Impact Pricing Podcast

Ep184: 3 False Myths About Pricing Debunked with Colin Jasper

Colin Jasper has a Bachelor of Science in Statistics. He’s been in consulting since 1997 and is currently a Principal at Positive Pricing in Melbourne, Australia. Colin is a competitive bridge player, and was a speaker at the Professional Pricing Society (PPS) this year.

In this episode, Colin debunks three pricing myths and explains why these are the complete opposite of what people should be doing in pricing.

Why you have to check out today’s podcast:

  • Discover three common myths people practice when doing pricing
  • Understand why these false myths and are the complete opposites of what people should be doing in pricing
  • Find out why we shouldn’t compete on price and not behave like a commodity

“Let’s not behave like a commodity. Let’s avoid competing on price.”

Colin Jasper

           

Topics Covered:

01:29 – How Colin got into pricing

02:31 – Creating huge impact on companies through pricing

03:31 – Billable hours in professional services firms: Perspectives of clients and firms

07:32 – Fixed $500/month vs. hourly fee for bookkeeping

09:31 – Good, better, best in fixed fee vs. hourly + the ultimate purpose of hourly rates

13:02 – Dealing with the uncertainty of projects

14:37 – Competitor pricing as a pricing myth

16:17 – “Aspire to be the most expensive and not be scared of that”

18:04 – Myth: Losing on price means their pricing strategy is wrong

20:26 – Colin’s pricing advice

23:13 – Pricing table topics: “Value-based pricing is never perfect. You can’t read your customers’ mind.”

Key Takeaways: 

“From a client perspective, if a client doesn’t want hourly rates, that’s fine. They’ve got that. However, from a firm perspective, I think if the firm is going to be client-oriented, they should give the client the fee structure that they want.” – Colin Jasper

“If your firm is going to put their interests ahead of yours, then you’re probably working with the wrong firm in the first place. Because again, if the firm is putting their interests ahead of yours, they don’t particularly care. I think the client ultimately chooses fee structure. It’s our job to give them the fee structure they want, provided the fee level is high enough.” – Colin Jasper

“Ultimately, when I come to what I think is we’re trying to achieve with pricing, it’s coming up with a price that we regard as fair to the firm but is also fair to the client. And I think there are times where the best way to achieve that is through hourly rates.” – Colin Jasper

“If you honestly aim to be the best firm in the market, your price has to send that message. You should aspire to be the most expensive and not be scared of that. You should own it.” – Colin Jasper

“If you never lose work based on price, your pricing strategy is flawed. If you never lose work based on price, you’re leaving money on the table.” – Colin Jasper

People / Resources Mentioned:

Connect with Colin Jasper:

Connect with Mark Stiving:   

Full Interview Transcript

(Note: This transcript was created with an AI transcription service. Please forgive any transcription or grammatical errors. We probably sounded better in real life.)

Colin Jasper

Let’s not behave like a commodity. Let’s avoid competing on price.

[Intro]

Mark Stiving

Today’s podcast is sponsored by Jennings Executive Search. I had a great conversation with John Jennings about the skills needed in different pricing roles. He and I think a lot alike.

If you’re looking for a new pricing role or if you’re trying to hire just the right pricing person, I strongly suggest you reach out to Jennings Executive Search. They specialize in placing pricing people. Say that three times fast.

Mark Stiving

Welcome to Impact Pricing, the podcast where we discuss pricing, value, and the professional relationship between them. I’m Mark Stiving and our guest today is Colin Jasper, and here are three things you’d want to know about Colin before we start.

He has a Bachelors of Science in Statistics, so of course I like him. He’s been in consulting since 1997 and is currently a principal at Positive Pricing in Melbourne, Australia. And believe it or not, he’s a competitive bridge player. Wow. Oh, and I saw him speak at PPS this year and enjoyed what he had to say, so I hope you will, too.

Welcome, Colin.

Colin Jasper

Thanks very much, Mark. It’s great to be here with you.

Mark Stiving

Hey, how did you get into pricing?

Colin Jasper

I stumbled into it; it’s probably the right way. After I did my Bachelor of Science, I actually worked in the corporate world for a while, in business planning, strategic marketing roles, and started to do some pricing work. I went away and did my MBA, and when I finished my MBA, I joined a consulting firm that focused purely on professional service firms. I was basically working as a consultant focused on strategic marketing — helping firms grow, helping firms win more work. And over time, I realized that, particularly within professional service firms, it’s not just about winning work. It’s about winning work at the right price; it’s about rationing scarce resources. And so progressively, I started to move from strategic marketing really into pricing. How do we justify why we should be chosen even if we’re more expensive, and how do we make sure we’re not leaving money on the table? I’ve been doing that for over 20 years and I absolutely love it. I feel very fortunate.

Mark Stiving

And I’ll tell you, I love pricing. I think what I love about it so much is that we can have such a huge impact on companies.

Colin Jasper

Absolutely, particularly within the professional service firms. One the very simple exercises I love to do when I started working with professional service firms is do a very quick exercise with them and say, “What’s your revenue? How many partners do you have? Which are the owners of the business? So okay, you’ve got about a million dollars revenue per partner. A 5% change in price gives you each $50,000 extra in your pocket,” and they are always blown away by that number. They say, “That can’t be correct.” It’s like, well, instead of a million dollars, it’s a million and fifty thousand, and that $50,000 is all profit. You don’t do any more work. You don’t need any more resources. No more overheads. Purely profit. And it’s very much better and it changed their attitudes, because often, within the professions, we jump to a 10% discount. You can do that, but you’ve just given away $100,000 if you keep doing it. The impact is enormous.

Mark Stiving

Who wants an extra $50,000 in their pocket anyway? That’s just —

Colin Jasper

Exactly.

Mark Stiving

One of the things we’re going to talk about today, in fact, the only thing I want to talk about today are pricing myths, and I love this concept. I think it’s going to be a lot of fun. And I’m going to start a big battle in the pricing industry, because I personally like Ron Baker. He’s a super nice guy, and he believes, wholeheartedly, that the billable hours should go away, especially for professional services firms. And you think that that may not be quite accurate, so I’m now going to give you the floor and tell us why that’s not right.

Colin Jasper

Okay. I think you’ve got to look at this from both sides. You have to look at it from the client side, and then you have to look at it from the firm’s side.

From a client side, there are some clients who absolutely detest hourly rates. They think that it drives the wrong behavior. They think it encourages firms to overbill, etc. And if a client feels that way, they don’t have to go with hourly rates. The client can demand whatever fee structure they want. If the client wants a fixed price and the firm won’t give them a fixed price, then they just go to another firm. There will be a firm that will give it. So, from a client perspective, if a client doesn’t want hourly rates, that’s fine. They’ve got that.

However, from a firm perspective, I think if the firm is going to be client-oriented, they should give the client the fee structure that they want. And there are clients out there who actually like hourly rates. There are some clients out there who have turned it into an art form. They screw rates down aggressively with panel pricing, etc., and then they want to make sure that they are getting those low rates. And if that’s the client’s preference, then I think the firm has to engage with that.

Now, I’m all for saying no to work if the price is not right, the price level, but I don’t agree with Lou’s work based on we were unwilling to go with a certain price structure.

The follow up question then becomes one of “Why on earth would any client want hourly rates?” And there’s a couple of reasons. There are times where the client says, “We want you to help us work on these really complex, really strategic, really high valued projects, but none of us know how this is going to play out. And we’re not signing a blank check here. We want to have some sort of an arrangement on how you’re going to charge us.” And the most sensible way in an environment like that is, “Well, how about we charge you on an hourly rate? The more you use us, the more you pay, the less you use us, the less you pay.” And there are many, many clients that are very comfortable with that. I’ll also give you from the other side.

So, the critics of what I’ve just said would say, “But hourly rates do encourage firms to behave inefficiently.” My answer to that is, “Well, if your firm is going to put their interests ahead of yours, then you’re probably working with the wrong firm in the first place.” And by the way, if you change fee structure, it doesn’t actually change anything, because if you move from an hourly rate to a fixed fee and that firm still focuses on their own best interest, now all of a sudden, what they’re focused on is how do we cut corners? How do we do it as efficiently as possible, potentially to the detriment of service, potentially to the detriment of outcome? Because again, if the firm is putting their interests ahead of yours, they don’t particularly care.

So, what are you actually trying to encourage your firm to do? Are you trying to encourage them to maximize the value, delivering outstanding service? And if that’s the case, then why are you wanting to reward low-cost efficiency to the detriment of those other elements?

So again, I think the client ultimately chooses fee structure. It’s our job to give them the fee structure they want, provided the fee level is high enough.

Mark Stiving

Yeah. I think those are really good answers. I love the idea of saying let’s provide the client what they want. And the story that I’ll share with you is I had a bookkeeper for my business and she was charging me $500 a month, and I was pretty uncomfortable with that because I felt like I wasn’t getting $500 a month value out of it, but it’s like I needed a bookkeeper and she was it. She eventually fired me because I was a small client for her, which is okay, and I found a bookkeeper who charged me by the hour. I think I’m averaging in the ballpark of $225 a month with my hourly bookkeeper. And so that just says to me I was getting ripped off by the $500 a month bookkeeper, and it made me uncomfortable. I would have gone hourly from the beginning, and then once I understood, I could have said, okay, it makes more sense for me to go with a subscription or fixed fee or something like that.

Colin Jasper

Yeah. I think there is one other element I’d add on to this as well, because now, I’ve suddenly become the advocate for hourly rates and I don’t necessarily want to be that. What I want to be is if you go with hourly rates, you still have an incredible responsibility not to deliver any price surprises to clients. So, you still have to manage their expectations. The worst thing you can possibly do is send them an invoice they weren’t expecting. So, if you are on hourly rates, we still have to do a lot of work managing clients’ expectations on price. And again, the advocates of moving away from billable hours will say, “Well, why not just give them a fixed price so you won’t have to do that?” Well, because it creates the flexibility that often both the client and the firm want to charge fairly. And ultimately, when I come to what I think is we’re trying to achieve with pricing, it’s coming up with a price that we regard as fair to the firm but is also fair to the client. And I think there are times where the best way to achieve that is through hourly rates.

Mark Stiving

So let me share one more story or one more thought on this topic, and it’s different to what we’ve had before. I tend to think of these ideas or philosophies and say, “Okay, so that’s the truth. Now, does it work everywhere?” And one day I said, “Good, better, best. Every company needs to have good, better, best. Period.” And then I started thinking about hourly rates. “How do you do good, better, best hourly rates?” “Oh, yeah. I’m going to give you my good people or my not so good people.” And so that’s when I started saying, “Wow, this fixed fee for projects makes a lot of sense, because now I can create a good, better, best project and quote it that way.” Now, that’s not to say that that always works, but that certainly is something that made me lean more towards fixed fee than towards hourly.

Colin Jasper

Absolutely. Generally, with good, better, best, the variation is around scope. So, “Here’s what we think is the appropriate scope. However, if you really want to maximize the likelihood of success, minimize the risks, maximize the benefits, here’s a more expensive option. If you’re really, really price sensitive, here’s a cheaper way of doing it. It’s not necessarily what we recommend, but it’s an alternative option.” And generally, the variation around good, better, best is around scope.

However, what you mentioned in the question is also true. It could be about resources. So, there are times, with professionals I work with, where the client will say to the partner, “Look, I really want to use you, but the price is too high.” And one of the options that we talk to partners about is, “Well, do you have a good — different firms call them different things — a senior associate or a director who could primarily run this matter with you supervising rather than you primarily running it?” Put that on the table to the client as an option. “Look, if you want us to do this work but you want it cheaper, this person could run it for you. They’d be your primary point of contact. I’d just be supervising them in the background.” And often the client will say, “No, no, no, I want you to do it because I’ve got trust in you.” “Well, if you want me, you pay for me. It’s going to cost you more.” So, it can be done through the resourcing issue, as you said. I don’t think that’s necessarily the ideal way, but it’s an option that can be explored.

The other element, and it’s a related issue, it’s slightly different to what you said, but one of the biggest criticisms of hourly rates is “Well, that doesn’t necessarily reflect value because value differs from one project to another project.” But for that reason, the hourly rate doesn’t have to be the same from one project to another project. I mean, ultimately, I think people have misunderstood the purpose of hourly rates, which ultimately the purpose of hourly rates, I think, is about rationing time. Because there’s some point you get to where you say, “You know, if you’re going to give me $20 an hour, I’ll probably say, sure, when can we stop? If you want to give me $200 now, I’m going to say, look, that works not for me.” Somewhere between those two points is my rationing point, but it doesn’t mean that everything should be at the rationing point. If I can get more than that rationing point because of the value that I’m delivering to my clients, I think I’m entitled to that. So, to me, that’s the real purpose of hourly rates. It doesn’t mean your hourly rate is $300 you always have to charge $300. That’s not what it should be.

Mark Stiving

Yeah. And I think the other purpose and the one that resonates the most with me when I think about why hourly rates, it is the uncertainty of the project.

Colin Jasper

Absolutely.

Mark Stiving

And so hourly feels the fairest.

I love sharing stories so I’ll give you a quick story. I remember going to a car dealership when I was getting my car worked on and I was paying I think it was $75 an hour for some mechanic to look through my car and hear what was going on. And then I looked on the counter and I could buy a brand-new battery installed for $150. That wasn’t an hourly rate. Here’s what it costs. I’m going to put it in. And sometimes it’s going to cost us a little more. Sometimes it’s going to cost us less. But on average, we’re going to make money on 150 bucks.

Colin Jasper

Yes.

Mark Stiving

And I thought the uncertainty thing really hit me at that point in time.

Colin Jasper

Absolutely, and there is enormous uncertainty. Because again, you can deal with the uncertainty with fixed prices through variations, but if I’m a client and you tell me this project is going to cost $10,000, but then we get into it and you give me a variation of $15,000, I’m starting to feel, how’s that fair? That feels like a rip off. And then I’d want to start to understand what’s behind that $15,000 so we end up going back to hourly rate times hours to try and understand how that $15,000 is fair, whereas if we had simply agreed upfront, “And now that we’ve got into it, here’s the extra work that needs to be done, and to do that work, here’s how much time it will take, here’s how much it’s therefore going to cost,” it’s transparent.

Mark Stiving

Alright. I think we spent all of our time on one myth so far. Let’s at least talk a couple more.

Colin Jasper

Okay.

Mark Stiving

And you brought up competitor pricing. Why is that a myth?

Colin Jasper

Many firms that I work with, they say, “What are our competitors charging? How do we know what our competitors charging?” And part of my answer to this is I actually just think it’s focused on the wrong thing. I find it incredibly frustrating. So, one way I express it is, imagine that you had perfect insight into exactly what your competitors are charging. What would you do with that? How would you use that information? Now, if they charge $1 less, you are choosing to compete on price. You are behaving like a commodity. “Do you really think you’re a commodity?” “Oh, no, I’m not a commodity.” “Well, why are you behaving in that way?”

I’ll express it in a different way. Imagine that you find out your competitors are charging $100 an hour less than you, and yet you’ve got more work than you know what to do with. Should you reduce your price to match your competitors? Or is the market actually saying, “No, you’re worth it”? So, I think we focused far too much on competitors and not enough on what the market is actually telling us about our price. So, if we are losing a lot of work based on price and we don’t have enough work, then we may be overcharging. But if those things aren’t happening, who cares about what competitors are charging? Honestly, I think it’s the wrong focus. I think the much more important focus is do the clients think we’re worth it? And that’s where I’d like to put the focus — what are we worth to our clients? Rather than worrying about competitors.

Mark Stiving

Nice. So let me tell you why I care about competitors’ pricing. I want to know if they’re charging as much as me, I need to raise my prices.

Colin Jasper

I love it. That’s looking at it the other way, and I do get that. So, the one area where I think having knowledge of competitors’ pricing can help is it can give us the courage to charge more, so I absolutely agree. I have the privilege of working with many, many premium firms. And the question I ask is, “Where do you want to be perceived in the market from a positioning perspective? Where do you want to be perceived in terms of who is best?” “We want to be perceived as the best.” “Okay. Where do you want your price to be in the market?” Then they answer, “Maybe the second most expensive?” Do you not see the disconnect? If you honestly aim to be the best firm in the market, your price has to send that message. You should aspire to be the most expensive and not be scared of that. You should own it.

Mark Stiving

Absolutely. And then I’ll end this with a thought experiment I often think about — what if I got arrested for murder? What lawyer do I want to hire? The $100 lawyer, the $500 lawyer, or the $2,000 lawyer? Now, if I could afford it, I’d be spending 2000 bucks an hour.

Colin Jasper

Absolutely. We do a lot of work amongst clients asking them about how they decide which professional service firm to hire. And one of the truths I always like to express is I have never heard a client in New York say, “Get me the second-best tax lawyer.” Never heard it. Never.

Mark Stiving

Nice. Okay. So, let’s jump to at least one more myth. Let’s see at least one more myth. “Losing on price means their pricing strategy is wrong.”

Colin Jasper

This, again, I always find interesting. I remember presenting a session at a firm and I was talking about losing work based on price, and after the session, one of my colleagues was at the back of the room and he said there were two partners talking saying, “I’ve never lost work on price.” And they spoke a little bit too early because my very next line was, “If you never lose work based on price, your pricing strategy is flawed. If you never lose work based on price, you’re leaving money on the table.” It’s actually very, very healthy to lose some work based on price, because if you’re not losing some work based on price, you’re not pushing the boundaries, you’re not challenging it.

And to put it in more mathematical terms, if we put our prices up by 10% and lose 10% of our revenue, we actually have exactly the same revenue, but we have to work 10% less.

Mark Stiving

For more profit.

Colin Jasper

Certainly, more profitable. Absolutely. So, to me, people get very, very sensitive. “We lost on price. Our pricing is flawed. We’re losing based on price.” It’s like, no, losing based on price is very healthy provided we’re not losing so much work based on price that we can’t keep our people busy. But losing some work based on price is actually very, very healthy. If you never lose work based on price, your pricing strategy is flawed.

Mark Stiving

And if you think about it, not every customer is willing to pay the same amount, and what we want to do is serve those customers who have a higher willingness to pay. And if we’re not losing some of those other customers, it just means that we’re not targeting properly. We’re not pricing properly.

Colin Jasper

And to some degree, we want to allow clients to self-select themselves out if they don’t think we’re worth it. And the clients that do think we’re worth it, well, that’s great. There’s also a saying that clients who beat you up on price beat you up on everything. So, I’d prefer clients to choose us because they really value our expertise, because they really like working with us. I want them to choose us for the right reasons. I don’t want them to choose us because I’m the cheapest. Because if they choose is because I’m the cheapest, then it’s not going to be a good relationship. It’s not going to work very well.

Mark Stiving

Absolutely. Alright. Colin, this has been fabulous so far. I’ve got the final question and then we’re going to play pricing table topics.

Colin Jasper

Okay, thank you.

Mark Stiving

Final question — what’s one piece of pricing advice that you’d give our listeners that you think could have a big impact on their business?

Colin Jasper

I think biggest opportunity, if you’d like, is that most professionals recognize that they’re not a commodity, but that doesn’t translate necessarily into their pricing behavior. They often want to compete on price. The number of times I’ve seen within a firm a partner get a new opportunity and say, “This is a fantastic opportunity. How much can I discount?” to which in my view is if it’s such a fantastic opportunity, why do you need to discount? And if you need to discount, that’s not a fantastic opportunity. So, it’s giving them the confidence that they don’t have to compete on price. It’s helping them understand that they’re not a commodity.

I’ll give you one very, very quick exercise that I like to do with partners to help them understand this. I’ll get them to think about work that they’ve won over the last 3 to 6 months. So, get them to write down particular jobs that they’ve won over the last 3 to 6 months. And then I get them to say, why did you win that job? Why did the client choose you? And what I’m trying to do is we talk a lot about differentiation, but to me this is differentiation in practice. That’s why you are winning. So how do you create that, how do you deliver it, how do you communicate it and sell to it, rather than choosing to compete on price? Because very, very, very rarely do they say, “Oh, we won because we were the cheapest.” They generally say “We won because we’re the most talented people in the market, because we had a great relationship with the client, because we’ve done prior work with them and they love us,” and other reasons. Those are the reasons. Reinforce those, build upon those, and the more we understand that. Let’s not behave like a commodity. Let’s avoid competing on price. So, helping partners, you have a confidence that they don’t have to compete on price, I think is my biggest opportunity.

Mark Stiving

I think that’s a great answer. And I would even add to that, if you could get the partners to or maybe even hire someone to go out and ask their clients why did you hire them?

Colin Jasper

Yep.

Mark Stiving

Any third party, and someone saying it and writing it down, you’re like, “Oh my God, you mean really? We’re that good? Oh, I love that.”

Colin Jasper

One client that I’m working with at the moment, they did that, and then I actually followed up with would you actually be willing to pay more for a client? 44% of clients, despite the fact that they knew this research was going directly back to the firm, said, “Yeah, we’d be willing to pay more.” How’s that for a message?

Mark Stiving

Alright. It is time for pricing table topics. You guys may realize that I have made a deck of cards. Each card has a saying on it. I’m pulling out a card for Colin. He is going to talk about this for one to two minutes. And he’s nervous. I can see him sweating right now on Zoom. So, Colin, here is your comment – “Value-based pricing is never perfect. You can’t read your customers’ mind.” So, you have one minute and I’ll type that into the chat for you.

Colin Jasper

So, Mark, you quoted Ron Baker before, and again, I think Ron Baker does some fantastic stuff around value-based pricing. There is one quote from Ron Baker that I’d like to start with, which is “You will make mistakes with value-based pricing, but at least they’re the right mistakes because you’ll learn from them.” So, it’s not perfect. It is an imperfect science, but what we’re trying to do with value-based pricing is align our price to capture a fair share of the value that we are creating for our clients. And sometimes will get that wrong, but the feedback from getting that wrong we’ll learn from because we will understand more about client value. Whereas by comparison, if we’re using cost plus pricing, you don’t learn anything from cost plus pricing. You don’t learn the important things about what value are we actually creating for our clients. So that’s sort of where I’d like to start.

One other thing that I’d like to add to that, which is one of the analogies that I like to talk about is value-based pricing aims to- is the ceiling, if you like. No client’s going to pay more for something what’s worth to them. Cost pricing is basically the floor. We’re not going to price below cost. So, at the very least, aspiring to value-based pricing is we’re trying to reach the ceiling. That’s what we’re trying to do. We’re not trying to see how far above the floor can we get. We’re trying to reach the ceiling. So at least it’s the right mistakes.

Mark Stiving

Awesome. Great answer. That was one minute and 40 seconds, so beautiful job.

Colin, thank you so much for your time today. If anybody wants to contact you, how can they do that?

Colin Jasper

The easiest way is just through our website which is https://positivepricing.com. There, you’ll see a whole lot of the things, in particular the educational programs that we run for professional service firms. Most of our work is with medium and large professional service firms.

Mark Stiving

Excellent. Episode 184 is all done. Thank you so much for listening. If you enjoyed this, would you please leave us a rating and a review? Also, if you like the podcast, your pricing colleagues probably will, too. Please let them know. And finally, if you have any questions or comments about the podcast or pricing in general, feel free to email me: mark@impactpricing.com. 

Now, go make an impact.

Mark Stiving

Thanks again to Jennings Executive Search for sponsoring our podcast.

If you’re looking to hire someone in pricing, I suggest you contact someone who knows pricing people. Contact Jennings Executive Search.

Tags: Accelerate Your Subscription Business, ask a pricing expert, pricing metrics, pricing strategy

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