What are You Selling?
Time, Specific Outcomes, or Value?
You can only put a price on one of these three at a time. Which is lucky, because your client can really only buy one at a time (more on this in a future post).
Your ability to communicate exactly which one you are selling will alleviate your clients’ sense of hesitation now, and the feeling of having fallen victim to a bait and switch later.
Let’s put this all into practical context… Let’s say your client needs you to build… a box.
If you sell time, the deal boils down to an hourly wage. Your client knows you’re working on their box for whatever amount of time you’ve agreed upon. You agree to bill them your hourly fee for that number of hours. They know that if you exceed the amount of hours they’ve purchased, they will have to buy more time or another pack of hours if they want more work from you. What they don’t know is whether or not you will be able to get their box completely built before time runs out — and it’s this exchange rate that is the key. They take on the risk of having paid you and of still not having a box. Additionally, if the box is 85% complete, they have to pay someone to complete that box, and it may as well be you. Careful here, as no one enjoys the feelings of being past the point of no return and/or of being handcuffed to a service provider (see also, major cable providers).
If you’re selling specific outcomes, your client has the benefit of knowing exactly what they are going to pay for a completed box. “We’re going to produce this box for $X.” However, you may not have a complete understanding of how much time it’s going to take you (except, maybe if you are selling an automated box). You take on the risk of putting in the extra hours if it’s a particularly complex box or if materials fail or run out, etc… Here, the client knows they are getting a box and you know you are getting $X. Once the deal is made, the risk then shifts to you. If you complete the box to specification before the deadline, your profits increase. If it takes longer, your profits decrease. For the client, nothing changes; they get their box for the money they paid.
If you sell value, the deal might be set up differently. Early on, you and the client might figure that the box will generate X dollars for them over an easy period to track (a year, two, five, etc…). You agree to provide the box in the beginning, but also agree to maintain the box, ensuring that it achieves certain key performance levels. This requires an unspecified amount of time and resources. The client trades a minimal upfront investment to get the project funded, as well as some kind of a bonus structure that they pay to you later on once milestones are met. You get paid more over a longer period, and the client comes as close as possible to a guaranteed financial return on their investment.
When we come to the negotiating table and enter the conversation without understanding what these three categories really are, we tend to want to sell across more than one of them, usually by erroneously associating the elements of a value sale with a time or outcome deliverable. “Buy these hours and think of the long term value.” “Buy this item and think of the potential ROI.”
What’s worse, the confusion (or obfuscation if you’re up to no good) makes us appear smarmy (and, well… up to no good), or at least a bit inexperienced.
It happens all the time on car lots, for example. “If this car is so fantastic, why do I need to also purchase a warranty?” Simple. Because even though the salesperson pitched a car that will never break and that will retain its resale value for all of eternity (value pitches), all they can really sell you is a physical deliverable: this car, in this color, with this set of feature options.
But the instinct that we have to ask why we would need a warranty is correct. And this misalignment between what is ‘sold’ to typical car buyers and what they actually buy is what informs a stereotype of car salespeople. The best car salespeople rise above the muck and focus on the things they can actually sell — the rest do their best, but as we know, the stereotype persists.
Back to the box… when we are unclear in our communication, our clients then go into a project thinking that they are buying a block of time and that within that amount of time you are guaranteeing that you’re going to build a box and that the box is going to have a certain sustained value over a reasonable term. Meanwhile, in reality, we are offering no guarantee of time or income or value, but we are making requirements of a client to make their investment... a massive communication rift.
What usually winds up happening is your client doesn’t know what they’re buying, or they proceed as if they are lost, or they ignore a risk they perceive and hope everything will just turn out fine (like a warranty on a car), or they come up with their own thoughts on what they are buying and if neither of you communicate clearly at the negotiating table what that is, you could each be going forward with ideas that ultimately oppose each other. Now you’re both set up for disappointment or disagreements in the long run.
None of this is to say that any of these situations is wrong or better than the other. Neither is it to say that these three things cannot be combined in some ways. It is to say that clarity is a key principle of profitable communication for all involved.
If you’re interested in a long-term relationship with your client that everyone benefits from, then it is important that they understand, with great and open specificity, what they are buying:
“You want us to produce a box. We believe it will require X hours. Even though you want a box, you are buying X hours and our work will end once we dispense those hours.”
“You want us to produce a box. A box costs a flat rate of $X. You are buying a box.”
“You want a box that provides a specific range and type of ROI. We need $X to produce the box and $X to maintain the box and ensure that it produces the ROI you seek.”
Even if your deal does cross over into more than one of these areas, be explicit in communicating what those are. “You are buying a minimum of X hours of my time, and you are going to pay $X bonus if we reach this specific milestone of these key performance indicators down the road.” That’s okay.
Always articulate to your client precisely what they are buying; time, a specific deliverable, or value. Be explicit.
Make sure that your clients understand what they are paying, what they are risking and what their known and yet-unknown rewards will be. Be explicit.
Having these tough, open conversations about money and expectations will help you to have a deeper understanding of what your clients want. Most importantly, you’ll establish the trust needed to build a lasting relationship.