- How to calculate your real hourly rate
If you’re a professional and you have an hourly rate, you’re probably used to measuring your time in tenth-of-an-hour increments. You keep track of the work you do on timesheets, and then you multiply those totals by your hourly rate. That calculation gives you a value of the work that you performed for your client.
Or does it?
Let’s say that you’re a CPA with five years of professional experience. Let’s further say that you spend an hour working on the audit of a client. Your rate is, say, $120 an hour. By that calculation, at least in theory, the work you performed during that hour was worth $120. And that’s the amount that the client will be charged.
But an hour is an hour. (Einstein’s Special Theory of Relativity is of course beyond the scope of this post.) So what if I spend the hour doing audit work for that client, instead of you? Isn’t it also worth $120?
“No, you idiot,” you say. “You’re not even an accountant.”
That’s true, I reply. But what if I send away for my very own CPA license from an ad in the back of a magazine? Then suddenly I’m an accountant, too. Now is my hour of work on this client’s audit worth $120?
“Of course not,” you scoff. (I get a lot of scoffing.) “It’s not about the license, you maroon. It’s about the knowledge I accumulated over my five years of working.”
Bingo! You just figured the whole thing out. It isn’t the hour of work that creates the value. It’s the knowledge that you’ve accumulated that creates it. You and I could spend an identical amount of time working on that audit, but because I don’t have any knowledge beyond “debits on the left and credits on the right,” the accounting work I do would be essentially worthless. So the single hour on the timesheet does nothing to measure the value that you and I create with our hour.
This is what Peter Drucker meant when he coined the phrase knowledge worker. The value created by a knowledge worker — an accountant, a lawyer, a designer, a consultant, an architect, or an advertising professional — derives from the knowledge that he or she is transferring or applying.
And where does this knowledge come from? It primarily comes from two places: education and experience. So if you’re going to use the amount of time spent to measure the value you create, then you had better account for all the time spent. (You realize, of course, that I don’t advocate trying to measure the value you create by marking the passage of time. I’m just making the point that if you choose that particular metric, you’d better make sure that you’re measuring everything.)
So let’s now try to figure out what your real hourly rate is. First we’ll look at your education. If you grew up in the United States, you were most likely required to go to school from first grade through twelfth grade, plus kindergarten. Most professionals also attended college, so you need to count those hours. Depending on the profession, you probably also attended some graduate school. During all these years of education, you amassed much of the knowledge that you now transfer to your client in your professional life. So you need to add up all those hours.
(Yes, I appreciate that some of those hours are apt to be more valuable then others. You probably learned more things in your second year of law school than you did in kindergarten. Or did you? I don’t remember much from my second year of law school, but I still know what a silent e does. But based on your current timesheet usage anyway, hours are hours. You know that some of the hours you spend working are more valuable than others. You just figure that it all evens out in the end. Using that same assumption, we can measure your education hours as a single total.)
Once you’ve added up your time spent being educated, we need to turn to your professional experience. Obviously, an accountant who has been practicing twenty years knows a heck of a lot more than an accountant who’s only been practicing for one year. So we add up the hours you’ve spent working, too.
So to calculate your Actual Hourly Amount, we need to add your total education hours plus your total professional-history hours plus the hour that you’re doing the actual work for the client. Then we take your hourly billing rate and divide it by that sum. That gives you your Actual Hourly Amount.
You can use this handy calculator to calculate your figure. Just replace the numbers with your own. The grade-school and high-school hours are built in. (If you are reading this post in an email or an RSS reader and don’t see the calculator after this paragraph, click here to go to the post on jayshep.com.)
Surprised? Now that you include all the time that you spent being able to do the work for that client, you suddenly realize that you’re only earning pennies an hour. And I don’t care how experienced you are or how high your billing rate is. Using this calculator, top lawyer David Boies, who bills at $1,220 an hour, only earns one penny for each of those hours when you account for all his knowledge-gathering time spent (education plus 46 years of practice). (I find it ironic that I earned 1.1 pennies an hour, based on 17 years experience and a phantom rate of $600 an hour. I was a very good lawyer, but I was no David Boies.)
Try the calculator with other rates or different levels of professional experience. See what you can look forward to later in your career. Go ahead; I’ll wait.
The point of calculating your Actual Hourly Amount is to show you once and for all that timekeeping is a ridiculous way to measure the value of a professional’s work. I hope that your AHA moment will lead you to realize that the value of the knowledge you sell is based on what it’s worth to your clients when you use that knowledge to solve their problems.
- What kind of price is it?
We’ve been hearing about so-called alternative billing in earnest for the last five years. But many professionals today find the definitions confusing. That’s why most law firms claim to use “alternative fee arrangements,” and yet the billable hour is showing no sign of shuffling off its mortal coil.
Click it to embiggen. You can also download it as a PDF. Feel free to share it.
- How to price mediocrity
I know this lawyer. Let’s call him “Bob,” because, quite frankly, palindromes are fun (and “Stunt Nuts” doesn’t work as well). He’s not the best lawyer in the world; he’s not the worst. In fact, he’s far from either extreme. He’s right there in the middle.
He’s mediocre. When it comes to mediocrity, he’s the best. I’m not being judgmental here; he’s fine. As in when you go to a restaurant and your steak is overdone and your fries are underdone but you don’t want to sound high maintenance so when the waitress asks how your meal was, you say, “Fine.” That kind of fine.
Now because the work that Bob does is mediocre, the very best way for him to price it is by billing his time on an hourly basis.
You see, there is nothing fundamentally wrong with doing mediocre work. It’s incredibly common. In any profession or industry, if you were to draw a bell curve to show the normal distribution of quality, you would see that most performers end up in the middle. Only a few would be truly poor performers, and only a few excel.
And not every customer needs excellent performance. Sometimes, people just want to get the job done adequately, and they don’t want to pay for a higher level of quality when they don’t need to. So I mean it when I say that I’m not criticizing people who choose to do mediocre work. There is certainly a market for it. There are plenty of times when I have chosen not to pay more to get higher quality. If I’m hiring a lawyer to do a basic real-estate closing, for example, I don’t need David Boies to handle that for me.
Because Bob does mediocre work, there’s no need to differentiate the work that he does. The clients who come to him for that level of service all expect roughly the same from him.
For that reason, when all the work and all the clients are essentially equal, then the best way for Bob to price his work is by merely measuring the time spent and multiplying it by his standard hourly rate (which is, unsurprisingly, average for his market). In other words, Bob is effectively “weighing” time on a scale, rather than assessing the value and quality of the work. When a consumer is buying a commodity like sugar, it makes no sense to do sophisticated lab analysis of each individual crystal. Just weigh it. Five pounds of sugar? That will be five dollars, please.
So if Bob is content doing mediocre work for customers who aren’t looking for more, then by all means he should bill his hours. It’s the most efficient way to track his work when all of it is essentially the same. It’s only when work is differentiated — based on the types of customers and the value that they place on the results — that it makes sense to price.
As I said, Bob is fine (as a pseudonymous, palindromic, mediocre lawyer). If you’re a professional and you want to be like Bob, keep billing your hours. But if you’re not interested in being mediocre (or if you suffer from aibohphobia), then it’s time to learn how to price.
- Don’t do what you’re good at
Here’s a short (19:47) video of a talk I gave recently at Super Conference II in Boston. In it, I warned over a hundred lawyers that the advice that they’ve been given — “Do what you’re good at” — is actually bad advice. Instead, they should find their outstandingness. (Yes, I know: that’s not in your dictionary. Well maybe your dictionary is broken. Or quite possibly, I made it up. Either way, you already know what it means.)
By the way, even though I was addressing lawyers, this advice holds for anyone in business.
Thanks to the Massachusetts Law Office Management Assistance Program and the Massachusetts Bar Association for hosting the conference and providing the video.
- How to increase revenue 43%
Ron Baker, the Yoda of value pricing, spoke about the use of options in his talk at the AICPA PSTech Conference in Vegas today. He showed a terrific short Dan Ariely video, which I wrote about on The Client Revolution a couple years ago. Here is that post, along with the video.
How can you increase revenue by 43%?
Short answer: offer an additional pricing choice. Even a stupid one.
Longer answer: Check out this video. It’s almost perfect. It shows how adding a single pricing choice can add 43% to total sales revenue. It’s presented by Professor Dan Ariely, a delightful MIT economist. And it’s only 114 seconds long.
Why don’t you take the 114 seconds to watch it? I’ll wait …
Here’s the math on the different options:
With two choices:
68 x $59 = $4,012
32 x $125 = $4,000
With three choices, one of which is stupid:
16 x $59 = $ 944
84 x $125 = $10,500
Total: $11,444 (an increase of 43%)
OK. Interesting, huh? Ariely’s main point is that customers often aren’t very good at knowing their own preferences, and they take cues from outside indicators of value, such as pricing options. By offering a third choice, even a ridiculous one, customers end up perceiving more value in the more-expensive choice. That’s why Wendy’s sells a triple cheeseburger — not to sell lots of triple cheeseburgers (they don’t), but to sell more double cheeseburgers.
The moral of the story is not to offer ridiculous choices; it’s to offer choices that lead your customers to find differing amounts of value in the various options — something you can’t do if you bill by the hour.
What do you think? What kind of options can you offer to help your clients discover their preferences? Share your ideas in the comments below.
- Every little bit doesn't add up
Back when I had my law firm, we would sometimes take business that didn’t really seem ideal for our practice. Either it wasn’t the right type of client, or they didn’t really have enough money to truly be able to afford us, or something else was wrong with them. But in the end, we would compromise our principles. There was always pressure to bring in more revenue. We had to pay the rent, the payroll, and other expenses. You couldn’t have too much revenue.
Every little bit added up.
And that’s what a lot of people say when they’re trying to justify doing the wrong thing. “Every little bit adds up.” The only problem with that is, it’s not true.
Every little bit doesn’t add up.
Taking on business because it’ll bring about a marginal amount of revenue even though it’s not the right type of client for you is a bad approach. Sure, it’s true that incremental amounts of revenue add up to more revenue. But what that fails to take into account is the hidden costs of taking on bad business.
The time you spend doing the wrong kind of work or doing it for the wrong type of client is time that takes you away from the work you really want to do. And when professionals are doing the wrong kind of work or doing it for the wrong kind of client, they tend to be unhappier. It becomes harder to do the work. Quality suffers. Morale suffers. Yes, every little bit of revenue adds up. But too many professionals fail to account for the emotional costs of doing this incremental work. And they justify it by saying that every little bit adds up.
All kinds of companies make this mistake. For example, look at this rate card from a Las Vegas hotel. I’m not going to name the hotel, because I’m staying there in the near future. But it’s one of the largest hotels in the world. They do a robust business, and they make plenty of money. And yet they have this rate card of incidental charges connected to its business center. This is serious nickel-and-dime nonsense. Eight dollars for the first page of outgoing faxes; a dollar per page for incoming email. (Of course, who even uses faxes anymore?)
While I am not privy to the strategies and mindset of this particular hotel, I am certain that someone there reasoned that every little bit adds up. If they can make a little bit of money on every fax, email, and package received, it will add up to a lot of money. But what they fail to take into account are the costs associated with that. I’m not talking about the actual expenses of receiving packages or sending faxes. Those costs are negligible anyay. I’m talking about the emotional cost of ticking off its customers. Nobody likes to see this sort of nonsense on their hotel bills.
Look at the airlines, and their growing tendency to nickel-and-dime passengers for almost anything they can charge them for. What used to be covered in the cost of buying a ticket is now an additional charge. Baggage fees and change fees are the biggest offenders. Last year, American Airlines took in half a billion dollars in baggage fees and change fees. Arguably, this mitigated its $2 billion net loss for the year. You could say that this is an example of the mantra “every little bit adds up” coming true.
That is, until you look at Southwest Airlines. Southwest is the only major airline to show a profit. Not coincidentally, Southwest is also one of the few airlines that eschews baggage fees and change fees. By avoiding the emotional costs that those nitpicky charges exact on passengers, they run a more successful business.
I’m sure that the bean counters at American Airlines look at the revenue that comes in from baggage fees and change fees and say, “Every little bit adds up. If we didn’t have these fees, we would have suffered an even larger loss.” But I believe that if American were more like Southwest, they might actually make money from flying passengers rather than charging fees.
Another area where the “every little bit adds up” mentality comes into play is in cost-cutting. A lot of companies believe that if they skimp on certain things, “every little bit” that they save will add up to substantially lower expenses and higher profits. But that mentality is misguided.
At one point, someone at my law firm raised the suggestion that we start using less-expensive paper. The paper that we had been using was an expensive, heavier bond that was brighter, whiter, and more substantial than what most other law firms used. It was also much more expensive. And over the course of a year, we spent thousands of dollars on paper. If we switched to cheaper paper, we would save money. Every little bit would add up.
But I wasn’t willing to compromise on that. To me, the written documents that we filed in court or sent to opposing counsel or delivered to clients represented a major part of the value we provided. Sure, it was the words on the paper that mattered, and not the paper itself.
But there is an emotional quality that attaches to the physical documents and to the paper. The paper sent a message that our firm cared about the details. That we cared about how our documents looked. That we put a lot of effort into making sure that our documents were just right. That’s why our documents used a carefully selected font rather than Times New Roman. That’s why our document design was painstakingly developed, rather than merely relying on the default settings of Microsoft Word. And that’s why the paper we used was expensive Hammersmith rather than the bargain Staples generic copy paper. Because every little bit didn’t add up.
Now don’t get me wrong about expenses. Paying attention to important expenses is good business sense. You can make a much bigger difference by saving money on expensive office space rather than using chintzy, generic copy paper. It is the major expenses that actually add up onto you bottom line.
But enough about expenses; let’s go back to revenue, where most professionals have difficulty.
I’ve been there. I know what it’s like to worry about where the next bit of revenue is going to come from. I know what it’s like to not have enough in your firm account and have the rent or the payroll due. It is very difficult in times like those to turn away any client that comes in with a pulse and a checkbook. But trust me: it’s worth it.
Here’s what you can do to help get through it:
Tell the client that it’s not a good fit. Turn away the work politely. If you can, refer them somewhere else.
Figure out how much attention you would’ve had to pay to doing that not-right work.
Commit to spending that time and attention doing tangible things that will lead to getting the right work and the right clients. Get a speaking gig. Teach a continuing-education class. Get an article published. Write a couple posts for your blog. If you don’t already have a blog — hey, it’s 2012: time to start a frakkin’ blog.
Do these things and you will soon find that you’re doing more work that you want to be doing for more clients who you want to be working with. Because here, every little bit does add up.
- Should I survey my customers?
This question recently came up from a colleague of mine. The answer I should have given was that he send all his customers a short form with the following on it:
Would you appreciate receiving a short customer-service survey from us? Please check all that apply:
❏ Absolutely not.
❏ Sure, why not?
❏ Yes. I really enjoy getting mail.
❏ Who the hell are you again?
❏ Yes, because it will remind me to have you send my files to your competitor.
But I didn’t. Instead, I answered along these lines:
No. Surveys are as reliable as polls. In other words, not at all. Why? To borrow the most-used phrases from recently departed (and long shark-jumped) show, House:
People will tell you what you want to hear. People will tell you things to make you feel better. People will tell you things to make you think better of them. “And how was your meal tonight?” “Fine,” you grumble, even though it wasn’t at all.
Years ago, I considered moving my law firm from Boston to the suburbs, but I was concerned that customers and prospects would be less impressed by a suburban law firm. Some people suggested taking a survey. But who would admit to being so shallow that they cared what zip code my office was in? Any data from a survey like that would have had zero reliability.
People will tell you that they’re “satisfied” on a customer-service survey, then quietly go find another provider. If you really cared about your customers, you wouldn’t need a formal survey to know how they felt; you would already know. From, you know, talking with them.
I know people who have had decent success using surveys, but I think surveys tend to be exercises in narcissism that waste customers’ time and put them in awkward situations. If you communicate well with your customers, you don’t need surveys.
- How to Intuitively alienate your customers
Imagine that you bought a new car. It drives OK. It’s not the sleekest or best-looking thing on the road, but it gets the job done, more or less. It gets you to your destination, if not particularly in style.
Now imagine that three years later, you get a recall notice from the auto maker. The form letter explains that it is discontinuing support for your model year, unless you pay for an upgrade that costs nearly as much as you originally paid (87 percent, in fact). Turns out, if you don’t upgrade, your car’s fuel pump will cease functioning altogether. You can go to the gas station and get your fuel, but the car will not be able to process it. Don’t complain to the gas station, though, because they’ll just tell you that you have to pay for the upgrade from the auto maker.
Here’s the company’s recall notice explaining why this must be:
We are committed to developing easy, straightforward cars that help you today and grow with you tomorrow. But it’s a balancing act – making our automobiles better and easier to use while still supporting older versions. So we offer support for the current version of our automobiles and the two previous versions.
Now here’s the kicker: except for enabling your fuel pump to continue working, the so-called upgrade improves nothing about the car that you care about. All it does is provide you with some tacky decals to put on your rear window and bumper, a new vinyl document case for your glove box, and a new floor mat for your passenger-side footwell. Except for the fuel pump being held hostage, you would never pay for this upgrade.
You wouldn’t tolerate this from a car company, or any other kind of company for that matter. But this exactly what Intuit, the makers of QuickBooks and Quicken accounting software, is doing to its customers.
Three years ago, I bought QuickBooks for Mac 2009 for my law firm. I’ve never liked Intuit, because it has always treated Mac customers like something that got stuck on the bottom of its shoe. The software interface has always been garbage, eschewing most Mac human-interface guidelines.
Now I get word that Intuit is discontinuing support for my version of Quickbooks. OK. I get that. All kinds of companies stop supporting outdated versions of their products. But there’s a huge difference between “discontinuing support” and actively crippling a product. According to the text of Intuit’s discontinuation notice, customers will no longer be able to use online banking:
You will see an error message when you try to download transactions, send online payments, or send online transfers. The error message you see depends on your download method. For example, you may see the message “QuickBooks is unable to verify the Financial Institution Information for this Download.” There is no need to contact your Financial Institution, as they will refer you back to Intuit to upgrade your QuickBooks.
(Now you can see where the post title comes from.) In other words, the software that I paid $220 for a few years ago will suddenly stop working in one vital respect unless I pay a ransom of $183 to “upgrade.” And I use the scare quotes because the so-called upgrade contains no improvements that a user like me would find useful.
I understand the desire to increase revenue from your products, and also the benefits of increasing your share of wallet from existing customers. But don’t sell me something and then make it stop working after a certain period of time. If you want to do that, sell me a subscription-based product (like QuickBooks competitor Xero). That way, I make my purchase decision based on the knowledge that it will work for a certain amount of time before I have to pay again.
Surprising your customers with sudden obsolescence is a great way to alienate them, and send them to your competitors. No takesies-backsies, Intuit!
- 🔗 Why time is like food, not money ⭕
I just discovered Practically Efficient, the blog of actuary J. Eddie Smith, IV. I know: really? An actuary? Trust me: it’s OK to look.
I love what he says here about keeping control of your time and using your calendar to help.
To fail to schedule work that you, yourself, deem important is to put your wants last in line. You should regularly schedule non-meeting time on your calendar.
Check out Eddie’s blog. He has a lot of good thoughts on not letting yourself be overwhelmed by all the things you have to do.
- 🔗 Bad advice from Harvard Business Review ⭕
Author Rafi Mohammed advises JCPenney to dump what he calls its “risky” pricing strategy:
The best retailers succeed by offering highly differentiated products (as the Apple Store does) or a unique shopping experience (as Nordstrom or Target does). Today, J.C. Penney sells semi-differentiated products and provides a ho-hum shopping experience — it doesn’t have much “mojo” to draw customers into its stores. So what’s the only lever that can excite and bring in customers to make often discretionary purchases? Discounts…
I believe that even if customers fully understand its pricing strategy, J.C. Penney is not going to get the revenue/loyalty windfall that it is hoping for. It’s time to put pride aside and revert back to a discounting strategy.
Mohammed is a very smart guy and he’s written a couple of good pricing books: The 1% Windfall and The Art of Pricing (both affiliate links). But I don’t care for his advice that JCPenney should surrender and return to the brainless approach of discounting. When you rely on discounts, you send a message to customers that your stuff isn’t worth as much as you originally said it was. This is true whether you’re a midmarket retailer, a car company, or a law firm. Discounting belies a lack of creativity.
In fact, Penney’s path to success lies in something Mohammed said above. Since it’s not likely to start selling highly differentiated products like Apple, its best option is to create a unique shopping experience. It needs to figure out what “JCPenney” is supposed to stand for. In other words, something better and more interesting than “also-ran department store.” (And a name change might be necessary, too.)
No one is going to ever say, “Hey, let’s go to JCPenney because they have a new pricing strategy.” Ever.
- 🔗 Writers need to write more, faster ⭕
In a front-page story with a bizarre exclamation mark in the title, the Sunday New York Times explains that the growth of the e-book market is forcing writers to churn out more books and stories faster. This of course makes me wish I’d learned how to type properly.
But some authors said that even though they are beginning to accept them as one of the necessary requirements of book marketing, they still find them taxing to produce. “I have been known to be a little grumpy on the subject sometimes,” said Steve Berry, a popular thriller writer who writes short stories that are released between books. “It does sap away some of your energy. You don’t ever want to get into a situation where your worth is being judged by the amount of your productivity.”
Maybe that’s why writers don’t bill by the hour. Writers know that their value isn’t based on the time spent writing. Instead, it comes from the messages that their words deliver. Of course, you can say the same thing about lawyers. Huh …
- 🔗 The so-called art of billing ⭕
Lawyer James Conway describes the art of billing on the site JDs Rising:
This is very simplistic, but you only get paid for things you actually bill to the client. If it doesn’t make it onto the bill, you won’t get paid for it. Remember that quick email you sent from your blackberry? Bill it. Remember that “two-second” question that turned into a ten minute diatribe? Bill it. Remember when your partner walked through your open office door and you had a twenty minute brainstorming session on litigation tactics? Bill it. Unless you express your time, you can’t get paid for it. Further, unless you describe all of your work, your client doesn’t understand all the value you are providing for the fee that you charge.
No wonder people hate lawyers.
It’s not that the “client doesn’t understand all the value you are providing.” If the lawyer thinks that the value comes from the time spent sending a quick Blackberry email, then the lawyer doesn’t understand the value. A lawyer (or any other professional) who understands value prices it. Everyone else just measures time and bills it. And annoys the hell out of their clients.
- How to get people to do what you want
Here is the six-minute “LexThink .1″ speech I gave in Chicago in March at the ABA TechShow. In it, I explain the three simple steps you need to take to get someone to do what you want. LexThink follows the “Ignite” speech format: six minutes, 20 slides, 18 seconds per slide, advancing automatically with no control by the speaker.
Enjoy. And if you want the free Result Triangle worksheet, it’s right here. You can print it out and use it right now to help solve whatever problem you’re facing.
- The Result Triangle: Getting people to do what you want
You know how hard it is to get someone to do what you want them to do?
It’s pretty hard. And you know what? We make it harder. We get lost in the details. We fuss about incentives and penalties and policies. We overcomplicate problems.
So if complexity is our problem, then it stands to reason that simplicity is the solution. We need to figure out exactly what we’re trying to do and how best to do it. Well, that sounds fine. But how do we actually make simplicity solve our problems?
To find out, I went through nearly two decades of case files, looked at thousands of business interactions. Where had I messed up? Where had things gone smoothly?
And a pattern emerged, where complexity caused problems and simplicity led to success.
That same pattern appears in hundreds of business books, in all kinds of business interactions. This pattern teaches us the best way to get someone to agree to do something. It comes to down to three simple points. And these three points make what I call “The Result Triangle.”
The Result Triangle works in every business context: negotiations, sales, customer service, management, litigation, pricing. Whatever field you’re in, you can use the Result Triangle to simplify your problem and get someone to do what you want them to do. The three simple points are:
- clarify the goal
- show you care, and
- address the fear
These three points help you figure out what you want … and how to get it. Let me give you 3 quick examples to show how they work in real life.
Clarifying the goal
I usually fly Southwest Airlines. And many of you know that on Southwest, you have to check in early so that you don’t get stuck with a middle seat. Southwest doesn’t do seat assignments. Instead, you check in and get assigned a number. Get a lower number, get a better seat.
Why does Southwest do this? Because their goal is to keep their planes in the air as much as possible. Open seating, flying only one type of jet, and even “bags fly free” all lead to more time in the air. And more airtime means more profit.
Planes make money in the air, not on the ground. Their planes spend 30 percent more time in the air than their competitors’, and they’re the only airline making a profit. By clarifying their goal — “planes in the air” — Southwest gets their people to focus on doing what’s most important.
We tend to take our goals for granted without giving them a lot of thought: To close the deal. To win the case. To make the sale. But a goal needs to be more precise. Clarifying your goal — boiling it down to its essence — is the first step to achieving it.
Show you care
The second point is “show you care.” Let me give you an example:
My dad had this winter coat that he loved and he wore it until it finally fell apart. Turns out my brother was planning a trip up to L.L. Bean in Maine, so my dad asked him if he could pick him up a new coat while he was there.
So my brother brings the coat to try to exchange it and of course he has no receipt because my dad bought it so many years ago. And the folks at L.L. Bean can’t find the same coat. So instead of sending him away, they give him a different one, brand new, without any hassle. Because L.L. Bean cares so much about customer satisfaction.
So my brother gets back and gives the new coat to my dad. And my dad says, “Thanks. But I didn’t get it at L.L. Bean!”
And you know what? L.L. Bean must have known that, but they gave him a new coat anyway. Because they were focused on showing how much they care.
Showing that you care makes people want to do what you want them to do. Because of the coat, my family keeps coming back, and we’ve told this story to hundreds of people. By showing they care, L.L. Bean gets people to keep shopping there and tell others how great they are.
Address the fear
The third point is “address the fear.” I was at a Denver steakhouse recently. Great food, fantastic service. This place focuses on a great experience. When it came time to order, we picked out our steaks and we were trying to settle on a side dish to go with the steaks. The waiter recommended this fancy Brussels sprouts dish.
Now, I like Brussels sprouts as much as the next guy, I really do. But this dish sounded a little too daring for me. The waiter said, “Why don’t you just give them a try? If you don’t like them, I’ll whisk them away and replace them with anything you want, no questions asked.” So we tried them, and you know what?
They tasted like feet.
But even so, we didn’t ask him to replace them. We just moved them around on our plates. Because we didn’t want to ruin the experience. The waiter had addressed our fears about not liking the Brussels sprouts, and that made us happy, even though our fears actually came true.
People’s fears are what keeps them from doing what you want. By addressing those fears, you help people get past them. Even if you can’t prevent those fears from coming true. Simply addressing the fear helps make them want to do what you want them to do.
And that’s the Result Triangle:
- Clarify the goal
- Show you care
- Address the fear
You can start using it today. Anytime you need to get someone to agree to do something, whip out your trusty Result Triangle. You’ll be amazed at how this focuses your efforts.
When you do these three things, you simplify the problem you need to solve and you improve your chances of success. People will want to do what you want them to do.
Download a handy PDF of the Result Triangle Worksheet that you can use right now to help solve whatever problem you’re facing.
- 🔗 Libraries are learning that fines don’t work ⭕
From The Boston Sunday Globe:
In Carlisle, it was a decision that the library trustees began discussing with Gleason’s director, Angela Mollet, almost a year ago. When Mollet mapped out the financials, she discovered that as a revenue stream, overdue fines are actually as much a cost as a benefit…. Moreover, processing the monies collected from overdue books bears its own costs in terms of staff time, for collecting and reconciling accounts, and infrastructure such as change boxes and safes…. “At the rate we were collecting fines, the management cost was greater than the revenue.’’
Too many businesses use fines and penalties to control customer behavior, usually without success. These “sticks” are more likely to cause resentment rather than encourage the desired results. Companies who resist this temptation, like the libraries in this article, give their patrons more credit while suffering no downside:
But she says that most library users seem to have a moral compass that compels them to return items punctually, and there has been essentially no discernible difference in the amount of time that people keep materials since the library began its no-fines policy.
Does your company penalize its customers? Might be time to rethink that.
- 🔗 How to make a billion dollars ⭕
Apple has announced that sales of their third-generation iOS tablet have reached three million since Friday, making this Apple’s best iPad launch to date.
That’s over a billion dollars in a weekend. If everyone bought the low-end $499 version, that’s a cool billion and a half. With many people paying more for 4G capability and higher storage, the real total is probably closer to $2 billion.
- 🔗 Airlines struggle with cuisine, common sense ⭕
Interesting piece on airlines’ attempts to improve the quality of inflight dining. The article, by Jad Mouawad in Sunday’s New York Times, showed the efforts and difficulties of making food suck less while you’re trapped in a metal cylinder six miles above the ground. And I’m happy to give the airlines credit for trying to make the food better.
But one thing jumped out at me: the airlines’ focus on cutting costs. For example, Delta carefully tracks how much money it can save by diminishing its culinary offerings:
A decision a few years ago to shave one ounce from its steaks, for example, saved the airline $250,000 a year…. Delta also calculated that by removing a single strawberry from salads served in first class on domestic routes, it would save $210,000 a year.
I appreciate that the airlines have struggled financially since 9/11. But for every nickel saved on removing a passenger’s strawberry (who puts strawberries in a salad, anyway?) or fifty cents saved on offering an ounce less steak, there is a passenger whose experience on a long and expensive flight just got a little bit worse. Delta and the other airlines would do better to focus on improving their customers’ experiences, and then add 55 cents to the price of the ticket to cover the strawberry and extra steak. I’d pay it. Wouldn’t you?
- What George Lucas can teach you about business by making Star Wars worse
Confession time: I’m a Star Wars geek. I was born in 1967, so I was nine going on ten when Star Wars hit the theaters. I went to see it with my Little League team, and it changed my life.
But the truth of the matter is, Star Wars is only one-third good. The first two movies are excellent. Return of the Jedi has its moments, but they’re lost among too many Ewok hijinks. The prequel trilogy is basically a honking mess.
But many fanboys (and fangirls) of my generation get particularly worked up when George Lucas trots out yet another “special edition” of what is supposed to be immutable canon. This all started in 1997, with the first “special edition” rerelease of the first movie — the version that created the “Han Shot First” rhubarb. Fans screeched that Lucas was making the movies worse!
This issue has returned because Lucas has just rereleased a new version of The Phantom Menace, widely regarded as his worst work since Howard the Duck. But in this hysterical piece, Chris Bucholz explains why we fanboys ought to just shut up and let George do his worst:
Really, if Lucas wants to fix something he thinks was a mistake in an earlier film, that’s his business. Our lives aren’t affected in any serious way if he changes it, nor does he have a contract with us to preserve The Phantom Menace as some kind of cultural monument to poor plotting. We’re just not talking about something that’s that important — it’s not the Constitution, or the Bible, or The Godfather.
The bottom line is, successful businesspeople create the things they want to create, not what they think the customers want. Henry Ford famously said that customers would have asked for a faster horse. (Actually, it turns out, he may not have said it.) Steve Jobs’s Apple didn’t use focus groups, and never asked us if we wanted a physical keyboard on our iPhones. Geniuses — like Ford, Jobs, and Lucas — create the things that they feel passionate about. That’s what geniuses do.
If those things fill a need with customers, then the success will follow. But success does not come from slavishly following the whims and wishes of fanboys. Don’t listen to your customers more than you listen to your passions.
- 🔗 Simplicity at Reader’s Digest ⭕
Here’s Dan Lagani, the (relatively) young (he’s 48) president of Reader’s Digest North America on how he learned how to keep management simple. From the excellent Sunday New York Times column “The Boss.”
I feel as if I’ve spent the last 25 years getting ready for what I’m doing now. During that time, I’ve found that simplicity is crucial in running a business, from keeping your mind open to ideas that present themselves in everyday life to ensuring that your processes are straightforward. It’s a matter of paring complex problems to the essentials.
- Noon to four is not a time. It's a cop-out
So the Thermador dishwasher-repair guy calls to confirm that he’s coming today.
“When?” I ask.
“Between noon and four,” he says.
“You can’t tell me any more specifically than that?” I ask.
“Nope,” he says. “We’re busy.”
Nice. And I’m not.
That suggests to me that he doesn’t really know his job very well. You’ve got to figure that an experienced dishwasher guy would have an idea how long repair calls usually take. And you’ve got to think that the appliance company he works for would have some experience in how to effectively dispatch the repair guys.
For the better part of two decades as a lawyer, I scheduled appointments, calls, and meetings with clients, courts, and other lawyers. Not once did I schedule something for “noon to four.” If I thought a client meeting would run longer than the hour I was planning for, I’d make sure not to schedule something for the next hour. It’s not that hard.
Cable and phone companies, appliance-repair companies, and delivery services: it’s time to start caring about your customers and their time. Either figure out how long your calls will take, or get better at staffing and dispatching. Or both. It’s really not that hard. Giving customers four-hour windows is a cop-out. It’s also disrespectful.
Note: not only did this particular repair company say that they charge by the hour, but they made a point of saying that they also charge in six-minute increments. Nice. Looks like I’ll be watching this guy like a hawk. When he eventually arrives.
- 🔗 Simplicity at Davos ⭕
Author Chris Zook, writing on the Harvard Business Review blog about discussions on the need for simplicity at the Davos economics forum:
We just completed a multi-year study of the root causes of enduring success. We found an increasing premium to simplicity in the world of today — not just simplicity of organization, but more fundamentally to an essential simplicity at the heart of strategy itself. In every industry, we discovered companies that were enjoying an inherent advantage in dealing with the increasing tension of faster moving markets and increased internal complexity due to this ability to keep things simpler and more transparent than their rivals.
- 🔗 John Gruber on Apple’s Mountain Lion ⭕
On his world-class Apple-related blog Daring Fireball, John Gruber reports on his impressions of Apple’s forthcoming new operating system. As usual, he deftly sums up the key to Apple’s success — simplicity:
The changes and additions in Mountain Lion are in a consistent vein: making things simpler and more obvious, closer to how things should be rather than simply how they always have been.
- 🔗 New book on Apple coming soon: Insanely Simple ⭕
Author Ken Segall, who writes the blog “Observatory,” has a new book coming out in April about how Apple has used the principles of simplicity to achieve its remarkable success. Segall was Steve Jobs’s agency creative director for 12 years. Here’s a quote from the book’s site:
To Steve Jobs, Simplicity was a religion. He built a company based on its principles, in which the complexities of traditional business were simply not tolerated. Simplicity was also his most powerful weapon—a means of humbling category leaders once thought to be invincible.
The book looks promising; I’ve already preordered my copy. You can order yours from Amazon here (affiliate link).
- How the Five Guys menu can help your company
A few months ago, when I was visiting my brother in Denver, he introduced me to Five Guys hamburger restaurant. Now I’m hooked. Each restaurant is clean and well lit, decorated with bright white and red tiles, and easy-to-read signs. There is a big box of peanuts for you to help yourself from while you’re waiting. The burgers themselves are as fresh as you will find (they use no freezers), and the french fries are fantastic.
But what really sets Five Guys apart is its menu. Check it out (click it to biggify):
As you can see, there’s not much there. They basically sell only five things: burgers, hot dogs, veggie or cheese sandwiches, fries, and soft drinks. You can add cheese or bacon or both to your burger or dog. You can choose a single patty (called a “Little Hamburger”) instead of the regular double patty. You can have your fries Cajun style instead of regular. And you can add all the usual toppings for no extra cost. And that’s it.
The menu is simplicity itself. They focus on a handful of items and they make them exceptionally well. Customers are not overwhelmed with a bunch of choices. It’s basically, “Burger, hot dog, fries, and what do you want on them?” Couldn’t be easier.
Contrast this with the complexity of the current menu at McDonald’s. There are too many categories with dozens of items, many of which aren’t even clear about what species they’re in. (Just what the heck is a “Big ’n’ Tasty” anyway?) Customers who don’t go to McDonald’s frequently and order their usual are forced to wade through too many choices while people wait in line behind them.
What is more, with so many different food items to prepare, it’s unlikely that they’re all going to be good. Better to do a few things well, like Five Guys does (Five Guys do?), than to do too many things mediocrely.
The biggest irony here is that when McDonald’s started out, its menu looked much like Five Guys’: just burgers, fries, shakes, and soft drinks.
Many businesses think that customers want a lot of choices. But too many choices tend to annoy customers and paralyze them with indecision. Too many choices takes away from the pleasantness of the experience, and eventually drive customers away.
No matter what business you’re in, don’t fall into the trap of thinking you need to offer your customers a lot of choices. Instead, focus on doing what you do best, and don’t do anything else. It’s easier for you, and easier for your customers.
- 🔗 Kudos to JCPenney for simplifying its pricing ⭕
Can new JCPenney CEO Ron Johnson turn around the fortunes of the ailing department store? He certainly hasn’t wasted any time making changes. The former head of Apple’s retail arm recently announced that Penney was radically restructuring its pricing strategy to make it simpler and less dependent on discounts:
“The customer knows the right price,” Johnson said. “To think you can fool a customer is kind of crazy.” In the past, only 0.2 percent of sales came from full price items and Penney’s 590 unique promotions a year were confusing and failed to draw shoppers, he said.
Discounts are almost always a bad idea, as it makes it impossible for customers to discover the value of what you’re selling. And complexity in pricing inevitably frustrates customers, and sends them to your competitors. It will be interesting to see if these changes are in time to save JCPenney.
- One word that will reinvent how you serve clients
Want to know what that one word is? Here are two easy ways to find out:
Go grab your nearest unabridged dictionary. Turn to page one. Start going through each defined word one at a time. You’ll get to it eventually. (OK, maybe that’s not so easy.)
Go to the LexThink.1 site and vote for my proposed talk, “One Word That Will Reinvent How You Serve Clients.” Just click on the handy “vote” icon (see image).
Voting ends February 24. There are 23 other proposals from a rogue’s gallery of big legal thinkers, and only the top 12 will be selected. Your vote will make a difference.
So what is LexThink.1? Well, it’s an evening of very short presentations with a challenging constraint: 20 slides, 18 seconds a slide (equaling six minutes exactly, or 0.1 to you lawyers who still use timesheets). The speaker has no control over the slides, which keep advancing like sands in the hourglass (or something) every 18 seconds. It forces the speakers to keep it brief and pithy, and to leave home all the boring bits. It’s inspired by Japan’s Pecha Kucha Nights, which allows a luxurious 20 seconds for each of the twenty slides. This is its third year; it was previously called “IgniteLaw.”
To see an example, here is my talk from last year: “Quantum Leap: How You Will Practice Law in 2019.”
No matter which proposals get chosen, it promises to be an amazing event. Hope to see you there. And thanks for the vote!
- Business strategy, emotions, and Inception
First of all, if you haven’t seen the movie, do. It’s one of the smartest movies of the last few years. If you haven’t seen it, here’s the general idea:
Leonardo DiCaprio plays Dom Cobb, an expert in extracting information from people’s dreams. But he’s put to the test by a new client who wants him to do something much more difficult: plant an idea in a business rival’s dreaming mind. That’s “inception.” They want their target, Robert Fischer, to break up his late father’s business empire.
As Cobb and his team map out their heist, one of them raises a question central to the movie:
“I will split up my father’s empire.” Now this is obviously an idea that Robert Fischer will choose to reject — which is why we need to plant it deep in his subconscious. Subconscious is fueled by emotion, right? Not reason. We need a find a way to translate this into an emotional concept.
How do you translate a business strategy into an emotion?
That’s a question that all businesspeople should ponder. We tend to focus on creating the ideal business strategy. But we often forget that customers don’t respond to business strategies. Instead, customers — like all human beings — are led by emotion.
You want to increase sales and make your company more successful? Then figure out how to translate a business strategy into an emotion.
Adapted from a Client Revolution post
- Simplicity and lawyers
A friend of mine recently complained how things become so much more complicated once the lawyers get involved. And quite frankly, he’s right. Lawyers do tend to make simple things more complicated. Part of the reason for this is because lawyers are trained to spot issues and raise them before they turn into problems. This is a legitimate and valuable role for lawyers. They are trained in law school to become experts at issue-spotting.
But for many lawyers, this becomes a habit. They end up focusing too much on spotting issues and detecting things that can go wrong. Trying to plan around these issues necessarily complicates the job at hand.
But it doesn’t have to be that way. Instead of just focusing on spotting issues, the better lawyers look for ways to help the clients do what they want to do.
This isn’t a new concept. More than 100 years ago, legendary financier J.P. Morgan explained the proper role of lawyers to his own counsel:
I don’t know as I want a lawyer to tell me what I cannot do. I hire him to tell me how to do what I want to do.
What a beautiful and simple concept. Telling your clients how to do what they want to do.
- Two kinds of lawyers
There are only two kinds of lawyers in the world:
Lawyers who price, and lawyers who don’t. Everything else is lip service, or window dressing, or sleight of hand.
Lawyers who price work very hard to try to figure out what their client’s needs are and what the value is to the client of satisfying those needs. They then come up with a price that is less than or equal to that value, and they tell the client that price before performing the service. The client either accepts that price or does not, and if so, the lawyer does the work at that price. And the price for that service doesn’t change. If the needs unforeseeably change, then a new price will be arrived at. But remember: we’re talking prices, not estimates.
And that’s it. It’s that simple. (It may not be easy, but it’s simple.)
If you don’t do this, then you’re the other kind of lawyer: the kind who doesn’t price.
Obviously, lawyers who bill their time make up the bulk of this category. Telling a client what your rate is and then giving a vague estimate of the time you think you might spend is not pricing. Not by a long shot. Making adjustments to the bill at the end of the month to put the total amount more in line with the value delivered is not pricing. Tracking your time to try to determine any kind of concept of value is not pricing.
Capped hourly fees are not pricing. Blended rates are not pricing. (They’re just a ripoff.) Hybrid fees are not pricing. AFAs (“alternative fee arrangements” — the in-vogue thing to call different alternative billing schemes) are not pricing.
Giving clients a choice between a price and hourly billing isn’t pricing. It’s a copout, and it tells the client that you don’t believe in the value of your services. Tracking your time to see if your “losing money” on priced engagements is the same kind of copout.
Project management is not pricing. Six Sigma is not pricing. Neither is Lean Six Sigma. Or Portly Six Sigma. Or whatever. (And I don’t care if you’re a black belt, orange belt, or a braided-leather belt with a giant John Deere buckle. It ain’t pricing.)
You can go to all the two-day seminars on AFAs you want, but mostly you’ll be learning about Not Pricing. Your time would be better spent learning about your client and how they value the solutions to their problems and whether you can make a profit solving their problems for that amount.
Originally published on The Client Revolution
- There are only 2 types of law-firm fees
If I read another article about “alternative fee arrangements” or hear of another two-day seminar explaining all the various and complicated AFAs out there, I’m going to try to swallow my tongue. (Disclaimer: This is of course hyperbole. I’m not going to do that. And don’t you try it either, just to see if you can do it. You can’t. End of disclaimer.)
Lawyers beholden to the Prohibition Era model of billing and the consultants who court them are desperately trying to show how complex and scary AFAs are. The clients and other lawyers who read these articles and go to these seminars walk away shaking their heads and surrender to sticking with the old billable-hour model. Maybe with a discounted rate, please.
But I’m here to tell you that it is not at all complicated. In fact, if you have seven seconds, I can tell you about all the different types of law-firm fees. Ready?
There are two:
- Time-based pricing
- Solution-based pricing
That is all.
No, really. It’s no more complicated than that. Time-based pricing is what nearly every law firm does, where the price of the legal services depends on the time spent doing the work and the rate of the “timekeeper.”
(In truth, I’m being generous here, because it’s not really “pricing” at all. Pricing is when you tell the client what something will cost them before they buy it; time-based law firms don’t do that at all.)
Under the time-based-pricing model, invented in 1919, every activity is worth the same amount on a minute-by-minute (or really, six-minute-by-six-minute) basis, regardless of how important the task is. With few exceptions, every client is charged the same per hour, regardless of their differing needs. The only measurement of value is the amount of sand that has dropped in the hourglass.
Solution-based pricing is when a law firm sets a price based on the value of the solution to the client. It’s that simple. I’m not saying it’s easy, because it’s not. It takes a lot of thought and preparation and understanding and empathy and experience to figure out how much this particular client values this particular solution at this particular moment. But that’s OK because we’re professional knowledge workers, not pieceworkers in a pin factory.
Clients — simple question: Do you want the price of your legal work to be based on the time lawyers spent, or on the value you place on the solution? It’s one or the other.
(See, I just spared you that two-day seminar on AFAs. You’re welcome.)
What do you think? Can you come up with any other methods? Bet you can’t. But give it a shot in the comments. (I particularly look forward to time-based lawyers protesting about how hourly billing is a kind of solution-based pricing. Good luck with that.)
Originally published in The Client Revolution