In Part 1, we looked at what most service businesses sell, and why selling hours can be a bad idea. Now let’s look at the whole situation from the customer’s perspective.
The Customer’s Perspective
The interesting question in sales (and in pricing), is not “what am I selling?” It’s “what are you buying?” As the saying goes, no one buys drill bits, they buy holes. And they need holes to do something else. Customers buy services for the same reason they buy drill bits. Perhaps they even want to buy the holes, letting you drill them.
Human nature makes us want to focus on ourselves. We want to talk about what we sell and why it’s so great. We want to look at our costs and our goals and set an inward-looking price to make our profits. Customers want to solve their problems. We can be much more successful if we focus on our customers’ problems, figure out the value in solving them, figure out how much we can charge to help solve them, then how we should deliver the offering so we can be profitable.
An extreme example is contingency-based fees charged by lawyers, rain makers, and other high level partners. They get a (big) cut of any benefits, but don’t get paid unless they generate value. These situations require 2 attributes:
- A clearly defined value that the parties can divide.
- A clearly perceived differential value that prevents someone else undercutting the price. In the case of the lawyers, most people would rather get a better lawyer and try to win, rather than “save money” on a cheaper lawyer who is less likely to win and may win a smaller settlement. In addition, trial law still requires geographic proximity– you can’t just outsource your lawyer to a cheaper country.
Most services businesses operate without either of these advantages. Even the customer may not know, or even be able to know, how much value you deliver. And in most cases, there is a cheaper alternative available.
So you need some way of knowing what the customer is buying, what outcome they actually care about, and approximately how much it should be worth to them. Thanks to human nature, people like to talk about themselves and their problems. So if you are genuinely interested in helping them solve their problems, they are usually happy to provide you with lots of information about them. You may even have to ask some questions they haven’t considered. I always like to ask “how will you measure success?”. (See this post on creating a proposal for more details on figuring out what the customer really wants.)
Note that if you overestimate the value, the customer can always tell you that you are too expensive. If you underestimate, they usually don’t tell you that you are too cheap.