"You-Decide" Invoicing

Matt Homan of LexThink lets his customers decide how much to pay him. He calls it "You-Decide" invoicing and it is another real world example of pay-what-you-want pricing. In Matt's case, he found out he wasn't charging enough.

In the Q&A below, Matt and I go back and forth about how it started, how he explains this method to clients, and what it has meant for his business.

Todd: Tell folks, what you do for a living.

Matt: I'm a speaker, facilitator and consultant. Much of my work is with lawyers and law firms, though I also design and facilitate meetings for companies like Microsoft. My blog, the [non]billable hour, focuses on innovative ways lawyers (and other professionals) can serve clients better and make more money.

T: When did you first get the idea for client-decided pricing?

M: I've always hated time sheets, and kept experimenting with ways to price my services that weren't tied to the time it took me to provide them. Since my clients regularly told me that my prices were too low, and that I was giving them a bargain (but one they only recognized once I'd completed the work), I thought I'd let them take the pricing dilemma out of my hands and pay me what they thought I was worth -- after they'd received my services.

T: How specifically do you present it to the client (before and after the engagement)?

M: I always give clients the option to pay me what they think I'm worth at the conclusion of the engagement. I explain to them that once we've gotten to the pricing discussion, I trust them to treat me fairly. When they agree to my novel approach, they get my "You Decide" invoice that asks them to write in an amount for my fee and give me an explanation for why they paid what they did. And even when clients would rather pay me a quoted price, I still give them a money-back guarantee.

T: What benefit do you think you get for creating this kind of commercial relationship with your client?

M: I'm convinced that by trusting them first, they return the favor. I feel like I'm entering into a mutual trusting partnership with many of my clients very early into our relationship. And, because my price isn't set based upon anything other than the final result, we're both free to tweak the engagement (things like length of time, desired outcome, etc.) as we plan more. Finally, because I know the result is the ultimate measure of my compensation, I find myself motivated to deliver the best experience I can every time.

T: Can you give some quantitive indicator for how this fee structure has affected your business?

M: Since I've been doing this, my sense of the value I give my clients has increased. I've recognized that my clients don't care about the time I spend working for them, but rather the results they get from working with me. Quantitatively, my income has doubled in the past year, because clients pay me more on my blank invoices than I would have charged them. I've also increased my per-engagement price (when I'm asked to give one). I know charge roughly three times what I would have quoted before my pricing experiment began.

T: Most of the pay-what-you-want experiments have been in media specifically digital media. 60 to 80 percent of customer choose free in those cases. What do you think makes it work in a consulting services business.

M: My clients see me doing the work and they experience firsthand the fruits of my labor. In digital media, there's not such a direct correlation between the laborer and the final product. One other thing I've found is that because I often work with people who've put a value on their time (like lawyers, accountants, etc.), they're less apt to think my time has no worth.

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For some more thoughts on pricing, check out the ebook Fixed to Flexible.

Hard-Wired

The idea of sharing is deeply routed in our early hominid brains. French anthropologist Marcel Mauss in describing the gifting process in human culture said “There is an obligation to give, and obligation to receive, and an obligation to repay."¹

Our ancestors’ roaming existence in small bands required a set of behaviors that facilitated trusting relationships. Our willingness to cooperate with strangers could mean the difference between survival and extinction. Trade and commerce are only possible with the behavioral trifecta that Mauss describes.

Herbert Ginitis , Emeritus Professor of Economics at the University of Massachusetts, adds another important nuance. His research suggests our cooperation is conditional. We’ll work with others as long as they treat us fairly and if we are wronged we will punish those who have behaved unfairly, even if we incur costs by doing so. The cycle of giving and receiving only work when the threat of punishment for unpaid debt looms.²

Notes:
¹ - The Gift by Marcel Mauss
² - The Origin of Wealth by Eric Beinhocker and Ginitis 2000

Costs Go Down Everywhere

Companies that grow achieve greater economies of scale. New, more efficient technologies are introduced. Lower-costs substitutes are found and integrated into the supply chain.

We can find similar examples in the non-profit world:

"We are much better at starting treatment projects for TB and HIV on the ground than we have ever been,” says Jim Yong Kim, a cofounder of the Bostin-based organization Partners in Health. “every time we do it, we’re more efficient and use resources much more effectively.” When Kim, Paul Farmer, and their colleguess at PIH’s Peruvian partner, Socios En Salud, began their first program attacking multi-drug resistant tuberculosis in Peru, the cost for just the medicines was roughly $25,000 per patient. By 2006, the organization had been able to cut the per-patient cost of medicines to as little as $1,500."¹

The power of the experience curve comes in all shapes and size.

Notes:
¹ - page 30 of The Breakthrough Imperative by Mark Gottfredson & Steve Schaubert

Idea Arena Podcast - Rework Interview with Jason Fried

In this interview, I talk with Jason Fried, co-author with David Heinemeier Hansson of Rework.

We spend most of the podcast talking about two big themes that I took away from the book.  The first is that you have to get as close to the work as possible. Your estimates over the long term suck. Make tiny decisions. Long lists don't get done. Good enough is fine.

The second idea is company as teacher. I wasn't sure what the right word when we recorded. Channeling Kathy Sierra, they tell readers to out-teach the competition. They encourage companies to emulate chefs who write cookbooks and everyone exactly how to do what they do. This builds an audience.

Lots of things get better as they get shorter. Directors cut good scenes to make great movies. Musicians drop good tracks to make a great album. Writers eliminate good pages to make a book great. We cut this book in half between the next-to-last and final drafts. From 57,00 words to about 27,000 words. Trust us, it's better for it.

Rework Interview with Jason Fried

Related:

19 Page Free Excerpt of Rework

The 37Signal Podcast about the Making of Rework

Getting Real - 37 Signals' 2006 book about building better web applications

Try This

Visit any Sam’s Club on a Saturday morning and you will see two things: enormous crowds and sampling stations. In my local warehouse store, there must a dozen representatives from CPG¹ Nation there to offer me a small sample of the goodness waiting in the box, bag or bottle they are promoting. This is certainly a form of Free that we recognize.

Sampling is an incredibly powerful method of marketing. The "new customer consultation" allows the prospect to experience what it will be like if they change dentists. The Dixie cup of pineapple-pomegranate juice from a smiling attendant lets the prospect taste the product while standing arms reach from the 128 ounce jar (“…and today’s we are offering a coupon for two dollars off.")

Robert Cialdini tells us that this form of free has an incredible power over us. He believes we are programmed to always return a favor. “Many people find it difficult to accept a sample from the always-smiling attendant, return the toothpick, and walk away. Instead, they buy some of the product, even if they might not have liked it.²”

Notes:
¹ - Consumer Packaged Goods
² - from Page 27 of Influence: The Psychology of Persuasion.

What is a Book? - Part 3

Craig Mod has a great piece on the future of publishing.

As a book designer, he draws the line between formless content and definite content.

Formless Content can be reflowed into different formats and not lose any intrinsic meaning. It's content divorced from layout. Most novels and works of non-fiction are Formless.

[...]

Content with form — Definite Content — is almost totally the opposite of Formless Content. Most texts composed with images, charts, graphs or poetry fall under this umbrella. It may be reflowable, but depending on how it’s reflowed, inherent meaning and quality of the text may shift.

Mod believes formless content was the only real choice in the digital realm prior to the iPad, but now there is the possibility that definite content can be reproduced with its original intent.

He goes on to say that the page turning metaphor is weak and that content creation and navigation will be re-imagined over time.

The comments are worthy of your time as well, with some filtering needed between thoughtful and dystopian.

P.S. Click through and see the beautiful layout and graphics that Mod provides to make his case.

Idea Arena Podcast - Drive Interview with Dan Pink

In this interview, I talk with Dan Pink, author of Drive: The Surprising Truth About What Motivates Us.

Pink says the conversation about motivation has either been about survival (eat, sleep, sex) or sticks and carrots (rewards and punishments). The trouble is that most work today involves creativity and creativity suffers when we use sticks and carrots. Motivation 3.0 is about autonomy, mastery, and purpose. If you don't know the work of Edward Deci or Carol Dweck, you should definitely check this one out.

This is the nature of mastery: Mastery is an asymptote.

You can approach it. You can hone it. You can get really, really, really close to it. But..., you can never touch it. Mastery is impossible to realize fully. (p117-118)

Drive Interview with Dan Pink

Other highlighted books:

• Why We Do What We Do: Understanding Self-Motivation by Edward Deci with Richard Flaste
• Mindset: The New Psychology of Success by Carol Dweck

What Is A Book? - Part II

Yesterday, Penguin UK unveiled what a book might look like on the iPad.

Again, the word 'book' betrays what amazing abilities that technology like the iPad are going to deliver or as Michael Cader from Publisher's Lunch pointed out many of these abilities already exist in the form of apps at the iTunes Store.

I continue to contend: You don't interact with books, you read them.

A notable exception is flap books and pop-up books in the children's realm and it is no surprise that Penguin was able to quickly conceptualize software equivalent.

If the real change in books is going to be that ability to interact, we need new vocabulary that moves us forward. The word 'ebook' gives us no real idea what is going to appear on the screen. These next iterations better resemble games, programs, or applications.

My temptation would be to call these new creations ibooks to emphasis the their interactivity nature (except for the use of that term by a certain company in Cupertino, CA for several years).

This separation of content from form is an important industry branding issue that currently muddles the publishing marketplace. And in this case, traditional book publishers lose, because of the already existing expectation that we find this sort of functionality in the another marketplace, mainly software.

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Related: What Is A Book? from Dec 30, 2009

What Can I Charge?

Chris Brogan has a post today about his price points, after several commenters where surprised by his $22,000 a day consulting rate.

Chris lays out two points very clearly that perfectly to any discussion about pricing.

1. Set your price based on the value you provide - Chris is very quick to point out that his consulting clients gain 10 times that amount in money saved on bad advice and new ideas for business expansion
2. Create multiple price points for your customers - Versioning your intellectual property is the best way to appeal to the wide range of customers' interest. You also spread the risk of the IP development over a variety of products. Chris' versioning consists of:
   
   • Blog and Newsletter - Free
   • His books Trust Agents and Social Media 101 - Around $20
   • His new Third Tribe online community - $47/month
   • Live events where he speaks - $99-$500
   • Daily consulting rate - $22,000

And this doesn't just apply to consultants. I think there is a whole line of thinking that The Creative Class should employ when commercializing their work, whether you make jewelery, make music, or make pictures,

Check out Will Chapman and his company BrickArms. He gets a huge shout-out in the cover story of Wired this month (not online yet). Will makes weaponry for Legos figures and while you can buy individual pieces for around $1, he has weapon bundles as well as special edition pieces that sell for as much as $30. The pinnacle piece is a custom Lego figure named Mr. White (or his media given name "Osama Bin Lego") that goes for $70.

The natural reaction is to say, "Of course, those are toys. I have seen that before." But when was the last time you saw an author (not a publisher) launch at five book boxed set and sell out 800 sets in hours.

Give your customers more options.

The Books I Read in January and February

The 1% Windfall by Rafi Mohammed - ☆☆☆☆

20 Master Plots: And How To Build Them by Ronald Tobias - ☆☆☆☆

The Art of Project Management by Scott Berkun - ☆☆☆

The Brand You 50 by Tom Peters - ☆☆☆☆

Drive: The Surprising Truth About What Motivates Us by Dan Pink - ☆☆☆☆

Linchpin: Are You Indispensable? by Seth Godin - - ★★★★★

Linked: How Everything Is Connected To Everything Else and What It Means by Albert-László Barabási - ☆☆☆☆

Making Ideas Happen by Scott Belsky - ☆☆

Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone - ☆☆☆☆

Rework by Jason Fried and David Heinemeier Hansson - ☆☆☆☆

Tactics: The Art and Science of Success by Edward DeBono - ☆☆☆

Switch: How to Change Things When Change Is Hard by Chip Heath and Dan Heath - ★★★★★

Unstuck by Keith Yamashita and Sandra Spataro - ☆☆☆☆