Voltaire wrote “Le mieux est l’ennemi du bien”, or “perfect is the enemy of done”.
Have you ever been so overwhelmed by the enormity of a project that you are too paralyzed to even start? More often than not, we are bombarded by tasks and projects from all areas of our lives. It is those who have the ability to prioritize and then begin chipping away who will be successful in the end.
Is the end in sight?
To further confuse the matter, it’s rare that a project has a clearly defined endpoint. So when to deliver the goods? If perfection is your goal, the recipient of your amazing creation may not live to see the unveiling. Your product or service is of no use to anyone if it doesn’t exist, so whom is perfection serving? If it is functional, roll it out.
The value in “good enough”
Most things in life are iterative, and thus offer revenue opportunities related to each additional unit of value you provide. This isn’t a new concept. There are many examples of companies who follow a strategy of continuous improvement:
After all, a product that can’t be improved is likely obsolete or easily copied. Why not continue to grow your business by offering your clients your commitment to continuous improvement?
Voltaire offered us a way to succeed in this crazy busy world we live in. He told us that the road to perfection is a journey; one that requires stops along the way.
A couple of weeks ago I went camping. I haven’t camped in over 2 decades, so I needed a tent. After checking a couple of placed on line, I decided to go with the Mountain Equipment Co-op Wanderer 4. The tent was thoughtfully constructed with a full fly and lots of useful features. But it wasn’t until the last night of the camping experience when a deluge struck that I realized just how important quality was to me. Despite being stuck in a tent during an extremely heavy rainstorm, we were dry. The tent outperformed my expectations. Looking back, the other cheaper tents I saw wouldn’t have performed under those conditions.
Cheney Window and Door is another example of quality and service. When it came time to replace the windows and doors in our home, we were thrilled with the quality of their product, but more important was the service we received. The installer was second to none; he took a great deal of care and added some extra touches along the way. The owner also offered some great renovation advice, and pointed us in the direction of our next successful venture, soffit and facia.
Now this provider was a long-time installer who was preparing to retire, but because Cheney gave us the recommendation, he took our job. Again, we delighted with the entire experience.
The final exterior improvement on our list was paint. I knew that it would be tough to find someone who met my standards, having done my share of painting. A friend had recently had some work done by a painter who came highly recommended to her, so I took a chance. His work was amazing.
Pricing for Quality
Could I have paid less for these services? Yes. But I opted for quality, and in the end with a job well done, I was further ahead. Will I shout these companies’ praises from the rooftops? You bet!
In a world where all too often we are disappointed by the quality of the goods and services we purchase, it is nice to know that excellence still exists. This fact provides an opportunity for businesses: customers are willing to pay for quality and great service. But make sure that you deliver, because bad news travels fast. My neighbours thought they were buying and paying for quality and service but instead received a nightmare. I won’t be contacting that company for their services any time soon.
Here is an update to an earlier post “Real Estate Transactions: When price doesn’t equal perceived value”.
At their annual general meeting yesterday, Canadian Real Estate Association (CREA) members voted in favour of allowing agents to post listings on its MLS system on behalf of sellers for a flat fee. Melanie Aitken, Canada’s Competition Commissioner said it didn’t go far enough, as it keeps the power in CREA member’s hands, squelching innovation.
CREA has until March 25 to provide a response to the Competition Commissioner’s application to the Competition Tribunal.
See the Globe and Mail story: “No Sale: Realtors’ plan gets bad review” by Steve Ladurantaye.
With Federal Competition Bureau’s announcement of its challenge of the Canadian Real Estate Association’s (CREA) rules before the Canadian Competition Tribunal, significant changes to the pricing of realtor services may be soon to come.
Pricing of Realtor Services
Ever wonder why the cost of a realtor is tied to the cost of your home? The Competition Bureau alleges that it has a lot to do with CREA’s control over Canada’s MLS service (http://www.realtor.ca/). From the seller’s perspective, pricing realtor services based on a percentage of the seller’s home price doesn’t make a whole lot of sense. Does it cost more for the realtor to list and advertise the home if it is worth more? If not, why does the seller have to pay more? It is this decoupling of the value of the service from the price that is the root of so much discontent with the real estate experience.
To add insult to injury, when no cooperating (buyer) agent is involved, the seller’s agent is allowed to represent both buyer and seller, collecting the full fee. I would imagine it would take something akin to schizophrenia for the agent to act objectively in that situation. And what value does the seller perceive that they are receiving? It can leave a seller feeling bitter and taken advantage of.
Real Estate Lawyers: A contrast
In contrast, real estate lawyers generally charge a flat fee. The legal aspects of a residential real estate transaction are pretty standard, so the lawyer can with little risk on their part offer their services for a set price. The client knows the cost of the service and can link it to the value they are receiving, with no variability based on the value of their home.
The Future of Real Estate in Canada
If the Competition Bureau’s challenge is successful, I believe it will give many of the real estate agents who have a finger on the pulse of what their clients need the freedom to implement a little innovation in the pricing of their services. And for those clients who still want the full service option – no doubt it will be happily provided. I predict a marked increase in client satisfaction!
Just when you thought books were a dying breed, along comes something to breathe new life into the publishing industry. Digital books are an ideal example of pricing perfection!
A war over words
Since the announcement of the new Apple iPad, publishers have pitting Amazon, maker of the Kindle digital book reader against Apple. Publishing companies such as Macmillan and Harper Collins have threatened Amazon with joining the Apple store, saying that Apple is offering them more pricing flexibility. (See blog post by Ed Sutherland for more on this story.)
The Amazon Kindle’s competitors include:
Adobe Digital Editions digital book reader application which allows you to download digital books to your computer.
The margin is where it’s at
Note the differences in margin that the various formats offer. For example, the teen sensation “New Moon” is available as follows according to the Amazon site:
Amazon offers the Kindle digital edition and paperback with only a 34 cent price differential, despite the additional shipping and handling costs incurred for online paperback book sales. The cost of the same book at Barnes and Noble stores is $7.99, just $1.74 over the digital price to cover the sales staff and brick & mortar.
So given that a digital book is simply a small file uploaded by the publisher to the vendor’s web site and downloaded by customers, what do you think the profit margin will be for the publisher and the vendor? Comparatively speaking, digital vs. paperback, whether purchased in the store or online are quite significant. Cutting out the cost of postage is huge for the vendor, and the cost of printing a boon for the publisher. For the customer downloadable digital books mean instant gratification, although some miss the act of turning the pages of “a real page turner”.
Another revenue opportunity is gained from the lack of transferability. You can always share your paperback with a friend, or sell it in a book sale or to a used bookstore. Not so much with the digital version. Yet another win for the vendor and publisher.
These tantalizing profits are a good reason why Amazon wants to keep publishers away from the Apple store as much as possible, and why Amazon caved to publisher demands for pricing flexibility.
In summary, digital books provide an excellent example of how innovative marketing can lead to improved customer service and drastically higher margins and volumes for your product.
Tick, tock, tick, tock….Does that sound determine your living? If you’re a professional services provider, it doesn’t have to.
Hourly based billings
Hourly billing is simply a client paying for an hour’s worth of effort, with the expectation of some service being performed. The positive aspects of this method are that an hour is a tangible, well understood measure on which to base billing. If provider is new to an area this method of billing shifts the risk from the service provider to the client. On the negative side, there may be an ethical issue as the provider may be incented to bill more hours than are necessary to perform the service, and since it’s not tied to outcomes, it makes it hard for client to see the value in what they are paying for. Unhappy clients may shop around for a better deal. The provider’s quality of life may be diminished living a life tied to the clock. Their earnings are also capped by the number of hours that can be billed in a year.
So what’s a professional services provider to do?
Charging based on value provided
One option is charging based on an estimate of the value that the service creates for the client, keeping in mind the cost of providing the service and what the market will bear. An example of this method might be as follows. A lawyer specializing in privacy law is asked by his client to draw up a privacy statement. If the lawyer, who has done many before alters an existing statement and bills as if it was drafted from scratch, it would be unethical. However if the engagement letter described a desired outcome (the privacy statement) for a specific price, no conflict would exist.
The benefits of choosing value-based billing are that the client sees a clear link between the cost and the outcome (the privacy statement). The lawyer’s job satisfaction increases because he can focus on the more interesting aspects of his practice instead of drafting everything from scratch, but he still gets paid as if he was.
There are cautions though. The lawyer needs a good understanding of what the job will entail to price it correctly, including the ability to mine the firm’s financial and statistical systems to gain a good understanding of the costs and pricing norms for the services offered. That’s where I come in. This information must then be specified in the engagement letter.
Other pricing methods
There are still more options. What if the lawyer took it a step further and commoditized his privacy statement service by offering an easy to use template for sale. This would allow him to market his services to a wider audience, perhaps to small businesses that don’t require a highly customized product. Taking it even a step further, he can add a notice in the template offering customization services for further fee.
Other professional service providers may prefer to offer subscription-based services. Still others may provide services in return for an equity share, perhaps to start ups that are lacking in cash flow but rich in potential.
The possibilities are only limited by your imagination! Figure out what the customer needs, and charge for it.
In this posting I’ve talked about what hourly billing is really paying for, and offered other suggestions as to how a service provider might bill to free them from the clock.
Tick tock, tick tock….not so confining anymore.
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