 seconds. All right. So we're going to get ready to close this poll down. So get your last minute votes in and three, two and one. Let's see where everybody is at. All right. We have our results on the screen. Do you see those Jason?
Let's see. I think they're coming up now. I'm waiting just a few seconds to see those pull up here.
Well, I can also let you know that we have 52% of the audience as the majority are saying that we're learning regularly and then followed by about 25% saying that they're still novices. So we've got almost three quarters in those two [crosstalk 00:14:10] .
Okay. Okay. Now I see it. So 3% are pricing masters, so that's great. Well, you all, we're in the right webinar talking about pricing. So that looks good. Thank you so much, Vaughn. And we'll have five polls total, as Vaughn said, the first two will share the results. The last three, we won't need to do that. So we'll only share those results one more time.
So let's dive in and I want to do a quick reminder of part one, and I won't spend much time on this, but this was really the introduction of the ecosystem pricing. And so what we did is we showed this red dot. This is pricing and we showed you that there are things you do as a professional services company, if you want to price well and before that comes the preparation of a client before they're priced. And before that comes a lead, basically.
Somebody you're trying to find out of the marketplace, you market everybody, a lead is a human that raises their hand and says, "I have a name. I want you to walk me through the process of pricing." So things happen before you price people. And it is really important. Pricing is such an intimate thing that you have to prepare a human to understand your value, to educate them and so it's a slow process typically to price. You can speed it up in a lot of different ways however, you design your processes, but there is a process a human has to go through before you just slam a price in front of them.
Now, things come after pricing too and this is where you prove the delivery of your price by properly project managing now the scope that you put in the price, and then of course there's delivery of the work too. And so a lot of people and we're actually going to see an ecosystem of billing and how this is kind of a little bit backwards when you're thinking about a billing firm but let me talk about the difference between those pricing is something you always do with a human before you deliver the service. Billing is something you typically do after the service has been delivered.
And that's economically not really the right way to do it. And why is that? Because if you look at your client's journey before they receive a price, they're actually in a state of waiting, a state of faith so to speak. They're like, I desire your service so they're looking forward to a value and once they've paid for it, they no longer have that value anymore. They're now looking forward to the reality and they're feeling the weight of the delivery of the value.
And so that's a major transition point for a person and pricing is what does it. And so pricing is really important. It is the transition point that really signals the value of what you're saying you're going to give to somebody. And it lets that human respond and go, "Yeah, I believe in the value that you're saying, I'm going to get if I work with your firm." So this is the ecosystem of pricing. I think this is an accurate way to look at the journey of a person as they go from the left hand part of the screen, they are priced by your company and then they continue to journey and they see and feel the weight of the value of the price you gave to them. And so it's really important that you price before you give a client a service.
And this is true about humans, that they always find more value in something they don't yet have than the value of something they've already received. And that's some of the emotional intimacy to pricing and why it's so important that pricing is and it sits where it's supposed to sit. Now, let's look at how that can be different.
Now, notice how that changed. This is the ecosystem of billing. So typically in services companies that bill, what they do is they lock off a couple of main pieces to this ecosystem and they don't know that they should be in there because they don't feel like they need them. So typically in a billing firm and this is still a pretty large part of our profession, they bill for services. There's no preparation for the human, there is no slow speed, there's no alignment seeking, there's just, you could dump as many clients into a billing firm as you want.
And that's the main reason why firms get [inaudible 00:18:20] and they're prevented from scaling is because we're dumping in the wrong people to serve. And billing allows you to put the wrong people in your company. So leads come in, they're delivered a service and then they're billed money after the service is delivered. After they've already gotten what they wanted from you, then you just try to have to try to convince them to pay you for what you've done.
So what was missing from this ecosystem, note there is no preparation. There's no work to be done on that person as they're anticipating the value and also there's no project management. These are missing from the system. So what you're doing is you're not now working on the efficiency of the delivery of that service to prove out the value that you pitched and offered when you gave them a price.
And so when you have a billing firm that has left preparation out of this ecosystem, what you've done is you've actually given the client the ability to inaccurately believe they're the leader in the relationship. And that's a major problem in scaling. If you are scaling and you have a group of clients that all want you to do things their way and I can say to you, "Hey, why don't you start pricing for all of your clients tomorrow?" And if you said to me, "They wouldn't go for that." You've just said, your clients run your firm. And that is true and it's true about many, many clients, many firms, and a lot of us get there and it's hard.
But basically if it's that way, the clients have believed they run the firm and it happens the way they want. Well, you can't scale a company that way because there's no consistency in process, there's no efficiency internally to create and generate labor metrics appropriately that produce efficient profit, which we're going to talk about in a minute. But preparation is a major issue if you leave that out. And it also, the firm can identify a price for anticipated value. They don't know what they're leaving on the table basically.
And if no project management is part of this ecosystem, then the client project manages their own services and deliverables. And do you know what that means? That's where the client is harassing you, "Going where's my tax return? Did you do my accounting? Isn't it time for tax planning for me? That is a client taking on a role to project manage a professional firm. And that's a poor relationship. When you have that with a client, when you place the actual burden on them to manage you and your team, if you don't put project management in your firm, you're not going to prove out the value of the price you sold them for doing that work.
So it's really important that project management is a really strong part of the ecosystem of pricing. And of course, when you drop that out, also the firm loses its power to deliver their value. You can't deliver the value the way you want if you don't have a project management system. It's the root to scaling a services company. Now notice down here, pricing is no longer, you see I'm putting a big red circle on it. Pricing is no longer the transitionary point that signals value to that human. The pricing is not in the middle anymore, it's just thrown on the end and it's not even pricing it's billing. Pricing is a function that's done to talk to somebody before service is delivered.
Now I want to point out one more thing on billing is that the location and we kind of have alluded to this, the location of the money exchange that's changed. That money changing hands you all that is so valuable in building relationships is when a price is given and when the money is exchanged and agreed to and not really when the money is exchanged, when there's been an agreement in a written contract, a written document that the price is agreed upon, that is the important transitionary point we're talking about.
And when you throw the money part to the end, the proof of the value delivery, you just basically have given your proof away for no money. You've already given that proof away. The client has what they want. They may or may not want to pay you, they're probably not going to perceive as much value as they would of had you price them. So it is just really important to know this is kind of a jacked up ecosystem. When you have billing, it drops out really important pieces to the pricing ecosystem. So let's do one more poll and then we'll hit some more meat in this webinar.
Hey, we've got poll number two on your screens asking what part of the balance between capacity and efficiency does your firm struggle with the most? Again, this is poll number two. All right. Still got some fast voters in the house. That's good. Give you guys about another 15 seconds. Come on down and get your CPE.
That's good Vaughn
I actually took that from another presenter that I just thought that was always cute when he said this. I was like, "Oh, I'm [crosstalk 00:23:49]." So, all right, let's go ahead and close this poll down. And just to share with everyone where everyone is at, looks like we got 47% saying planning to exchange capacity for the right amount of revenue and 32% saying leveraging a team's most efficient profit production, 21% saying not applicable.
Okay. Very cool. All right. My computer is spinning here, when it's done, then we'll move on. All right. Now that question that we just asked, I wish it would've come after this slide. I didn't think about it, but let's jump back on this ecosystem and dive into the practices. Now this session is a more practical practices session of pricing. So we've done a little bit of review of the ecosystem and how it's not a billing ecosystem. Now let's talk about some practical pieces. So everything before pricing is actually exchanging capacity for a price. So let me explain that. What you're doing, when you're walking a client, a lead through the preparation, up into the pricing. What you're doing as a firm is you are trying to exchange the right amount of capacity for a price.
Now, what is capacity? That's the ability of you as the owner and your team to devote its focus and time to the generation of revenue. And you got to get that exchange right. Firms who don't get that right have a lot of problems. And we're going to talk about that on the next screen in a minute. Now, after the pricing has happened, you're done pricing. Now you're going to prove the value of the price and this is where you start working on the profit side of the company. And as teams grow in service based companies, that's one of mine and my partner's expertise, in helping services, companies scale their businesses. We call these human organizations. These human organizations are really difficult to manage, because it's made up of a bunch of humans. And humans are tricky and humans are not efficient.
So I don't know if you think you're efficient or not but generally humans working in services companies are generally not efficient in the way that they work. Now, lot of people could disagree with me, but I've seen a lot of services based structures and generally, especially as you get larger, teams become more and more inefficient. There's a lot of reasons for that. But well, we won't go into that. We could do a whole webinar on why teams become more efficient as teams get bigger. That is a growth concept and it's a true principle. But what happens with an inefficient team is that profit is starting to be produced inefficiently. And what does that mean? It means your labor costs chew through your revenue. And so how do we know that? Well, when we look at a services based company, we can look at their labor metrics and my partner and I can know immediately they've got some inefficiency issues and that's a real common thing.
Well, how do you deal with that? Well, you do it with a team structure. So what is a team structure? Well, a lot of you may have seen this, right? This looks like an org chart. We teach some traction components. That's a book called traction and we call this an accountability chart or what we may call a team structure. And so the things we were talking about there's pieces to capacity and efficiency. Planning is one and profit is the other. So the planning piece is done before pricing happens. What is the planning? Planning is looking into the future, going the focus and time and the capacity of my team in the future. Where can I exchange their focus and their time and accurately give it to clients in exchange for the right amount of revenue? That planning and exchange is huge to get that right.
So growing and managing your capacity that you give away before you price is a key to your growth. And of course we've already talked about it. Project management is a key to helping you generate the profit efficiently. So when you get the price now from the client and you start on the contract, now you want to produce profit with that team and leverage that team appropriately for a price. And you do that by considering the org chart or the accountability chart.
So let's talk about how you might do that. So practically you want to exchange your capacity for a price as you plan. That's what we're talking about. So as you walk yourself up this org chart, what you're trying to do is take all the capacity of that team and as you're pushing it up through the org chart, you're trying to throw it out into the marketplace and get some money back in return. And you've got to do that right.
So some revenue should not be fulfilled by some of the capacity in your services company. And let me explain that a little bit more. Some of your people's capacity is more valuable than some of your other team's capacity. And so it matters the type of revenue that you give to some of your team in exchange for that team member's capacity. You got to make sure you get that exchange, right or you won't be able to scale your company. And that's really important. So when you have a really important client, you throw your strongest capacity at them. Now, what do you have to do for them? You have to free up their capacity on lower valued revenue and give that to other lower valued capacity in the company and exchange lower valued capacity for easier revenue to produce in an efficient way.
I know this is pretty conceptual, but it's really important to understand that the team members you give clients to is really important. Now on this other side, practically, you want to efficiently produce profit. So now what you're trying to do is all right, so you plan capacity for a price, and that's a skill conceptually that you want to get better at over to time but then when the money comes in the door, on the right hand side of this, the money's in the door now you got the money. You've funded the company so to speak. Now you're going to start having clients deliver and work, or you're going to have your teams start to deliver and work on things for you. You need them to be as efficient as possible. Now, how do you know if they're being efficient?
It's from the capacity planning side. You want to make sure in your capacity planning, you're like, I'm going to need my team to spend 22 hours on this project. And you need to know that in advance capacity planning is always done before the money comes in the company. And once it comes in, then the project management holds them true to the 22 hours. It makes sure the delivery is happening within that 22 hour commitment of exchange that you gave for that revenue. You don't want it to be more you want it to be the right amount of exchange.
Now, so here's what can happen. Let's say you properly planned your capacity exchange when you brought clients in for services. You said, "All right, this project's going to take 22 hours." Great. Here's the price that I should get paid for my team's focus and their 22 hours of commitment to this client.
Great. When you throw that money then into the company and your team spends 52 hours on it, you lost all your profit and the team has spent more time than they should have in the planning phase and they've chewed through every bit of the profit. So what you're going to show is a team that's working inefficiently is not producing the revenue at an efficient rate. Now what happens when that happens? Well, what we've seen in consulting is that as companies grow pretty quickly, they throw a lot of revenue in there as they're working inefficiently what happens is they don't know how to get all the work done.
Now, the team is becoming more inefficient, but they don't know that so they go hire a bunch of people. And so when services based companies grow really fast, they hire a lot of people and they become more and more inefficient and their labor metrics shoot through the roof, they chew through all of their profit, because they've essentially just let the team go off rogue and do what they want and become inefficient.
So on this side, you're exchanging revenue for team capacity. On this side, you're leveraging a team for greater profit. So leveraging a team is really important, but it takes a lot of efficiency management and that's where project management comes in to do that well. So, all right, so now we're in a practices two part of this ecosystem. So we talked about practically, what are you doing before the price where you're planning the exchange of your team's capacity for money and what are you doing after it? You're managing the team and helping them to work efficiently within the planned capacity you already planned out when the price came. Really important. If you get all of this wrong, your price is going to be wrong basically.
And so I hope you see how complicated pricing is. You really do. There's a lot of practical pieces that come before and after it to get it right. Now, there's some other things in between here I want to show you. These are some key competencies that professional services firms need to understand that come in between these sections and some of these you'll recognize. So one thing between leads and preparation is filtering is a competency you want to really get good at.
As you're preparing people to price them, learning how to sell, that is a key competency. And then when you go from pricing to project management, learning how to scope, that is a strong skill that typically the leadership and owners have to maintain and understand, and then processing when a project management system or that project manager, that person has to learn how processes drive the delivery.
And when I say processing, I mean processes. What are your core processes who maintains them who updates them who teaches those, who shows a team how to follow those? So this is it you all. This is not the end of the webinar, but this is the ecosystem. If you came to part one, what you saw were these main components, these main five of components, and you also saw the journey of the client at the bottom and how their value anticipation changes when they see value delivery happen.
Now, what we're doing in this practical session is we're adding these other two practical pieces, this brings the full ecosystem into view. I hope you can see this. You can see how complex this is. There's a lot to work on if you want to be a pricing firm that makes money and knows how to scale appropriately, these are the things you're going to be working on.
And it takes a lot of work to do it. You're going to use a lot of software to try to pull these things off. You're going to have a lot of meetings to pull these things off, you know what a services based company takes to pull this off? Strong leaders. Absent leaders can't pull this off. You can't be a pricing firm, moving to advisory, become an expert and niche down into certain markets unless you have strong leadership. Why? Because leaders are the ones who drive teams through this. Teams are not going to do this. They're not the owners so they're not going to do all of this stuff.
The leaders and the owners of the firm are what keep everybody accountable to working within these practical components and these key competencies to growing your firm. So let's hit another poll question. We won't have to show this one and then we'll dive into what some of this means.
Okay. So poll number three is launched. Does your firm provide bill pay for your clients? Just a reminder. This is poll number three. I feel like I should be humming the jeopardy tune or something right now.
No. In honor of Alex Trubek [inaudible 00:36:31].
Right? Yes, definitely. Because I have a hard time with the silence.
No. Well, a moment of silence as we honor Alex Trubek.
That is true. Very much so. All right everyone. Looks like we are at our voting threshold. We're going to go ahead and close this poll down and Jason, back to you.
All right. Thank you, Vaughn. All right. Let's dive into some takeaways. So we also showed this screen that you're seeing, which is really kind of just an outline view of the ecosystem. I got to show you the other view too. All right. So here's the visual of the ecosystem of pricing. You have it in a handout. If you want to take a screenshot, this is what you're working on.
If you scale your service a as company and you are a pricing firm, if you're a billing firm this doesn't apply. Which I think it's hindering you in your growth. But if you're a pricing firm, this is an ecosystem for a pricing firm. Now just in outline view, that's what this is. The first one we went into leads preparation pricing. Now we're getting into the key competencies in the practical application.
So let's kind of dive into these four key competencies. And now we're in the takeaway section. You're going to see a lot of text here, and this is just going to summarize the takeaways from some of these ecosystems. All right. So let's pop those on the screen. So filtering, basically we already said this and you could tell on the view, filtering comes between leads wanting to be clients in the preparatory onboarding phase of clientship.
I made up that word clientship. Is that a word? It is a word now, because I made it up. No, but I love clientship. Basically you know what that is? It's inviting a client into a relationship and letting them know they have a responsibility. So this is not, "Hey client do with me what you want." No, this is, "Hey, we're two willing parties, our pricing is the indication of the value we think you're going to get in exchange for the money you're going to give us."
This is a clientship relationship. You have responsibilities. If you want to pull off the efficient creation of profit and leverage your team appropriately, you're going to need your clients agreeing to the responsibility and working in partnership with you or it's not going to work. Filtering is making sure you find those people and filtering is making sure you don't let people who are not like that into your professional services firm. Services firms can't scale and they're gladed if they have clients that are going rogue in doing what the client wants, not how the firm leads them. That's a key component.
So all of these bottom rows are going to say professional service firms are meant to. So now the bottom part of these is I'm placing the burden on you as a services firm owner. This is kind of what you're meant to do if you want to do this well. Professional services firm, you're meant to filter out the wrong client. That's a responsibility you have. Every client is not a right client. Every dollar is not the right money. Not all money is, is appropriate for you to take into your firm. Why? Because it always comes with a human with beliefs and either a lack or an agreement of the clientship, the responsibility they're agreeing to step into.
Selling. What is this? I think you know what this is. This is an educational responsibility of a firm to price services before work is even begun. Just pick a price, right? That's the easy concept to pricing. Just give them a price. Now you're going to get better at that over time. And so professional services firms are meant to follow the economic principles of value so that the clients are aware of what they're purchasing.
Let me just point out the economic principles of value. You guys already know what those are. Because you buy stuff, all of you buy things for a price. Most every interaction we have in our life when we consume goods or services is through an appropriate economic value of saying, "I want that. How much is it? I'll make the decision if I can make the exchange." If you ever take that away from a client, they can't be good clients and you can't care for them appropriately. And that's why billing is really difficult when you give away the house and go, "Oh, will you pay me for that?" It's like, well you've broken all of the economic subjective nature and the intimacy of what pricing brings. So scoping. This is a strong competency for firms. You got to get really good at scoping.
And this is basically taking the agreed upon pricing pitch, what you pitch to them and documenting that in a written contract. So you should never be working with a client giving you money without something written that you both signed. And I don't care if that puts pressure or responsibility on you, that's what you should be doing. That's how you care for people is to scope your relationship with them.
I think it's wrong to go into a relationship, not having told your client what you're going to do with them. How do they know if they're going to get what you say they're supposed to get, you need to write this stuff down and scoping is the responsibility of the services company, not the client. The client is in a consuming position which means I've given you my money, I want all the value I can get from you.
That is the clientship responsibility of that client. Your job is to protect your firm, protect the production of efficient profit with your team, leverage them appropriately, you're to manage your own scope and be bold enough with leaders to let the client know, "Hey, I think that's outside of the written scope we've all agreed to," and that's how you keep your firm healthy. I mean I've heard many people say our firm goes above and beyond. Well that's foolish. You should not go above and beyond. You should fulfill your contract. That's your job. And that's how you scale a services company.
Processing is also important. This is really managing the written processes in the project management workflow system that ensures accurate and efficient delivery. This is processing and having a project manager is a gift to a team. It's showing your team you love them. It's saying, "We will not confuse you, we won't let you live in confusion," and so it's the responsibility of the professional services firm to embrace their team but to hold them accountable. And you can do both of those things at the same time. You can hold humans, you care about accountable to do their work in efficient ways and keep them within the guardrails of inefficiency because humans will always go rogue they want to go do it the way they want to do it. But guess what? As a team member, when you join a services firm, you're agreeing to abide by the values, the vision, the processes of that company.
And if you don't have vision and values and processes and a project manager, your team has no freaking clue what they're supposed to do to fulfill the vision and the value you're out there in a market fulfilling. So pricing, yeah, you can go out to a market and convince and get the money, but pricing is proven in the value and the way that you lead your team.
And so scoping those services is extremely important. So that was the four competencies. Now I'm going back to the top part of that ecosystem. We're going to talk about capacity inefficiency takeaways. And then I hope you guys have some questions in a bit that Diana is going to start so we can answer some of those. So let's talk about some exchanging capacity takeaways.
So if you know the numbers of hours and the focus your team can give the firm, then you can sell your services for the right price. So know the numbers and focus of your team, you know what that is? I just want to point out that's a future oriented number. If you're talking about capacity and you say, "You know what? I want to manage the capacity of my team better." What you're talking about is managing the future. You don't manage capacity in the present. So you only deliver in the present, you deliver already a planned capacity that you planned early. So part of the job, typically of the owners, at least in our firm, me and my partner, our job is when we're preparing leads and when we're pricing, we're also documenting all of the capacity that's going to be needed. And sometimes we'll say that's too much capacity or we want more money before we make that pitch and we've got to get that exchange right.
But if you don't sell the right amount of capacity for the right value and if you... We don't always get that right. Nobody gets that perfectly right. So you don't plan the right capacity for the money and it work out identically. If you say that's 22 hours for that project price, it's not going to be 22 hours. Humans are doing it. It's going to be 20, it might be 30, you're going to always get it somewhat wrong and that imbalance could get too imbalanced.
And if you don't get that exchange of capacity for value, your firm's going to be providing more value than is actually scoped in the contract and your team could become overwhelmed and burned out. So they're working a lot and you just can't seem to get this project done. Well, they're working inefficiently and they're working possibly outside of a confusion with no scope document.
You can't do that, you got to lock all that stuff down so that team can hit the ground humming. All right. Creating efficiency. If you direct how your team works in a project management system, then you can protect your firm's profit from inefficient humans. And that sounds bad. But as the leaders of the firm, you kind of are meant to do that. You're meant to go to your clients, bring them in, they were leads, you prepared them, you priced them, now you got bucket of money and for it, you're exchanging work, you`'re exchanging the capacity of time and focus from you and your team. What now you got to do with that money is you got to protect it. That's your bucket of cash. You got to hope, at least at a minimum 10% of that profitability remains on the bottom line of your P&L at a minimum, at a minimum.
And to do that, you have to you're guarding that bucket of money from inefficient humans. They're going to chew through that with their labor. And you might say, "How do they do that?" Well, let's say John works on a project and John is inefficient. Well, you needed him and you plan for him to spend seven hours on a project. If he spends 20, you paid him for 20 hours, you did pay him for 20 hours. Even if he's on salary, you've made an exchange with John, you've made a capacity exchange with John and said, "John, I'm going to give you this salary and in exchange you give me 40 hours a week." So he's only got 40 that he's promised to give you. If he chews through 20 of it, instead of seven, he just chewed through some of your profit.
You didn't protect it from John, the inefficient human. And you know what? I ain't busting on John, you're inefficient too. I'm inefficient. That's what humans are. Because we're creative, we get distracted, we get emotional, we go through hard things in our life. These things produce inefficiency. It's just what happens. And if you don't lead your team to work efficiently, that's a leadership mood then your profits are going to be lower due to out of scope delivery. You'll keep hiring people as you grow, but you'll watch your profits dwindle, because they just can't seem to get the project done. It's because nobody's leading them through their processes.
And one main problem people have especially leaders of professional services firm, they think I'm going to fix this problem. And you know what they do? They dump a project management system or a workflow system into their firm. And that blows up companies sometimes worse than when they were working without a system like that. We're rolling a new project management system into our firm. Guess how long it's going to take us? Six months at a minimum. It's going to take six months to plan and roll that project management system into our firm so much behind that. It's really important. So let's hit poll number four, and then we'll get to some questions.
Okay. Poll number four on your screens. Does your firm offer or plan to offer client advisory services? Poll number four, we'll have one more after this for your CPE credit. Still voting quickly today. Thank you everyone. Give you guys about five more seconds because we looks like we've hit our voting threshold. So get you last minute votes in. Closing down in three, two and one. Back to you.
All righty. Okay. So just want to share with you what Thriveal is. You guys, some of you have probably heard me speak before and my partner and I lead Thriveal, which is just a community for entrepreneurial firm owners that are dealing with all these complexities. And we have programs like running the Thriveal members, becoming a community where you mastermind with other firm owners, you can apply. My partner and I do a lot of internal teaching too, that it's not really public. And then we have a group called future firm groups. That's starting in January, that's where my partner and I lead firm owners of smaller groups, 12 to 15. There's two different groups. We lead them through a mastermind of 12 months of dealing with some of this stuff. As they run into scaling their firm.
And this stuff is hard. Running the services company is not easy. And we always say in Thriveal, don't run your company alone. Nobody should be running a services company alone because it's a very human organization and it gets confusing. It gets frustrating. And so it's really important that you do it inside of a community and let people care for you. And we have decades of experience teaching this stuff and we love it. So we're going to keep teaching it for another 50 decades. Okay. I'm going to be a hundred years old when I'm done. This is great. So if you're interested, we'll let Vaughn launch this poll number five. This one is saying, if you to be contacted by Thriveal we can do that. Just let us know. And then Vaughn will jump into some questions.
All right. So we've launched that poll for you guys to go ahead and answer. Somebody did ask if your Thriveal courses qualify for CPE.
They do. Yes.
Okay. Good to know.
Yeah, we do. Yeah. And we do a certain kind of CPE in Thriveal. It is only entrepreneurial firm CPEs. So it is just how to run companies. That's what we teach.
Yeah. We do so much CPE it'll probably fulfill the 40 hours, just all in the entrepreneurial realm of teaching. You won't get any audit or accounting or tax CPE. We don't teach the at so.
Great. Well that's good information to know. So I'm going to go ahead and close down this fifth and final poll.
Nice. Okay. Very cool. Okay. I hope this was fun. The next automating success series coming up is Amy Franco. If you haven't heard hers. She was so good. We had her come on our podcast, so she knows what she's doing. Has a lot to do with prospecting selling. So don't miss Amy in the next one. So I don't know. Diana, do you have any questions we want to try to tackle in the last few minutes?
Yes. Thank you, Jason. We have lots of questions here.
So the first, how do you value price as a service that is transaction based and where transactions volume is volatile.
So yeah, value pricing is great. It doesn't mean you can value price every service very well. So commodity services don't lend themselves very easily to value pricing. And that's because value pricing has a lot to do with the leader of the firm influencing and collaboratively working with that client on pricing them in a way that that client values. But if they come already with a preset context of what the value of that is like a tax return, they're just not going to pay more than what they can get it for somewhere else. Why? Because it's come commodity and they're like, "I can get it anywhere. I'm going to have to get it for the lowest price in the market." And so commodity, transactional services are harder to value price. You can, but you have to put a lot more value and wrap it around that tax return, like tax planning and meetings and things like that. And then you can start to value price things when you add more value to it. I hope that helps.
Yeah. So you're just saying, just make sure you communicate the value more and elaborate on it. Is that correct?
That's that's right. Yeah. And if it's a commodity, you may have to add value to the commodity to make it value price-able.
Great. Okay. What about billing by the hour if you're doing ongoing work versus project work?
Yeah. Whether you're doing project based work or recurring work, billing is still the same. It disrupts a lot of the economic processes that pricing bring. So whether we were doing a project or we would do recurring monthly accounting work, we're going to value price, everything. And that's because our firm is different, the care we provide to a client and how we walk them through our services, how we care for them, we believe it's going to be so much higher. The value's going to apply whether it's a project or recurring accounting. Even tax returns, we're going to assume our firm is more valuable, not because of the commodity, but we wrap it around with a lot of care, communication, we have certain team models that provide more intense care to our clients.
So we believe that those things raise the value of our services so we're going to price some higher. Now, not every part of our market may agree with that, but a lot of clients do because they want that care. So what we ask for in a value exchange from our clients is value us if you want a relationship. And that's kind of a lot of what we're selling is we're going to devote a group of people to you to really care for you and provide the commodity services as well.
Great. Thanks Jason. Okay. Regarding the scoping, when you're talking about that, is it important to document what is not included?
No. No. You only have to document and scope what you are going to do in exchange for the money you're asking to get from the client. So the scoping is a very detailed written contract as to what you will do and then you ask for the money, in returning the moneys in there too. So very clear about what money is going to be exchanged for that work.
Okay, great. So we have a lot more questions coming on the pricing. So let's see. Do you see many hybrid pricing models, hourly versus value priced presently.
Yeah. Well, and maybe the gist behind that question is there is different models inside of the same firm. And yeah, you can do that. There might be some very high end advisory expert services in your firm that really lend themselves to value pricing, the slow part in walking them through the ecosystem. But there might be more transactional work. Some of your other team does in the same firm, those might be fixed pricing.
Fixed pricing is where the price is fixed on the service, value pricing is where you price the client. So in value pricing, the service does not have a price only the client has a price. But in fixed pricing, the service, the tax return has a price. And you don't care, which human purchases it. But yeah, we see the mix of those models. If you do a lot of that, you could get confusing because you have teams then operating under fixed pricing mentality and some under a value pricing mentality. And that could get confusing, but it would have to be pretty large to maybe do that. So we see that.
Okay, great. Let's see. So another question here is like for the capacity planning, can this just be done with like a sole proprietors or people who have only three to four people in the firm?
Yeah. Yeah. So I will say, and maybe the gist of that question is does capacity planning get harder when you get larger? And it does. It's a very complex part. That's a part of the responsibility of the leaders of a firm to know their team's capacity and a lot of how my partner and I do it is a lot of nuanced anecdotal so she's watching, she's the operational part of what we do. And she's always watching our team respond, how they work and so we're always... And then we're meeting quarterly in private sessions with our team asking them how's their capacity.
And then another thing we do that's very key is we have our team block out their calendars a week in advance. And that's a policy of our firm and it's really important. That's that future planning portion. We want all of our team in our shared calendars telling us or predicting, this is the capacity I'm going to exchange for the salary I'm being paid in this firm this upcoming week.
And we can always go, "No, that's not right. I need to see five more hours in there. That's not what we agreed to." Or we can say, "Why are you working so long on that client? We thought that was a three hour client. Why do you have seven hours booked?" And that's benchmarking. It's them predicting and what they think it's going to be and then us seeing the reality. And that's where the disparity of your capacity is shown when you have them plan what it should be and then what it actually becomes those differences, teach you a lot about whether you're predicting your capacity well with your team, but you need them helping you predict it. So they planning their calendars in advance is really important. And a lot of people in the call may say, "My team would never do it." That's because your team runs your company and that's not how you grow a company just to be blunt.
Thank you, Jason. Thank you for being so thorough for such a great webinar with great content. It looks like we are running out of time, so we won't have to address any questions afterwards.
Okay. That sounds good. All right. Vaughn, I think you get the last word for us, right?
I think I do but that's okay. You all can chime in right at the end and say goodbye. So you can have the last word. So thank you guys so much for all of your time, Jason and Diana for being here, sharing your expertise and all this great information. And thank you guys for being here out there. We will go ahead and process your CPE credit. Get that in your accounts for 24 hours and you have your handouts and a recording will be available to you in that account later date or tomorrow.
You have an evaluation form waiting for you in your inbox. So jump on over there because we definitely welcome and appreciate you all's feedback. So I can see some great comments coming through, like appreciate sharing your knowledge, great class and thank you. Thank yous. So make sure you get that into that form. But I think that is it's a for now we're going to say check out our schedule, see all on future webinars, hopefully very soon and have a great rest of your day.
Bye-bye. See you. Bye-bye.