What Makes People Buy? Price & Value Masterclass w/ Ron Baker

why does disney command higher prices than amusement parks they're right down the street sea world universal studios i mean there's a ton and you know what is it about these companies well it's because they're focused obsessively on value to the customer and the customer experience and that's what gives them that pricing power i'm like okay on makes a great point i've been looking at this all the wrong way i've been focused too much on this very self-centered idea of like what it cost me to make and the labor and what i should charge i first want to just think two people in particular hector garcia for connecting us because without him this would not be possible and also for another gentleman which i've been heavily influenced by his name is blair enz i'm reading his books on pricing and your name is mentioned i believe on his podcast he refers to your book implementing value pricing as canon and i like to go to the source so i feel like i'm getting a little closer to the source the fountain of knowledge and that is you and so i'm super excited so ron for people who don't know who you are can you please introduce yourself wow ron baker recovering cpa started my life in a big eight accounting firm and by the way chris that's how you carbon data cpa you listen to they say big eight big six big five big four well i'm big eight so it gives you a sense of the era i'm from but i knew i wanted to be a cpa at 15 so you know went through college and got my certificate worked a couple years in public accounting then went out started my own firm and it was there that i realized billing by the hour was a really crappy customer experience and so in 1989 me and my then partner we just decided we're going to do fixed prices there was nobody out there talking about it at least in the professional space there were no books no courses no consultants ever advocated it everybody was into the billable hour and the timesheet and we just said this is a crappy customer experience because the unpredictability of a price is just unacceptable just goes against everything we know about how consumers buy and how humans buy we want to know the price before we buy so we can make that all important value price comparison and we just started doing that we made every mistake under the sun but it was a customer service that got me into this it wasn't the economics i got into the economics later as you see in the book but it was really customer what we now call experience but back then we called it dqs total quality service i was studying companies like nordstrom lexus disney ll bean fedex i wanted to emulate their customer service spirit and that's why we did it and it worked great there's so many things here i want to just dig into a little bit you said at 15 you you wanted to be a cpa that's unusual for a lot of different reasons to have that kind of clarity but why cpa what is it about your life and your life experiences that told you this is what you need to be probably goes back to middle school so ninth grade for me probably sitting at my dad my dad was a barber so i learned business from the inside of a barber chair essentially and we were sitting at the kitchen table and i was pretty good with math and i would help him fill out his deposit slips because i could add really fast and i saw an envelope there and it said pizzeni and brinker certified public accountants and i looked at my dad and i said dad what's a certified public accountant and he said somebody who charges a lot of money and and that stuck with me and so when i went into high school had a great accounting teacher his name was angelo catalani he had a two-year not just a one-year but a two-year accounting program which i did and then i the third year i was his teacher's assistant he would bring in cpas he taught us how to do taxes so i started the tax business in high school i started up an accounting practice did my dad's books i did a bunch of his friends i represented people before the irs all at 16 17 years old that's how i put myself through college and i was doing a time sheet because every cpa i talked to said well you got to track your time you gotta have an hourly rate blah blah blah get into the big eight do a time sheet hourly rate never questioned it until i started my own firm and then i said this is the most ridiculous thing i've ever seen and we changed it now i know your background is as a cpa and you also minored in economics and the book i love the book and i tell people anybody's willing to listen to me you need to read the book implementing value pricing and the reason why is because every single page it feels like i need to stop pause reflect write down understand process and it's that kind of book and it's a little intimidating i have to say for a number of different reasons one is it's listed as 85 on amazon which is pricey for a book but i got to tell you what's inside is worth 10 next at maybe 100 x that if you implement just a few of the key ideas and concepts and for people in my world that are in the creative services space the ideas that you talk about in the book are so counter what we've been taught in our lives it is so revolutionary for people in the creative space to think like this and i want to tackle some of that and the reason why i want to do that too is because i've been talking about getting away from hourly billing and to my surprise people in my own community they call me all kinds of names not very nice names and i'd like to adopt some of their attitudes for you to be able to address so that i can then just point to them and say look at this video listen to this podcast and you're gonna be set don't even take my word for it take it from a person who's lived in this space who is as qualified as anybody ever to speak about this and so can we jump into this oh sure that's fun so here's the thing is that for whatever reason i think historically speaking and i think you talk about this in a book is that value has always been tied to labor why is that and why is that such an antiquated and i won't prime it so much like tell me about that thought and then please guide us through this process right i think in medieval english uh acre the word acre was how much land you could plow in a day or something or in the morning yeah we've always tied labor to value this goes back you can read things out of aristotle plato on this concept but the person who really put a framework around it was karl marx basically positing the labor theory of value that basically said look the value of anything a commodity a product or service is solely determined by the labor that goes into it well okay that's an interesting theory the question is does it explain how you and i spend money so if karl marx was right then a diamond or a rock found next to a diamond in a mine would be of equal value after all it took the miners just as much time and billable hours to find the rock as the diamond but yet i don't see many rocks in jewelry store display cases raw land that has no labor and it trades every day for a fair market price it's got no labor if marx was right then the 20th slice of pizza that you eat or your 20th tequila shot should be just as valuable as your first or your second well obviously over time as you consume more it becomes less valuable so marx didn't take into account the customer he only looked at it from the labor side and said labor hours so it was really overthrowing that theory and you know when you replace a theory you gotta go somewhere and the only place to go from one theory is to another theory and so the correct area value is the subjective theory of value that says no no no no there's nothing intrinsically valuable about anything except human life let's put that aside we're talking commodities there's no such thing as intrinsic value people challenge me on this all the time what about gold what about bitcoin it's got no intrinsic value if tomorrow we learned that gold was i don't know a carcinogenic its value would drop to zero there's nothing intrinsic about value inside of a product or a service it depends on the utility it provides to the consumer so i think i was the first guy to really pull out the labor theory of value and equate that to the billable hour and that branded me a heretic i mean i got a lot of enemies because of that call basically essentially you're calling business people your fellow colleagues marxists and it's a hard thing to get around because we continue to look at it from what we put into something versus what the customer gets and it's a big part of your book because this isn't necessary blueprint on how you can take in reams and reams of money it's really about how you can create greater impact and transformation for your clients and amount of money that you're able to build because of that is based on the impact that you create i want to get back to this thing about this labor theory of value so a common argument that's made within my community is this is that and it seems to make sense from their pov the harder it is for me to do something the more valuable it should be it feels like that so if i have to get a degree to be able to practice something or a graduate degree i put in a lot of time and energy and therefore my price should be higher it seems like that seems reasonable and if i really work on a piece of design a drawing a blueprint it takes me a year to design for a client it should be worth a lot more in theory so the example is something like this a logo is relatively simple to create you have some software you pick out a nice typeface you might tweak it a little bit and so they think then it has a very low market cap and so when i tell them large corporations like someone that you mentioned nordstrom's fedex they pay a lot of money for that logo they can't understand this so can you do a little deeper dive and just pretend like i'm one of those creative people like no it's like unethical it's immoral to charge more than 400 for a logo because that's all it took to make yeah you know this is really interesting this and this again goes right back to the labor theory of value versus objective but basically when you really look at the chain costs are determined by price so price justifies the cost a business can expend so i'll give you an example take a manufacturer that makes hats and coats we all know that code's going to probably be 10 times the price of the hat is that because it costs the manufacturer 10 times more to make the coat than the hat no it's because consumers value the code 10 times more than the hat they're willing to pay a price that justifies the business spending the costs the additional costs to make the coat and so just like going to med school people go to med school because the value of a doctor is so high people are willing to pay a price that justifies their human capital investment going into debt buying insurance all the things doctors have to do so i think this is one of the hardest things for people who bill by the hour to get their head around but cost does not determine price in the real world price justifies cost because if it was true that cost plus say a profit margin and then that determines a price if that theory explain the way the world works cost plus pricing then no business would ever go bankrupt after all it doesn't take a rocket surgeon to put a price above a cost right yet why do businesses go bankrupt well because value is subjective and customers change their mind on a dime and one minute we're fondling our iphones and the next we're off to something else and value changes because it's completely subjective it's in the hearts and minds of buyers has nothing to do with the effort i mean the books i've written chris if i spent 10 years on them and didn't sell one and then ran around with a cheeseboard sign on me and said you don't understand how hard i worked on this nobody cares it's it's what have you done for me lately what's the utility what's the value for the customer stop boring me with your internal costs your efforts your struggles i don't care i care about the outcome nobody cares how long it took toyota to build their car so is it too far to say that then those people who are fixated on what it cost them to make something the labor that they apply to something irrespective of the context and the value to the buyer that they're actually being selfish and myopic and understanding this that's a great point i believe so i believe people who engage in cost plus pricing think the world owes them a living yeah because i've got overhead because i signed a lease because i've hired employees because i bought equipment you have to pay for my costs plus give me a decent profit right now we can argue over that profit margin but yes i do think it's an entitlement there's an entitlement mindset to it whereas in the free market you got to produce value it's you know your customers the ultimate sports fans what have you done for me lately right and if you don't provide that value then they decide which businesses go out and which businesses don't make it you got to please the customer i love that it's a nuanced way of looking at things and i hadn't heard this before that if truly value is equated to cost plus profit then why do companies go bankrupt it's because sometimes and actually often is the case it costs you more to produce something and more labor involved in what the market is willing to pay for something this happens all the time with cars with real estate with everything absolutely and i love that and i want to talk about it a little bit more before we get into the solutions because i think people are really in love with this idea of labor and value another question i had for you is labor is attached to value how does one explain luxury goods oh you can't you can't even explain apple i don't think it cost apple much more to produce my laptop here that i paid i don't know 3500 than it does for hp or dell right there may be sure there may be some you know cost differential but it ain't a lot certainly but not with the iphone or the ipad yet why does apple have such command and pricing power and they can charge five times seven times more than dell why does disney command higher prices than amusement parks they're right down the street sea world universal studios i mean there's a ton and you know what is it about these companies well it's because they're focused obsessively on value to the customer and the customer experience and that's what gives them that pricing power yeah so i guess you're right so assuming that we're a fairly rational logical creatures that you have two similarly spec laptops one from dell which is drastically different in price than apple so why does a rational person say same processor same amount of rams in video card why would i be willing to pay maybe 800 premium or maybe even more for something that has a logo on it that looks like an apple what is the psychology behind that yeah i think well i think it shows you the power of brands people say brands are dead i think that's the furthest thing from the truth i think brands are important they they represent a promise as you know i think you know the price does reflect something about how the company perceives its own value you never see apple go on sale you never see them offer you know may day parade sales or something no because they keep their pricing integrity aligned with their value you never see apple justify price increases because their costs went up every time i read in the paper and now every day now you can read stories a starbucks is raising their price because the cost of coffee went up well i'm sorry i'm the customer i'm not starbucks cost accountant i don't care about their internal cost stop boring me either just shut the hell up and raise the price or don't sit there and try and justify it on costs because i don't care about your costs and dear mr starbucks i'm not buying your costs i'm buying a great cup of coffee or whatever it is or a place to go i'm glad you corrected it as all the coffee aficionados like yeah i know it's a third way the whole third way thing between home and office yeah right so for you you make the determination on whether the cup of coffee from starbucks or anybody else is worth it to you so at some point they're going to raise that cup of coffee to a price point which you're like you know what the experience the feeling i get the great place to go the friends i might bump into it's just not worth it to me anymore and you the buyer you get to determine the value to you right absolutely and starbucks has to continuously test that and see how price sensitive their customers are and what the effect is on demand if they were to raise the price and trust me they know that they study that continuously i mean it's a continuous process but the point is that when i walk into a starbucks and spend five bucks on a latte i only did that because it was worth more than five dollars to me because if it wasn't i could have stayed at home and made a cup of coffee for a dime and yeah starbucks coffee is good but is it 50 times more valuable than what i can make at home no so really what's going on is anytime you see a transaction both the buyer and the seller are making a profit and how do we know this is very simple it's a double thank you moment you get the coffee you hand over your five bucks you both say thank you if you both didn't think you were doing profiting from that transaction wouldn't one person say you're welcome right i love that the double thank you so is it then possible for it to such a thing to exist as an unfair price yeah this is why i have an ethics chapter in all the pricing books i've ever written because this the just price has been again go back to saint thomas aquinas for this and a bunch of greek philosophers i think a just price is one that buyer and seller freely agree to now it's easy for a third party to come in afterwards and say well that was an unconsciousable price or you took advantage of the person obviously if there's fraud coercion any violence anything like that that's an unjust price obviously if there's price fixing or any violation of anti-trust that's not a fair price but the problem with fair is there's no definition of fair it's what a willing buyer and seller agree upon i remember we had reid holden on who's one of my pricing mentors on our show and he was complaining that he was at his second home somewhere throwing a big party and his ice maker went out on the refrigerator and he called a repairman and the guy said well i can come out same day couple hours but it's going to be 300 and he thought that was unbelievably unfair and i said did you pay it and he said well yeah well then by definition you must have thought it was more profitable than the 300 you paid them so no i i even would go so far as to say anti-gouging laws are a stupid policy like after hurricanes because prices send signals about how we allocate resources and when you've got a hurricane and you need lumber and generators and water and pop-tarts and other things the only way to incentivize the person sitting on the couch in ohio to get up from the football game and get in his truck and drive overtime down to a disaster zone is if the price goes up high enough to justify those additional costs of paying him overtime and all of that i think it's a fair price is what takes place between a willing buyer and a willing seller i call it capital stacks between consenting adults okay all right i want to go back to the your statement pricing sends signals so when we go and buy something theoretically a commodity and we look at something that costs a lot less and something that costs a lot more from a buyer's perspective what signals are being sent to them how are they receiving that well that's an interesting question because if you're talking about comparisons between companies or comparison within the company you know most companies will offer us three options right i just bought an apple watch and i had you know there's the apple i don't know se5 and seven so there's always opt and then of course there's options within each one of those so that's comparison within companies but between companies it's very economists love to see markets that have a wide array of pricing think if that didn't exist in restaurants either everything would be mcdonald's or everything would be ruth's chris and there'd be nothing in between well that's a healthy dynamic robust market will have a panoply of price points and value propositions just look at the hotel industry you know with all the different brands hilton garden inn or marriott courtyard or whatever all the way up to ritz carlton in four seasons that's a healthy market so we like to see wide variations in price points and then that means the business is gonna have to figure out where they position themselves you know are you or ruth chris or your mcdonald's and by the way as tim williams taught me my guru when it comes to the marketing world do you know tim chris i do not yeah we should put you together tim's brilliant his ad agency was the one that did what happens in vegas stays in vegas i'll tell you a side story about that and i lost my train of thought it was the wide array of pricing points that you have in the dynamic market and and that's a beautiful thing and what tim taught me is your brand can only stand for one thing so you can't be ruth chris and mcdonald's stop trying to be all things to all people he's a big believer in niching putting yourself in the box specialization by the way he did that campaign uh what happens in vegas stays in vegas which of course changed the zeitgeist of the culture i mean movies were made in that title he's put together a clip like a five six minute clip i've seen it of comedians late night comedians i think it was jay leno at the time i forget who was on johnny but around the world using that what happens in vegas stays in vegas as a you know some type of joke and when i first met tim i believe in 2003 i had read his first book and i looked at him and said i have one question to him how did you price that campaign and he looked at me and then almost looked down at his shoes and just embarrassment and said by the hour and i said how much money do you think you left on the table and he said millions they're still using it i think it was the las vegas convention bureau or something that they did it for sorry for the diversion but no no that's a great story i love that um that goes back to some of the points that you're talking about which is why we have this practices mindset around our value in billable hours there's something here that i wanted to kind of dive a little deeper in which is seth godin wrote this book called all marketers are liars and we as the buyers of stuff are complicit in the lie when we pour an expensive bottle of wine or a brandy into a very expensive glass we tell ourselves that it's going to taste better when we go to an expensive restaurant or amusement park and we pay more for it we tell ourselves this is worth it otherwise we wouldn't pay for it like your friend who had his refrigerator repaired and so one of the things i'd like to talk about is if you want better clients just charge more because the clients are going to say you know you must be worth it what are your thoughts on that i think that's there's some definite truth to that i mean high prices send a signal that this has got to be high quality right it's a heuristic we all use even when we're comparing something within a company like back to the apple iwatch i figure well the apple seven is the seven eight hundred dollar watch it's the most expensive it's gotta be the best it's the latest technology it's the fastest got the most features blah blah blah blah so that's a heuristic that we all have high price equals high quality great experience whatever it might be we need to tap into that but we also need to deliver and it's got to be consistent with our positioning and our strategy and our purpose there is nothing wrong with being a low price leader it is an incredibly viable business model costco walmart southwest airlines h r block mcdonald's you know we can go down the list of companies that don't necessarily compete on price but offer kind of what's called penetration pricing where they come in really cheap and that's very viable problem is in any one industry there's not room for a lot of those folks and it's a completely different business model they have to be completely efficient they have to constantly be on the lookout to save costs and then not only save costs but then pass those savings to their customers in the form of lower prices and that's a tough way to live and i think it's no way to live for people in knowledge work where it's creativity and we're selling our minds not our hands we're not making a product necessarily we're trading in intellectual capital we just can't do that because we're not machines okay one more question in regards to this mindset you've written that value is subjective and that price is contextual if you interpret that it means that you price the customer not the job so charging someone based on what they can afford the relative impact it will make on their business it sounds like charged rich people more charge poor people less is that the idea is if that's the case is that immoral and unethical well no when you look at price discrimination as as it's called and i mean that in the purest economic logic vernacular sense that term has been around since the 20s so there's a lot of scholarship on it if you look it up google it you want to google price discrimination you'll see it's got a rich history and if you think about it without price discrimination the ability to charge different customers different prices irrespective of cost to serve those customers there's incredible welfare effects to an economy from price discrimination if it wasn't for price discrimination you wouldn't have senior discounts you wouldn't have coupons you wouldn't have children uh getting into disney for cheaper or flying on an airplane cheaper you wouldn't get uh expensive drugs into poorer countries at cheaper prices because we price the richer countries more so i think there's enormous welfare benefits from price discrimination and when it comes to a business my guess is you're probably not serving the poor and the rich you may be servicing businesses that are in startup phase with no money and more well-established companies or more profitable steadily and all that but i do think you have to take into account the customer's situation and their context for value otherwise how do you know if you can even adequately service them right if i go to a general physician say i need heart surgery he's not going to be able to help me and he's going to refer me to a specialist blah blah blah but it's just if you're staying in your lane then you have a very well-defined customer and i don't think the price discrimination is that big of a deal you're still going to have variations in prices because different customers are different but it's just not that big of a deal and i don't think there's anything immoral about it okay so if i'm listening to this now i'm like okay ron makes a great point i've been looking at this all the wrong way i've been focused too much on this very self-centered idea of like what it cost me to make and the labor and what i should charge what is the path forward what should i do next how should i look at this if i'm not going to price based on labor and effort in the billable hour what should i be doing well if your price if you follow value pricing you price the customer so you have a value conversation and then blairen's book he's got three step process to the value conversation which i think is brilliant and works really well in your space and just make sure that you understand what it is the customer is trying to achieve so i'll give you a real quick story i need a landscaper i've been in this house for 20 years and i think i've been through about a dozen landscapers okay they frustrate me to no end i can't even begin to tell you and i go and i find three landscapers you know talk to neighbors what oh try this guy try this so they come out to look around give me a bid first guy gets out of his trucks got clipboards walking around the place you know checking the backyard checking how big the lawn is and trees and the shrubs and all of that he says ron we can do this he says we'll be 40 bucks an hour and we'll come out once a week and we're 40 bucks an hour now he's pricing me based on inputs right pure case of he's selling me his costs of course it leaves me with more questions than answers because i'm thinking well you're gonna send a bunch of eight-year-olds out here and mow my lawn with a bb gun it puts my mindset right away well how long is it gonna take i don't care how long it takes what i'm trying to get at is a price the second guy comes out gets out of his truck same thing he's got a clipboard these are pros they know what they're doing they're scoping the job they're pros they've seen a million yards he walks around he looks at me at the end he says yep says we can do this we'll do the edging we'll do the mowing we'll take care of the bushes and the trees hundred dollars a month okay he's not charging me based on inputs he's charging me based on outputs he's given me a defined scope of work if anything pops up outside of that scope i'm sure there would be a change request and okay that's good that's a step up from the input guy third guy comes up gets out of his truck he's got a clipboard too but he starts talking to me so ron tell me about yourself well i'm a consultant writer i travel a lot yeah not home a lot this was pre-covered and i said no not home a lot and he said and i take it you're not martha stewart you don't enjoy yard work no i hate yard work i'm absolutely bored with my yard don't want to think about it i don't want to have to look at it i don't want to see a dead shrub dead tree i don't make me even think about it it's my radar you're in trouble that's why i've been through 12 of you people and he said that's very frustrating he says why did you fire so many landscapers i said because i have to go out and tell them things and i'm not home a lot i'm on the road 200 plus days a year so if i happen to be home when they're there the once a week that they're there it's kind of like every hailey's comet this happens i have to go out and point to a sprinkler that's not working or a tree that's dead why they're the pros they're out there they should just be able to fix this and not bug me about it he said yeah it's very frustrating so he looks at me he says i'm gonna give you three options he says i can provide you with basic maintenance basically the scope of work that the output guy gave me he says and that's 150 a month he says or our middle package is i can bring your yard up to neighborhood standards so you stop getting nasty letters from the hoa and that's 225 a month or if you go for our top package i can give you the best curbside appeal in the neighborhood and over time we will upgrade we will plant new bushes and new trees and we'll do different landscaping and that's going to be 300 a month and that's three times more than i'm paying now at the time i made was confronted with this decision which guy do you think i hired without a doubt guy number three but what option which option did you pick best group site appeal how did he know that he asked me what my intention with this property was i want to sell it in a couple years bingo he didn't know that he might have he still might have put it in there for an anchor but i will tell you if he goes next door to my neighbor who loves yard work that's going to be a totally different value proposition that guy does care he's out there every day we're fiddling with his yard so he's probably going to hire the landscaper to do specific things or maybe just one thing that's a totally different value proposition for me why because value's subjective and context matters but here's the moral of the story i know it was a long-winded sorry story but i'm paying three times more to this guy he's slowly upgrading my yard over he's not doing this upgrade all at once and i'm a happier customer and i'm paying three times more than i was and i'm happier what better win-win situation could you fathom than that and i believe that all of the people who listen to you in their business they have the same best curbside appeal there's a best curbside appeal for every customer it's going to be different but it exists find it and the only way you uncover it is through that value conversation and that's why the value conversation i think blair calls it the closest thing that business has to religion because you need to be in the choir every week to you know really practice and get good at it it's an art but it's really important because if my expectations are too high as a customer or you're not the right provider for me whatever you have to figure that out as the professional and so i always quote the second law of medicine prescription without diagnosis is malpractice and we tend to just dive into the work as professionals because that's our comfort zone that's what we're good at we just want to get going on the work lawyers do this accountants do it and it's wrong you got to take a medical history you got to do diagnostic tests you got to have that value conversation to figure out what their expectation because if you don't do that it's the equivalent of me going to contractor and saying build my dream house well what the heck do you mean by a dream house where your architectural plans so the value conversation or the architectural plans i love that story so much and i think it's so relatable and it's going to be hitting our audience so hard because although a lot of our content is geared towards designers and creative types we're finding that people in the creative services actually expand way beyond this so that landscaping example is so relatable and you so clearly told that story i love it i want to ask you a couple of questions or at least confirm a couple things in this situation of the third landscaper they needed to understand your pain point i travel a lot i don't want to deal with any of this you guys should do your job and be professional and they also found out that you're interested in selling your house and they tied at least in some degree although it wasn't illustrated in the example that curbside appeal has a lot to do with property value or at least the way that we perceive it that's why it's called curbside appeal and so then once he knew that he was able to kind of understand your needs and your threshold of the pain and price and he gave you multiple options which i believe allows you to say okay of these things now have context i know what the cheapest option is i don't want that i know what the middle option is and that sounded pretty good but this other thing where you anticipate my needs and you are a collaborator in the curbside appeal department here i like that a lot and for me i'm speaking for you there 300 bucks even though it's three times as much as you were paying before was solving your problem did we get this right yes um i should have said the third guy is charging me based on an outcome it's actually what i like to call a transformation he's actually transforming me from somebody who you know has a decent yard but wants to take it to the best curbside appeal so he's charging based on outcomes the other thing is i don't think he's just solving a problem he is solving a problem and we professionals were great at solving problems but i think we get too hung up on pain points and solutions to problems peter drucker makes his point is absolutely profound if all we're doing is solving our customers problems we're just reverting them back to the status quo we're not progressing them and this guy's progressing me he's giving me best curbside appeal so yes he's solving my problems but he's also helping me pursue opportunity and i think all professionals across all professions especially marketing build brands do logos branding power and pricing power and all of that we help our clients achieve their dreams we really do and we don't talk about that enough we're too busy focused on what you're paying what you know why do you stay in bed in the morning you know type of thing and i don't think that's a good enough language i think we our language needs to encompass we're not just problem solvers we're possibility pursuers or you know some type of language that indicates that we do more than just revert you back to the status quo the other thing is if i move after selling assuming i stay in california which most people don't but assuming i do who am i going to hire for the new place now i might slide down to his middle level but that's still two times more than i was paying prior guy noticed that all his prices were more expensive than the other landscaper well the hourly guy don't know because he could have piddled around right and charged me a fortune that shows you that if you frame and articulate your value well you can command premium prices so alliteration aside the possibility pursuer is that also the the same concept as some desired future state he's able to help you and him realize this yeah that's the goal of the transformation when you're providing transformations the customer is the product it's not about my yard work i don't care in fact he's coming out tomorrow but usually i'm on a podcast or something like this i don't want them here very long because they make a ton of noise when they're out here so i don't care about the labor i care about that he's slowly but surely upgrading me to best curbside appeal a desired future state that's what we need to get from our customers that's what i mean by best curbside appeal so i'm glad you said that future desired state okay so there's an interesting thing that happened in this illustration the first one where the person came out looked at your yard and ultimately just told you their hourly price so then it begs the question do they even need to come out do they even need to look at their yard why not just tell you you want to hire me it's 40 bucks an hour right it's a great question maybe they just wanted to make sure or something or maybe they have different hourly rates and they think that's a form of price discrimination depending on how big the yard is or how nice the neighborhood is could have been a million things but it's not sophisticated pricing and i see this in the trades a lot i'm amazed by it i had my house painted a few years ago got tunnel windows it's a big two-story house and when i had three quotes and not one of them not one of them offered me options and that is such a serious mistake you've got to offer your customers options because it changes the frame of mind and the customer from should i work with chris to how should i work with chris and that's very very powerful and if you're not offering options then you're not doing that and this is why every business on the planet gives us options except businesses that bill by the hour [Music] it's the opposite it's like a bizarro world when it comes to people in professional services space right yep where everywhere else we have pricing certainty and we have pricing options and we understand that we participate in that and then for some reason when we enter into our own business we put on a special invisible helmet that says in this world those rules do not apply and we're asking our customers all the time to say like okay so i have no idea how much this is going to cost i know what it's going to cost you and i have no certainty of outcome and you want me to sign on the dotted line why would i do that right but that's what we're asking people to do it is it sounds pretty insane and you've probably heard this from your detractors well i can't possibly give a fixed price because i there's so many things about an engagement that i just don't know or the customer could change their mind or right we could have scope creep whatever it's like listen if i'm on the stretcher and the and being wheeled into the or the last thing i want to see is the surgeon standing over me going oh wow look at that i've never seen that before i mean the fact is if you don't know the job that you're quoting or bidding on or filling out an rfp for then possibly maybe you shouldn't be doing it i don't want to go to a heart surgeon who dabbles in it on the weekends i want somebody who's does this for a living has done it a million times knows what they're doing i think that's a function of positioning and specialization and all of that because let's face it we don't hire firms or agencies or professional firms for a wide array of full service offerings we hire them for something specific and we want the best in class and we need it shots are fired you're opening up another can here which i'm in the same camp as you is whether you should specialize or generalize but if i were to say okay ron i hear you i believe in you i believe in this idea you're preaching to me i get it i'm feeling the faith the spirit move in me but i'm a new person in a business so what am i supposed to do do no business or is there a way that i can progress from one model to the next it look it's a great question we've all been through this and i'm the worst defender when i launched my practice i was young hungry and the client or customer criteria was do you have a checkbook and the mirror test if i put a mirror in front of you does it fog and if you met those two criteria then you were a customer as far as i was concerned i didn't care anything else now even if the mirror didn't fog cpa so we can still do some estate work but what happens when you have that mentality of taking every dollar chasing every customer you know never met a billable hour i didn't like which is why because our business model incentivizes activity and it incentivizes billing time then we're going to look at every possible hour as a good thing even though we all know not all clients are equal will happen over time is you will get a practice of very low value customers they'll refer other low value customers other price sensitive customers and if you're in that situation there are some strategies that you can do but if i was starting over i realized that if you specialize it's going to be it could be slower growth but it's going to be more profitable growth it's going to enable you to have a bigger impact i remember a guy who started a cpa firm with nothing and all he did was breweries and today he has breweries around the world why because he speaks at their conferences he writes in the magazines that they read he pushes out content that is really really relevant to a microbrewery and so he's perceived as the expert now it took him a couple years to build it up but he was able to build it up and i think the internet now and all the technology we have you could probably do it even quicker but when you think brewery you think this guy and that's the kind of positioning in the market that you want i mean chris you and i will fly to rochester minnesota to go consult an oncologist that deals with a specific type of cancer that we might have been diagnosed with we're not going to do that for a general physician we're going to google our zip code so when you're a specialist you attract from a much wider geography if not the whole world you work on more interesting cases and you can charge higher prices because you're perceived as delivering higher value okay there's so many different ideas here and i'm trying to imagine myself as the person who's still holding on with their fingernails to these old ideas for whatever reason their mindset or maybe a set of limiting beliefs tells them that this is not possible i can't choose a field to specialize in because i'll lose out on customers i can't ask the customer for more money or to value-based pricing because that doesn't work you talk about this in terms of like self-esteem as a big part of pricing can you expand on that yeah self-esteem uh this is something that i learned early on after teaching this and publishing my first book was that i would get those types of reaction think a lot of professionals really question their ability to add value and i think that's a self-limiting belief obviously i mean it's not an expansive mindset to think that you don't add value obviously if you're serving customers and they're paying you each dollar they pay you is kind of like an applause there are certificates of performance when you've served somebody else to the point where they voluntarily turn over to you more cash or less cash than the value that you brought to them so obviously it's a win-win but self-esteem or if you want to call it self-respect or something else is basically the reputation we have with ourselves that's your first sale if you don't believe you're worth 10 times 20 times 100 times your hourly rate whatever that may be then guess what your customers will never think it either apple certainly doesn't have that limiting belief any other like you mentioned luxury good company doesn't have that limiting belief certainly porsche lamborghini i wish lamborghini had that limiting belief i hey it's just a car come on look i can look and get a kia for 20 grand like come on you guys just the car um no they they understand their value but i do think self-esteem is a big thing i also think there's some people and i'm not sure how many but it's quite a few who kind of been taught brought up money is the root of all evil you know and those types of whether it's religious or some other type of thing you know the rich man will never get into the kingdom of heaven and all that but it's the love of money that's the root of all evil making money is whether it's biblical or whatever but it's a way that we serve one another it's the most noble thing in the world to be able to serve a stranger you know i get on an airplane the pilot doesn't know who i am we may have different political beliefs we may be of different religions or ethnicities he doesn't even know why i'm flying to where he's go or where we're all going but he's enabling me to earn money i'm putting my life in his hands my trust in my airline is probably greater than my trust in my doctor when you really think about it and get on an airline i know we don't think about this and that's a good thing but when you step back and think about it you're like whoa wait a minute that's kind of amazing and all the engineers at boeing who designed that plane and built that plane and the ground crew and the maintenance people that keep it up they're all serving me and yet we may be completely different in terms of what we believe and our religions and all we may be at war with one another but when it comes to commerce they're serving me and they're providing me with more value and i think that's kind of amazing it's a miracle when you think about it okay tying it to an idea in the book is that if we focus on creating value for the customer transformation that's how we're able to get to a place where we're valued more and get paid more and i hear this a lot like no i'm really taking care of my customers i'm creating a lot of value for them but yet i'm not making any money so something is off there ron do you have any ideas as to what might be wrong yeah when i hear that i'm not making any money it's usually indicative of a pricing problem i mean sometimes if they got bloated overhead or they signed too big of a office space or something entered into a lease or whatever but it's usually a pricing problem and there could be multiple causes self-esteem being one of them just not being specialized or niche enough to recognize the type of customer that you want i mean i do believe all professional firms are defined by the customers they don't have we really are we're defined by the services we don't do and the customers we don't have just like a generalist versus specialist doctor is defined that way and if you're trying to be all things to all people that's not a great business model at all never going to get anywhere and so if i hear from somebody i'm not making enough money they're probably undervaluing themselves so that gets into the self-esteem part right once again or perhaps they're actually delusional and actually not creating the value that they think they are sometimes they price too high but you know what 95 of pricing mistakes are because the price is too low i very rarely see anybody gone bankrupt because their prices are too high concord might be an exception yes you know it was not economically viable again proving the point that price justifies cost and what justifies a price is the value and the customers didn't see the long-term value in the concord you've authored seven best-selling books a rumor on the street is there's another book that you're working on is that true that is true and it's going to be on what i'm just affectionately calling with people i talk to about this value pricing 2.0 which is really a different business model it's not really fair to call it just pricing it's a different business model it's a subscription business model uh because i believe we're living in the subscription economy and it's just a tsunami we're seeing more i can't even keep up with it's like drinking from a fire hose i believe teenzo who is the author of subscribe the book subscribed and also the founder of zora which is a subscription-based software platform that enables you to run a complete subscription business now of course he's got a vested interest in saying this but he says in five years time you won't own anything but yet you'll subscribe to everything you won't buy everything you'll subscribe to everything now i'm not willing to go that far because i think ownership on some things is still kind of important to people but i will say this in five years time you'll have the option of subscribing to everything and even if your business doesn't move to subscription it's gonna be confronted with it via your competitors and so it was really interesting to read and i forgot i'm sorry i think it's called shuttle rock they're a creative agency that is offering subscription and so we're starting to see this in accounting firms law firms across professional we're kind of laggards but the big example that i hold up and talk a lot about on the show with ed class my co-host is concierge medicine and direct primary care when you subscribe to the firm rather than being engaged in a transactional relationship you move from transactional to relational with subscription and everything's about that relationship and basically that doctor is telling you whatever you need medically that we can do under our roof and there's the scope it's only things we can do if you need an oncologist we need a cardiac surgeon we're going to refer you out and that's not covered by anything we can do and by the way what we can do is continuously expanding as we add mris as we add pharmacology as we add other services and by the way when that happens we don't necessarily change your price just like amazon doesn't change our price when they drop a new show that we love that we're binging on and what i love about that is it just says whatever you need you're covered stop trying to look at the math of the moment and compare the lifetime value of that relationship what you're doing there is creating an annuity it's going to make your firm more valuable it's going to command a higher sales price and it's probably going to be more profitable and it's as scalable as you want but it just gives that customer peace of mind convenience and a completely frictionless relationship anything i need i'm covered there's no hurdle there's no friction to oh i cut my hand should i call the doctor and go get stitches no he'll come out to the house now they're able to do that because they work with fewer patients they control their capacity so the average general physician in the u.s has 2400 panel of patients that's why you get to spend a total of seven minutes with your doctor half the time they're looking at a screen typing in on electronic health records a concierge doctor only has 600 patients at most and that way they can provide you office visits and home visits and same day visits tell them they were doing telemedicine and texting and email long before kovid they've been around since 1996 that's the model this is super fascinating ron i'm trying to get my head wrapped around this i can feel inside my body some concepts of resistance and i know that means that this is a powerful idea and i want to ask you a couple questions about this i think a lot of us who grew up in the 80s and the 90s and before then ownership was a big idea and we wanted to own things i bought albums i bought cds and cassette tapes and when things went streaming i'm like no i'm going to continue to buy cds and you know what i do i buy the cd and then i download the version the digital version and so we're moving in this way where we're becoming i guess more and more dematerialized in terms of like we physically own and we're okay with a concept but if you think about movies you think about music ride share right a lot of young people don't now don't need to get a driver's license they don't need to own a car and deal with insurance someone else can pick them up you don't have to worry about parking we're sharing homes and airbnb and so it's like this concept is taking root but i see these things as as products not so much as services with some exceptions obviously do you have some examples that you can point to to say here's someone who's on the edge who's in the creative service professional space or just the professional space that are moving to this where you can cite specific how they're doing because i'm so curious about this concept yeah but there are many examples actually there's a lot of law firms doing it and just like we saw at the value pricing 1.0 it's being the innovation the experimentation is being done at the small firm level but we had a cpa on from summit cpa jody grunden and he moved to subscription now he provides like you know part-time cfo services so they'll do all your accounting and tax work and all of that and i think when he converted to subscription his revenue was 600 grand under you know fixed pricing he used i think and then he started to do subscription and kind of moved up market he specialized in think he specializes in marketing agencies actually and he has different package so he offers different packages which you can see right on his website at summit cpa and he has a weekly payment schedule which is interesting most subscriptions are monthly he does weekly and i believe now his firm is up over seven million dollars in the interim so he's really scaled and he says it's all due to subscription because with the subscription that puts the relationship at the center and so i'll give you a couple of examples of this of how this is different than a transaction today if you go to porsha drive you can subscribe and you will get depending on the package that you pick but i'm going to look at the top package which i think is 3 500 a month it'll give you access to i think it's six or eight models of porsche there's an suv in there there's convertible different cars and you can swap out cars as much as you want and they'll white glove out the new one and take away the old one they pay for everything except gas and insurance i mean gas and tolls they pay insurance they pay everything if you need maintenance they just come out take it and keep you know white global loaner and you can trade out as much as you want so i can say hey i got guests coming this weekend they want to go wine tasting i need an suv i'll get an suv and i'll take my convertible and then monday i call and say i want my convertible back and they'll bring it back this is great people say well how's it different than a lease or buying a porsche it's not tied to a car you're subscribing to porsha you now have a one-to-one relationship with porsha they know everything about you you buy a porsche they don't know anything about you you subscribe to porsha and now they have all these analytics they know where you drive they know where you go they know how much you know everything they know what kind of music you like they may know other things about you that relationship is completely different than the transaction completely psychologically it's completely different to subscribe to a business rather than buy something from them apple should be doing this apple does do this with services icloud itunes itv blah blah blah why can't i subscribe to apple and apple just says oh you need a new watch here you go need a new laptop here you go no they could put some rules around it i can't do it every day i get you know every two years or whatever why can't i subscribe to apple that's a different relationship it's more valuable and it locks in loyalty and it's an amazing thing the other one and this might apply more to this is a version of subscription i think some professional firms could use there's an outfit called hassle-free home services you're going to want to look this up it's a franchise and you subscribe to these guys i think it's like 250 a month and they come out and they handle your weekend to-do list all the crap around your house that you do not want to do fix the broken light outside change the you know smoke detectors uh they drain a half a cup of water from your hot water heater which i didn't even know you needed to do check your filters there's a whole list on their website of all the maintenance things that they do just all the piddly stuff that you just have to do on the weekend and then if you want to like say remodel a kitchen or build you know remodel a bathroom or build a deck they'll do that too and you'll probably get a preferred price and they'll manage it and take care of the contractors and all of that and of course if you're subscribing to these people who are you going to hire they're in your house once a month doing all this who are you going to hire to do these bigger jobs each franchise on average earns 50 of their revenue from those one-off projects but the way they get them is they subscribe my colleague talks about this he loves it and this is more internet of things but this is fascinating to me he's got one of those irobot vacuum cleaners and it does everything it did you know you have an app on your phone and it maps your upstairs and downstairs even and it figures out where everything is and then it when it's done vacuuming it goes and plugs itself back into its port it empties its bag and it talks to the mother ship at home and they figure out if you need new brushes and if your bag's almost full and needs to be empty they'll send you text messages and they just mail you the parts he subscribes to his vacuum it's like i forget the amount so i want to say it's 30 it's 30 bucks a month but here's the thing first off he'll be subscribing for the rest of his life you know probably as long as he's got a house that he has to vacuum and second they just didn't go to the market with their standard offering they plused it as walt disney would say constantly plus you can't do subscription without upping your game because it's a different business model and common services don't command uncommon prices and that's what i love about the concierge service if you tell a customer hey anything you need you need a logo you need i'm just going to start a new business or whatever you need a logo over there you can still have options you can still put some boundaries around it just like the home service outfits do but just telling them giving them that peace of mind that hey you're covered if you need this and that way you don't have to go to the department of paperwork and fill out a change request when there's scope creep and have a conversation blah blah blah this is no no we're just going to do a series of serial transformations to continuously help you because the thing about a subscription is all about recurring value recurring frictionless peace of mind value who better than professionals to do that and there's lots of ways to do that and i think customers will pay for that peace of mind we all buy insurance and we love it when we don't use it so fascinating psychology if you think about it i'm in ron i am in that might have been a little resistant at first when the heck is this book coming out probably the end of 2022 i'm actually writing it with paul dunn and he's the guy that i wrote the firm of the future with and that book was published in 2003 and that book was one of the first to kind of introduce the concept of intellectual capital and human capital social capital all of those effectiveness versus efficiency which we didn't have a chance to talk about but that's another part of all of this and i'm really excited about it because i do think the concierge medical practice and the direct primary care which is kind of like a cheaper price point remember we talked about a market having a wide array of price point you have mcdonald's ruth chris dpc is kind of like that's probably the cost of a cell phone per month to subscribe to a dpc 100 to 200 sometimes 300 dollars per month concierge they go after the ceos the top five percent you know you could pay a concierge doctor 40 grand a year for coverage for you your wife maybe your two kids but there's a lot of people willing to do that because that doctor will be there whenever you need them okay how about this when you're closer to publishing the book i'd love to invite you to come back i'm going to work on understanding the service subscription model myself and we could then come back and maybe pick up on some of the other topics because the book implementing value pricing there's so many concepts in here i'm not done reading it and i'm really savoring this one this is like a book that i think it's going to take me a while to read because i like to read a few pages or a chapter at a time just stop and diagram and think about it there's the smile curve which blew my mind we didn't get to talk about that that was nuts and when i tell people this especially in our industry their heads melt it's just too much to process that's that's the ron baker headache is uh the guy who wrote the forward actually it's not the ron baker headache it's the verisage headache uh because we talk and play with these concepts all the time but i will give you a great resource that you and your listeners can go to for more about the subscription economy on the radio show that we do the soul of enterprise.com there's a tab up there favorite shows and can pull down subscription model and you'll get all the shows that we've done on subscription now we've done a lot we've also interviewed the four top authors i believe in the space we've had on teenzo author of subscribed we've had on john warlow author of the automatic customer we've had on robbie kellman baxter the author of the membership economy and also her book the forever transaction and we've had on ann genzer who wrote subscription marketing those four are the leaders in my mind in this space in terms of authorship i recommend all of those books highly and then we've had on dr paul thomas who's a direct primary care physician out of detroit had him on three times he's coming up again in a couple weeks i love talking to him when we first interviewed him he was one guy didn't have a secretary didn't have a physician's assistant it was just him he has a panel of 600 patients which is where he maxes out at and charges around 120 a month so you can do the math very little overhead no billing coding people to bill it because these guys don't take insurance so they get rid of a ton of bureaucracy and that's how they're able to get the cost to a reasonable level for this population and now since he's been in practice now i think a few years he's got three doctors working for him and he's opened up another office so he scaled it he's added more services and just he's flourishing and he has a great quality of life he's not burnt out like a lot of physicians are you know 2 400 patients and they spend a total of seven minutes with them and the big thing because i focus so much sometimes on the business model and the economics and the pricing i want to say this ask yourself why you entered this profession for this industry when you ask a doctor that's like to help people how can you help people if you have 2 400 3 000 patients and you're spending five minutes with them that's not why these guys injured this profession and we've got to readjust i think the capacity to our purpose which is making an impact on people's lives and you can't do that if you have too many customers because you're just not spending enough time with them and you're not getting in depth with them and you're not doing all that you could be for them and i think that's a problem and that's why we see burnout and depression and alcoholism and divorce and even suicide in some of these professions it's amazing to me because if you talk to a lawyer or a doctor or cpa architect anybody and say why did you become you know your profession they'll say to help people that's not what we're living so good if you're listening to this on the podcast i'll make sure our producers include the links to the books and also to the podcast where ron speaks to a bunch of people in the subscription space i just a real delight and an honor to talk to you i feel like now when i'm reading the books the book i'm gonna hear your voice in my head and i'm always happy to have an ally in this because this is such like a big issue that people in our creative community can't get their heads wrapped around so i'm hoping that this is one additional weight on that scale where it puts you over the tipping point so if you're listening to this listen to the man check him out on his podcast and most definitely pick up his book just really anxiously looking forward to reading your book value pricing 2.0 this subscription model i'm really excited about that ron for people who want to know more about you where's the best place for them to find out more about you the soul of enterprise would probably be where i'd start because that's got we've been on the air since 2014 i think we're up to 360 some odd shows we usually if we don't have a guest on we usually have a one topic that we dive deep in so we've done shows on pricing we've done shows on the subjective and the labor theory of value we've done shows on the ethics of price discrimination and just a ton of different topics that ed and i cover we've also had on many business authors that him that we admire and it's a labor of love we do it every friday you can subscribe to it on any place you get your podcast and we also have a patreon channel for the show which is uh patreon.com tsoe and we have different tiers and there's different benefits we have an active community and we get together for the wines and cheeses on zoom or whatever and hopefully we'll get back to maybe doing some live events but that's one place i'd probably go as the soul of enterprise the other thing is the think tank i run which is very sage institute so you can find that at varisage.com there's lots of resources and stories up there and you can find me on linkedin i'm one of the influence bloggers so i've got lots of posts up there on all these topics and i'm on twitter at ronald baker and i'm happy to carry on the conversation and it's so great because i entered this and there was nobody out there talking about it and one of the reasons i built bear sage i wanted a think tank i didn't want a consulting firm i wanted a think tank of like-minded people like yourself that live and breathe this stuff and are out there proselytizing because we do we still need to proselytize you know people say well you're preaching to the choir well listen the choir needs to be preached too too they don't get up and leave you know and the sermon starts and so we tackle these problems internally at paris age and there are now lots of people like blair anne's like jonathan stark over at ditching hourly i mean there's people in every sector now with the mission to kill the billable hour and the time she and i declare victory but now we have to recognize the external world has changed and we're living in a subscription economy we better start skating to the where where the puck's going to be not where it's been you all heard it here first i'm hoped in a matter of months or maybe a year's time and that i'll be happy to report back how we've incorporated some of the teachings and learnings from what i've picked up in the book and also this forthcoming book and how we're going to transform our business ron it's been a real pleasure thank you very much thank you chris thanks for having me hi i'm ron baker you are listening to the future