Episode 65:

Welcome everyone to The Upstream Leader. Today’s conversation is going to focus on value. And one of our recent guests, Jason Staats, talked about in that episode, he said, we don’t really put enough value on our time. And I’m going to take that a slightly different direction. I completely agree. We don’t put enough value on our time, but from a business model standpoint, we don’t put enough value on what we do for clients and how we actually impact their organizations. And as a result, our pricing isn’t exactly a great way to price things—it’s not a great business model. So I’m going to go to the expert when it comes to pricing.

And for our conversation today, I’ve got Michelle Golden with me. She’s the founder of Fore LLC. She is a growth and profitability strategist with a passion for both pricing and positioning. She’s a seasoned facilitator, speaker, and author with an extensive background in CPA firm marketing and operations, but her true superpower is energizing people while she teaches them to do the hard things. She clarifies the complicated, sheds new light, opens minds, and instills confidence. Best of all, she sets firms up to make big progress possible. Michelle, welcome to The Upstream Leader.

Thank you, Jeremy. I’m so excited to be here with you today.

It is going to be a fun conversation. And before we get into pricing and all of the fun that is there, and, which I’m convinced, it is quite fun, I’m going to start us off the way that I do every episode: Tell us a little bit about how you became the leader that you are today.

Oh, that’s very kind of you. Yeah, it’s been an interesting journey. I always wanted to be an accountant. You and I have talked, I know you have uncles who were in accounting and influenced your path. My path was also influenced by my uncle, my mom’s sister’s husband. He was probably the only white collar worker I knew when I was a little kid—he was an accountant for IBM Canon Electric in Southern California when I was a little kid and in addition to just him being a really cool person, and I thought about this the other day, he was truly a trusted advisor. Like, he was the epitome of someone that, you know, just great business sense, acumen, and you could go and you could talk to him about anything. And I think that’s the character trait I saw in him that I thought, wow, I want to be like Uncle Ron, but he also had a really cool machine on his desk called a ten key, and that was awesome to play with.

So Uncle Ron was a great role model for me. In my 6th grade yearbook, and I actually have a little trophy right behind me. I won the cover design for the 6th grade yearbook because I was artistic as well. But inside, they asked all the 6th graders graduating from our elementary school, what do you want to be when you grow up? And all the little girls were saying, like, you know, I had a couple doctor-lawyer friends, but, like, model, stewardess, you know, dah dah dah dah, and under Michelle, it says “accountant.” So that was pretty nerdy and awesome. I’m very proud of that!

That is awesome—no, that is wonderful. So, yeah, from there?

Yeah. So, well, sorry, Jeremy. I started in accounting. I always wanted to do that, but I took a very nontraditional path to it. I don’t have an accounting degree. I got into it first being like an AR clerk for a public company—loved it—and then became part of the department of this large public company in the healthcare sector, a GL accountant. And I just absolutely loved my job, loved everything about it—got into, you know, doing all the financials that go on to the other side of the audit. So I met the auditors from Arthur Anderson and KPMG, but back when it was Peat Marwick. Sorry. I have to date myself a little bit.

But, yeah, I just absolutely loved it. And then, but I was a very young mom and college for me was something that I did part time while I worked a couple jobs, sometimes 2 or 3 jobs at a time, and tried to chip away one class at a time towards an accounting degree. So I was still working on that long after I was working in a public accounting firm, and you know, never fully finished, to be fair and honest. I don’t really hide that fact, but my mom one day, said, I just, you know, I just want you to finish your degree and I said, Mom, I don’t think I need to at this point. And two things that did that: One, I was on the Top 100 list of the Top 100 Professionals in the accounting profession. How I got there was, you know, I have a little bit of a persuasive nature in how I talk, and a couple good ideas here and there over the years, so I’ve been able to convince people to try my ideas, and only because they were willing to do it, was I able to build on those ideas and create things that worked for the accounting profession. The second thing was getting hired by a law firm.

Okay.

So lawyers, even more than accountants, are pretty rigid about degrees and requirements. Education in the law environment is everything, and if you could get hired by a law firm without the degree, that was, I just don’t know that the degree would have helped me more. I interviewed with Hush and Eppenberger many years ago in the St. Louis market and the firm, I was hired, the firm had offices in three states, and my eighth interview with the firm, was with the managing partner and the right hand person to the managing partner. And those two guys were so intimidating. One was a former Jag, and the other, I mean, these guys are super intimidating, and I’m sitting there maybe young 30s, across from them with no degree, and the number two guy goes, so why should we hire you when you don’t have a degree? And I said because I, you know, because I make things happen and you know, I know what I’m talking about. And they said, but they’ve never hired anybody where all eight interviewers said hire that person. And so they did. They hired me anyway. And at that point, I said I’m not sure the degree on my bio is going to help me much, so I just haven’t continued. What do you think of that?

I love the humility that you have, that you’ve had “one or two” good ideas. I bet there’s a few hundred firms out there that would say Michelle’s got more than one or two good ideas, because I know that you have transformed so many firms. And as you said, you started on the industry side, right? So many in our profession know, they talk about, oh, I went right into public and then I boomeranged back or whatever it may be. You started on the industry side. When you got to an accounting firm and then a law firm and then other accounting firms—correct me if I’m wrong—you never really did accounting. You really were focused in on the growth in the marketing side, is that correct?

Yeah, from the accounting side. I mean, I did accounting in the industry side only, not in a public accounting firm, for sure. But, you know, because I wasn’t as familiar with tax, but because I had been, like, the GL accountant and whatever for—I don’t know if you’re familiar with, like, the care unit facilities, but I worked for a company called CompCare Corporation, and they owned the care unit hospitals that had, about, I don’t know, maybe a dozen freestanding units, but also a lot of contract facilities and hospitals all over the country for chemical or, you know, alcohol and drug treatment. So I did the books for those facilities and had a lot of experience on that side.

I could speak audit, and I could speak, you know, accounting, basically, which really helped me when I became—my first CPA firm in Columbia, Missouri, when I became Williams-Keepers’ first marketing person, full time marketing person. And because I could speak accounting, I think the accountants gave me a fair amount of respect. I mean, obviously I wasn’t a CPA, but I cared what they did, and I understood it, and I valued it. And I think in a lot of—and that’s kind of how I got into pricing, because when I worked in public accounting, it’s kind of what Jason said: I saw that CPAs don’t value themselves. I have to challenge and disagree with him—it’s not your time you should value. It’s the results that you help your clients accomplish. And, you know, to be fair to Jason and others, you guys are like the fifth generation of CPA’s taught that you sell time.

Well, and I will say Jason, his, I should clarify, his point was we don’t value our time outside the office, right? We don’t put enough value on that, and we then confuse it with the time inside the office that we’re now billing for. So I think he would probably agree with you. I want to make sure that I do clarify the context should he listen to this.

Perfect.

But you’re right. It’s the old business model, right? And would you say that one of the things that I think of over the years is it used to work that we billed for time. Kind of like attorneys. It worked.

Right. It’s sufficient.

Yeah. 40, 50, 60 years ago. That was the norm and it did work. Now it seems like there are so many accountants and accounting firms out there, that being a CPA is no longer specialty enough, even, right? Used to be, you could just, being an accountant was—that was the specialty. Now it’s, are you an accountant for agriculture in the, you know, Rocky Mountain region that specializes in digital applications.

This particular… yeah.

Yeah. Like, we gotta get really, really niche and really, really granular. Do you think that has changed the need for, or instigated, maybe, the need for pricing to change over the years, or do you think has kind of been flawed from the beginning?

You know, there are so many reasons that firms embark on changing the revenue model. The drivers—I’ve got a couple articles about it. The drivers have shifted. When my friend Ron Baker started talking about value based pricing 20, 30 years ago, to now, you know, some people are just desperate and eager to get away from tracking time because they hate it. Others just, like, very intuitively, like, it sounds like Jason and yourself say, you know what? I don’t think time is the right factor, but I don’t know what to do instead. Others want more cross selling. Others want a better way to—and what we’re seeing now—a better way to price because we’re getting so much faster at what we do, whether it’s adopting, you know, data analytics and AI and other efficiencies that you gain with, like, SafeSend, SurePrep, XCM, you know, for workflow and as we work and seek to get more and more efficient, we’ve made some really big mistakes, and we don’t know that we’ve even looked at the data at every firm level—there are firms that start looking at it and they’re shocked they’re just like, oh my gosh, I can’t believe we’ve made this put ourselves in this situation, and I’ll explain that in a second.

If you can cut your time in half, say your tax team cuts its time in half, and you charge by the hour. So what you’re able to do is double the number of customers you serve in the same amount of time and you charge by the hour, what does your revenue do? Nothing. It’s static. So you have twice as many relationships to manage, twice as many people you’re taking care of, solving problems for. You’ve doubled your workload in some ways—you’ve got twice as many bills to cut, twice as many whips to go through, and your revenue is the same because you’re working the same number of hours because you’ve cut your time in half. And you would never advise your customer to make that kind of a business decision, and we’ve sort of fallen into it maybe without realizing it.

And we think, oh, that’s just starting to happen now in the 2020s, like, that wasn’t a problem, you know, ten years ago. A really interesting stat. A friend of mine became a managing partner of a firm a couple of years ago, and he was given the keys to the “Magic Managing Partner” file when he took over his duties. And he pulled out some reports and he found one from 2005, and I just grabbed it. He gave me the data. I’ll share a slide with this with you afterwards if you want, you can put a link to it out there. But in 2005, say his top performing partners, I think I list five or six of them, had a certain number of clients that in their quote “book of business,” that kind of an old model too, that they were in charge of and a total amount of revenue for the number of client they were in charge of. Of the partners listed, only one of them had more than a hundred clients. That one partner had two hundred and something clients, 212, I think. And all the rest of them had, like, between 60 to 80 clients that they were responsible for in 2005. That exact same firm, fast forward 15, 17 years, some of those partners are still there, and then there’s a couple that retired and were replaced so their business succeeded to someone else. Their top performing partners all have hundreds of clients now: 300, 400, 600 client relationships that they’re responsible for. And then I took the total revenue divided by the number of clients. The per customer revenue has tanked. Time.

Yeah.

If you only have so much time in a day—although you have quadrupled the number of customers you serve—because you’re charging for time, your revenue drops proportionately. You don’t have enough hours in the day to serve that volume. So our pyramid leverage model, I guess, is broken.

Yeah.

And efficiency is—and that was 17 years ago. Can you imagine the luxury of only having to manage sixty to a hundred relationships today? I don’t think I know any partner in—

—Oh, people would love it.

I know! And we wonder why we’re so maxed out, right?

Yeah. So as I think about that, it sounds like we’re confusing cost with revenue, right? The time is the cost. That’s how much it cost to generate that. So I’m going to ask you to try to solve the question that everybody asks that, you know, I hear so often. “Well, there’s not really a good answer for this.” So I’m going to see what you can provide for us here, Michelle. Because I know that you’ve got this.

Okay!

If I don’t tie my revenue or my price to my client, to my cost, how do I know what to charge?

Right! Right. So when you figure out, so there’s a few different answers to it. First of all, cost structure is one of nine business model elements. Revenue model is another one. They’re not supposed to be the same thing. Your cost structure is what you look at to make sure that you’re going to stay viable within whatever your business model or business models are. Business model is, or are, if you have more than one. So your revenue models, it needs to work—like, your work needs to be worth it to you to do, on one hand. So off to my left, I’m pointing out into the universe saying, it’s gotta be worth it to the firm over here, hands down. Don’t disagree with that.

Our choice to use time to allocate a cost is arbitrary, right? I mean, your costs are fixed. You know exactly how much it’s going to cost to run your firm next year, plus or minus a person. Take a person out, you don’t have to pay their computer, their license, their CPE, their vacation, their salary. Add a person, you do, right? So we know exactly how much it costs to run our firm, and we could allocate that cost a lot of different ways. It has worked for us to allocate our cost—cost accounting was created by engineers, by the way. It has worked for us to allocate our cost by time, but with efficiency, I mean, when I first started in my first CPA firm, Williams-Keepers, they were still doing tax returns on Green Bar, and then we moved it to a DOS-based computer, and then we moved it to a Windows-based computer. And now you have all these amazing tax programs that your clients can, you know, scan their data and information feeds straight into them. We don’t sell time, we sell outputs—we sell results and outcomes.

Actually, all of that, I’m going to replace it to get to your question: We sell transformation. Now if we’re just—and I don’t mean this in an insulting way—if we’re just doing compliance, our transformation is not potentially as great as if we’re also hand holding a business through key decisions that that business owner is making. And if we’re handholding—most CPAs that I know love helping people, and that’s why CPAs go into the profession that they go into. It’s different for law in most cases, but the accounting professionals that I have met over the course of my career have chosen the profession because they really dig helping people—like, it just, that’s why they get out of bed in the morning. And when they’re needed and their advice is sought, and, how should I handle this situation? How should, what would be good fodder for making this business decision? We love jumping in and helping customers with those types of issues.

That’s not compliance. And a lot of people don’t realize they devalue themselves, because they don’t realize that in the course of, say, preparing an annual tax return, you’ve had conversations with that business owner multiple times throughout the year helping them make business decisions that you haven’t captured the value for. You’re their quote “business advisor,” but you’re their tax preparer. And I do believe—and this is where I do think time has been damaging to us as a mentality for our approach to going to market—is that we start, we distilled what we do down to how long it took us to do it, rather than thinking about why we did it.

So the answer to your question, how do you price for it? You have to consider, is it worth it to me to do this thing for this person. Part of that, maybe one of ten factors might be how much time am I going to spend to it, but only from an opportunity cost perspective. If I’m doing that with Jeremy, I won’t have time to do this with someone else, right? So from an opportunity cost standpoint, you do need to kind of, as Ron Baker would say, do your timesheet in advance.

Now, from a worth-based perspective, so I was gesturing to one direction, saying, worth it to the firm? Over here, worth it to the customer, the client, is a totally different discussion. That has absolutely nothing to do with the worth it to the firm discussion. Nothing.

Hold on. So you’re telling me that the clients don’t care how long it takes us get their stuff done?

Yeah, yeah! Very much.

Okay. Carry on, carry on.

Yeah. They care that they’re going to get it when you say you’re going to give it to them, but they do not care if it took you every minute between now and then to do it, or if it only took you five minutes between now and then. They just want it when they need it, or when you promise it. And so the worth to the customer, here’s where it comes from: What does it help them accomplish?  And here’s the rub, right, is that value? Or I call it worth—I actually kind of steer away from the word value because it has some baggage. I’ll talk about that in a second. What is it worth to someone to solve a problem is never going to be the same answer to two different people. And it might not even be the same answer to two different people in the same company, and the amount might be different today than it is tomorrow.

For instance, if your car breaks down in the desert, and I come and I’m the tow company, and I show up in the desert, it is worth something to you to have your car moved to where you’re not out in the middle of nowhere. Add to that situation—your wife and baby are in the car, and you don’t have much water. The worth just went up. How about I’ve already towed? Well and that’s when you’re standing there in the middle of the hot car with no resources and people you love at risk, right? I move you and your car and your wife and your baby to a mechanic shop. That tow service now is not worth as much as it was when you were sitting in that dangerous situation.

So the worth of something is diminished once it’s not a problem. And this is part of the reason—

Yeah! So helping define that worth for the client, doing that on the front end when it’s still an issue, and we haven’t already solved part of it—if I’m tracking correctly—it’s going to be worth more then, than if we solve it for them and then talk to them about the worth because now they don’t have the problem anymore.

Or bill them in arrears for an exorbitant amount of time.

Got it, okay.

And that’s why you have AR that carries 30, 60, 90, 120 days, into six months, into a year because when you don’t when you don’t tell somebody how much something is until after it’s solved, your risk of not being in alignment is quite high compared to agreeing on the worth of something up front.

And here’s the other problem: Like you said, the client doesn’t care how long it took you. So I mentioned earlier, Jeremy, we are the fifth generation of people taught we sell time. Because of that—and not everyone, I know that there are a lot of CPAs out there who don’t necessarily base their fees on time anymore. They’ve moved past it. So I want to honor that and acknowledge it. But if you believe that your value is tethered to the amount of time you spend doing something, and that’s the focus of your conversation, it takes away from you being able to have a conversation about transformation. And transformation is where value is. And what I mean by that transformation—that sounds so vague and fancy and whatever—what I mean by that is today, you are here, right? It’s the map. It’s the “you are here” map. You are here and you want to be here. Maybe I want to launch a new product line, or maybe I want to double the size of my business, or maybe I want to exit within three years. Whatever that difference is between then and now—and there was a point before now too, like you’ve made progress—but whatever the differences between now and what you want to accomplish, a CPA is amazing at helping somebody get there.

So, one, I want to understand what your objectives are. If I’m the CPA and I’m sitting down talking to you, I’m not just talking—I shouldn’t be just talking to you about a few of the factors that go into your tax return. “How many investments do you have, how many entities are we doing a consolidated blah blah blah,” you know, “Are we filing separate, filing together? How many states are you in?” I should be asking questions like, “Tell me about your business. How did you get started? Where do you want to—where do you see yourself in five years?” And many of you do have those conversations and then you come back and you calculate how long you think it’s going to take to do the return and you give somebody a number. What if you come back to them and say, I heard you say that you’d like to transition your business, or slowly start towards your exit. And then you give them different ways. I like options, three options. You give them three different things to consider for investing in that.

So you don’t take their words and turn them into your words. For instance, if you told me that you wanted to, you know, retire, so you could get out on your boat and go fishing, I don’t say “exit plan,” I say “get you out on your boat.” Reason I say that—I’m going to say, “here’s three different approaches to getting you out on your boat.” Because when you hear your words echoed back to you, they’re worth a lot more than when you hear my, you know, recap.

No. I love that.

I don’t replace your words with my words, because my words aren’t as impact ful and meaningful and emotional as your words. So I’ve got to listen differently in my client meeting, and I need to echo and reflect what you’ve told me is important to you, and then I can tie solutions to that. If I tether a dollar amount to getting you out on your boat, I connect the dots for you. The reason I’m recommending this, this, and this, like, oh, you know, you should do an ESOP. I’m not just going ESOP—X dollars. I’m saying, here’s a path to getting you out on your boat, at the highest option it would include an ESOP. And that way, yeah, that’s how you put it in front of somebody and guess who decides the value.

The client.

That’s the only person that matters. And, of course, anything I put in front of you, I’ve already decided it’s worth it to me as a firm to do that.

And then you’re okay if the client says it’s not worth it to them.

Yeah!

And maybe that’s one of the hardest parts, right, is that the client might say no.

Oh my god.

And that’s okay. Because it means it’s not the right client.

Yeah! Or you have one less client to serve, and right now, I don’t meet very many accountants who have a ton of capacity.

Yeah. That’s a really good point. I want to go back to something you mentioned and ask you to to talk about it a minute. You said that the word “value” has baggage tied to it right now. And I definitely can echo that—anytime, you know, people, value pricing comes up. And I love the idea of value pricing. Like you said, Ron Baker’s been talking about that for decades, and it’s still woefully behind in adoption because it’s scares people, I think. What is the baggage that value has? How do you get firms to start thinking more about what it’s worth than what’s the value?

I think that’s the right question. So do you have a sense of if I say “This is a great value,” what comes to your mind?

Immediately, I thought discount.

Cheap. Yes.

For whatever reason. Yeah. Cheap. Yeah.

You know why you thought that? Because Walmart has a brand, its store brand is “Great Value.”

Oh, you’re right.

I’m blaming Walmart in part, but we are taught—I mean, I don’t know what year Walmart came out with the big—if you walk in a Walmart, you’ll see the blue signs with yellow writing, and it says “Great Value, Great Value.” If you look on the Walmart brand of Tylenol or, you know, the white label, the Walmart label, the brand is Great Value. And they are leveraging, right? They’re leveraging their amazing buying power to be able to bring you the cheapest possible price for whatever. And so people equate—baggage number one, and I’ll give you a second one—baggage number one is the word value has become incredibly associated with the cheapest possible price. And I know a lot of firm marketers—I know no CPA firms who, a lot do try and compete on price, which is anti their strategy because none of them are seeking to be Walmart or Kmart. So why are they competing on price? Because they’re taught to. I mean, they don’t know why. They’re just doing it because it’s sexy to compete and win, I guess. I don’t know.

But the second baggage—it makes me sad—but the second baggage is that the term value pricing in the accounting space is so incredibly misunderstood. I had—this is evidence of it, I mean, first of all, there are people who, like, close-up and immediately shut down when they hear “value pricing.” You’ve seen it, right?

Yep.

And so why are they put off by it? Because it really is a fantastic concept. The reason they’re put off by it is because they felt threatened—their very nature and livelihood is felt threatened by the concept. But it’s very widely misunderstood, and an example of that is I remember talking to a CPA some years ago, and you see all the surveys they do right now, and you always like, does your firm value price and everybody goes, “oh, yeah yeah, we value price.” So I was talking to a CPA and I’m like, tell me what that looks like, what do you do? You know, how do you go about that? And he goes, well, I do the work, I decide what the value is, and then I send a bill for it. And I’m like, that’s not what they mean by value pricing, you know? You could go back and read Ron’s books and whatever. Value based pricing, it’s quite clear, the definition says the value is in the eye of the beholder. The customer is the sole arbiter of value.

So you can’t decide the value—that’s where we get confused, right? When I’m talking about worth it to the firm, and worth it to the customer. Now here’s where the kind of magic happens and the mindset changes: It is our job to help the customer know what it is that we bring to the table, and how worth it it is to them. They do not inherently know our worth. Part of that is because we’ve always talked about hours, and so your clients might come back to you and say, well, how long is it going to take you? The only reason they’re asking that question is because we’ve taught them to.

We trained them to do so.

We have to teach them a new way to buy from us.

And how do we do that? What is it that we—if somebody said, give me the two minute rundown on how do I teach my client to stop caring or asking about hours, and start focusing on the value we provide, or the worth it to them, what are the conversations?

Sure. You have to stop talking about time. You have to say don’t worry about that, that’s on me. That’s not—that’s my problem. How long it takes is my risk, that’s not on you. Here’s a certain price—we guarantee this is the price. Now with that, we have to be very clear on what the scope is, and I’ll talk about that: You have to be clear about scope before you can feel comfortable committing to a price. You can commit to a price and take risk. That’s fine. If you want to do that, great. But if you don’t want to take tremendous risk, you have to know what your price includes, and you should communicate that to the client. That’s another skill gap that we have. One is talking about worth. Another is making sure that we safeguard our scope, right?

So when you talk to a customer, you want to present to them the conversation about, is it worth it to you to accomplish this for this investment? And when you say accomplish this, here’s another thing that we do that we shouldn’t do anymore, which is we talk about our tasks. And this is so funny, because I think it hit me once that when a buyer says to us, what are you going to do? What exactly are you going to do? So if I gave you a price, Jeremy, I said, you know what? It’s going to be $15,000 for that and you’re kinda like, wow, that sounds like a lot. What are you going to do? They don’t mean your tasks. They don’t mean I’m going to download this file. I’m going to enter this data. I’m going to reconcile these things. They don’t mean your task list. They mean, what are you going to do to transform them, change them, help them, guide them? Where are they going to land?

And we hear the question. What are you going to do? And we’re like, well, I’m going to justify my activity, my time, my efforts, my actions, my tasks, and that’s not what they’re asking. We are so conditioned to justify our number with actions and inputs, that we don’t realize that what they mean is, what do they get out of it. And so that’s a big shift for us. So when we talk to the client, we say, don’t worry about that. Yeah, you know, all your filings are going to be done on time, they’re going to be correct, they’re going to be this and that. I’m going to help you transition your business.

So what I’m hearing is we need to talk less about us and more about the client—to the client.

Go figure, right?

Go figure! Yeah.

Yeah. Ears to mouth ratio, right? Listen more. When you take your notes and you’re having these discovery meetings and you take your notes, don’t write down, you know, the number of investments and the number of credit card transactions, and all the things that we ask statistically to come up with how long is it going to to take us. Ask the questions about where they want to go, ask the questions about what challenges they think are ahead for them in the next year as a business. How can I help you keep your lights on during COVID, right? That was a conversation that we had over and over again. How can we help get you through this?

Yeah.

So ask the questions about what the burning issues are—and it takes practice. It doesn’t come easily. It’s uncomfortable at first. But it gets easier and easier as you do it. If you know the one thing to kind of ascertain, like, is my number right? Which if you’re asking the question, “Did I leave money on the table,” you’re doing it right. Right? If people don’t push back on your price, your price is too low. You gotta have some people push back on your price. If they’re like, yeah, and they take your price, that’s great—this is why I like to give people options. Because they don’t have they don’t have context to make a decision when you give one number, here’s my price, take it or leave it. They have context when they can compare one of your prices to another of your prices to another of your prices. It changes your conversation from will I work with Jeremy, yes or no, to, how will I work with Jeremy? And that context helps you, so when you’re sitting there trying to set your price and feel out, like, what are they going to think the value is? When you put three prices together, you may initially come up with those numbers based on how long you think it’s going to take. Most people do, when they start pricing differently. They’re kinda doing the hours calc, you know, fine. That’s your floor.

Sure.

Look at those, and then in your proposal document, you’re putting, hopefully, outcomes instead of tasks and you go, wow, for this outcome compared to this outcome, it may only take me five hours more, but their result is way more—is worth way more than my five hours. And you know what all this is? It’s honestly, it’s gut, it’s instinct. It’s conversations with your client. Is it worth it to you? Ask them that. We need you—McKenzie does this—we need you to feel it’s worth at least three times what you’re investing with us, or we shouldn’t work together. That is so powerful, because the buyer is then saying it feels, and that’s the f word, right? Does it feel worth it to you?

And at the end of the day, when somebody’s making an investment, yes, it’s business, but they’ve gotta feel like it’s worth it. If they feel like they’re overpaying, it doesn’t matter what they get in the end, because they’re going to feel like they overpaid. But if they feel like it’s worth more than they’re getting, you’re good to go. And I love that 3x multiple, and yeah.

3x isn’t a lot. 3x is actually asking for a pretty big chunk of the worth proposition. I think you’ll find that Bain and McKenzie used to say 3x—now they say 10. I think you’ll find most consulting firms ask a client to trust or or feel that it will be worth 10 times what they invest. Bain used to have on their website 25x.

Wow.

So they were only asking a 25th of what the anticipated worth proposition would be. Now remember, your worth proposition isn’t just a simple formula based on if I double the size of my business, and that would be $5 million going to $10 million, so what’s 1/25th of $5 million. That’s only a part of it. Most people buy based on emotion and justify with logic. So there’s emotional reasons, like sleep better at night, know that my business is going to my kids, and that they are not going to kill each other in the process, right? I mean, those are emotional things, not quantifiable things.

Yeah.

So, yeah, it all comes out, right? It all comes out in the wash, but testing, trying things, having conversations with clients, asking them what’s important to them, really listening and putting packages together that maybe you start with time being a part of your, you know, your base number that you come in with, but then really starting to think about ROI differently. And when you put it in front of the client and they say, oh, okay. And I mean, some people—this is the coolest thing to watch—some people put a, you know, just like wish for a price next to something, like, oh, you know what? I would totally do that for 12 grand, but I’m going to put 20 just because, and the client goes, okay. And then you’re like, wow, I’m never doing it for less than 20 now. And it is so awesome to watch a practitioner feel gutsy enough and confident enough to try it, and find out that it works.

And it kinda goes like this. Well, I would do it for 12, so, you know, I’m going to ask for 14. And then you start going, you know, if I’m going to ask for 14, I might as well just bump it up and ask for 16. And then, you know, maybe I’ll play, maybe 18, because this other option is, you know, whatever. And you just start playing with it, and you realize a couple thousand dollars doesn’t change the customer’s decision.

Right.

And it actually is kinda sad because it makes me realize how you’ve left on the table over the years.

Yeah. And in that context, I guess the question that comes to mind, and maybe it’s just more comfort than it is a question—if the client thinks it’s worth it, you’re not overcharging them, right?

Absolutely not.

Because I know that’s always the pushback. It’s like, oh, I’m I’m price gouging. It’s like, if they think it’s worth it, you can’t be price gouging.

No. It’s not price gouging.

If they believe that that is the right thing to do. Yeah, I love this conversation.

A big tip is that you gotta take out of your engagement letters, you’ve gotta immediately before you do any of this, strike any language that says we’re going to charge you based on time and rate. That has to come out of your engagement letter, or you will feel like you’re being unethical or something in this approach.

Yeah.

And part of it is because your engagement letter says that. Take it out. Once that’s out—and it shouldn’t be in there anymore anyway—once that’s out, you have a lot more freedom you don’t owe it to anybody to charge for time or to reconcile back to time. In fact, you’re really hurting yourself. Like, the same firm that I mentioned to you about the partners and how things changed over the 15-plus years. That same firm, in one year’s time, they had done Lean Six Sigma for their tax processes, implemented SafeSense, SurePrep, XCM, all of those tools, and their WIP was down by 100,000 a month. It was a Top 200 firm. Their WIP was down by 100,000 a month. That’s fantastic. Now theoretically, the firm had—they had conversations internally and said, hey, your WIP is going to be less because we’ve got all these wonderful efficiencies built in. “Don’t bill less than last year for the same client.” And they did. I mean, you know, they said, “Okay, we won’t,” but client by client, biller by biller, they marked things down, they collected less. How can you invest in the technology and the process changes—I mean, think of all the time it takes to learn all those new things, all of that. You invest in all of that and yet you don’t capture any of it.

Yeah.

And part of that is because they still had the “we’ll charge you for actual time” in the engagement letter. Had they—and I had this conversation. I’m like, do you feel like it was unethical to not bring, you know, to not charge just what time was? And they were like, yeah. So I said, let’s get rid of that ethical problem—gone.

Right. Make it easy.

Yeah. To come back to something, and this might be a good place to kind of tie a bow around it, I’ve always believed that marketing is—a good job marketing is making sure that a customer feels like they’re making a really good decision when they hire you, right? They are making a super wise decision. And marketing is also that the entire time they’re working together with you, they feel like they made a good decision when they hired you. They haven’t had a moment where they said “that was a bad decision.” And good marketing is, at the end of the project, when they reflect on the whole thing, they say, “I made a good decision.” And if you are a firm that is really good at marketing, and you’re going to grow, and you’re going to retain clients, and you’re doing everything right, that’s how your customer is going to feel throughout the process. “I made a wise decision hiring that firm or that CPA.” And if they don’t—if any part of that breaks down—you’re doing something wrong.

I believe that is a great way to tie a bow around that. And if they feel like they made a great decision, they’re not worried about what they paid.

Right.

Because they feel like they got everything that it was worth, right? It was worth what they paid, probably more. Maybe it’s 3, 10, 25x, whatever it is, I had a great experience, feel like I got the value out of it, and it it was worth it, right?

Yeah. And they bought into that on the front end.

Yeah. I love this topic. We could talk about it probably for days. And in fact, I believe—correct me if I’m wrong—you have some workshops and different things where you can actually talk about this for days. So If someone has listened to this conversation and they’re thinking, you know what? I need to get Michelle in front of our firm working with our partners, making things happen, transforming us from a firm that is billing by the hour to the firm that is billing for what it’s worth, how do they get ahold of you? Where do they find you? What resources are out there?

Thanks, Jeremy. Yeah. While my website is ForeAdvantage.com, because FORE.com was taken. So you’ll find a lot of information there, and I do work individually with firms. I’ve got several dozen that have begun their transformation. Some have fully institutionalized a model where they stop charging for time—that doesn’t necessarily mean they’ve stopped tracking their time, it doesn’t have to be one in the same, although they come to the conclusion that hey, we don’t need to track it if we’re not charging for it. But there’s definitely—it’s very doable, it’s a process it’s a journey, it’s a marathon, not a sprint, I guess I’ll say.

Yeah.

And it folds into an overarching, you know, business model transformation. You mentioned at the very beginning of this discussion, specializing. And, I mean, there’s a whole set of things that if you’re a specialist, you are worth more than a non-specialist. There’s a whole set of things that make you worth more than not, and that’s just one of them. But listening, being a transformer of your clients, and all of those things elevates your worth. And if you don’t know how to capture it, you need a revenue model shift, because time is never going to capture all of the extra things that you can do to be worth more to somebody. Time will never capture it. Time’s constantly decreasing metric.

It is. And with technology and everything else at play, it should be. Frankly, we should be becoming more efficient, but that doesn’t mean more worth less. So I appreciate that, Michelle. And, again, your website is ForeAdvantage.com. In addition, I will throw out there: Michelle will be speaking at our HeadWaters Conference in Chicago, Illinois this July. She’ll be speaking the morning of 11th on a similar topic, we’ll be talking about worth and how do you make the transition, away, you know, from the old school models to the new school models. And if you’d like to see her there, you can go to UpstreamAcademy.com and find information on our HeadWaters Conference for that. Michelle, I have thoroughly enjoyed this conversation. It’s been a lot of fun.

Likewise!

I think that there are probably additional future conversations that we should have. So I’ll  look forward to maybe having you back on the podcast in the future.

Thanks so much, Jeremy.