Pricing: What World Are You Living In?

If, as a consultancy or creative agency, you struggle to persuade your clients to recognise the value of what you do, a major factor is probably this:

You are living in different worlds.

I’ll call them the World of Inspiration and the World Of Perspiration. As I explain, you’ll see which is yours and which is your client’s, and why the inhabitants of the two worlds would have difficulty understanding each other. Once I’ve explained the differences, I’ll talk about how to bridge the gap so that your clients finally understand, and pay for, your true value.

Where Results Come From

In the World of Inspiration, the 80/20 principle applies. In fact, it’s probably more the 64/4 principle, which you get by applying the 80/20 principle twice. (20% of your effort produces 80% of the result. Apply the same logic again, and 20% of that 20% produces 80% of the 80% – 4 and 64. Or, if you prefer, two hours’ worth of a typical working week produces two thirds of the results of that week).

In the World of Perspiration, the relationship between effort and results is more linear. It’s the 80/80 principle.

What Does Work Look Like?

In the World of Perspiration, work looks like work; driving a truck, carrying bricks, typing at a keyboard, speaking in a meeting…

In the World of Inspiration, work, at least the work that matters, looks like…anything but. A distinguished scientist told me that the two biggest ideas she had in her career both came to her while she was lying in the bath. A friend told me that he would sit in his office with his feet on the desk staring at the wall, and call it research. He wasn’t joking; he was an intelligence analyst at the Ministry of Defence.

Is There A Substitute?

In the World of Perspiration, there’s always a close substitute for whatever you’re buying (without this assumption, the theory of supply and demand does not work).

In the World of Inspiration, solutions are unique. I could put some paint on a canvas, and so could Picasso. The two works would not be substitutes for each other.

When Is Value Created?

In the World of Perspiration, value comes from what you do for the customer. The customer could, if they wished, see it being done.

In the World of Inspiration, value comes from what you did before you even met the customer. The best example here is software; it costs essentially nothing to add a new user. The value comes from the development of the software. That’s why a client of mine could charge up to £1m for sending its customer a copy of a CD. They could do that because on the CD was software representing (I estimated) at least one hundred developer years of effort. All this effort is invisible to the customer.

How long did it take you to acquire the knowledge, experience and insight to produce the results that you do? The answer is probably many years. That’s the period of time to focus on, not how long you spend on an individual client project.

How Much Do Results Vary?

Legendary copywriter John Caples described two ads, both carefully written and produced, the same length, both with photos, run in the same publication. One produced 19.5 times the results of the other. The better ad probably took no longer to write. That is the World of Inspiration.

In the World of Perspiration this could not happen. The equivalent would be a Rolls-Royce Phantom that cost £10,000, could reach 2,000 miles per hour or do 200 miles per gallon.

What’s The Relationship Between Value and Cost ?

In the World of Perspiration, if a food manufacturer is negotiating with a supermarket chain for the supply of cans of baked beans, the price agreed is going to be pretty close to the cost of making those beans.

In the World of Inspiration, if a software company is negotiating a price for a licence, the whole concept of cost collapses. Is the cost of supplying the software – one CD, £10 or the cost of building the product, £10m? Or some figure in between?

So Which World Do You Live In?

It will be clear by now that you, as a consultancy or creative agency, live in the World of Inspiration. Your clients, on the other hand, live in the World of Perspiration.

Once you realise this, you can understand why it is so often difficult to get clients to recognise the value of what you do, particularly if you can offer a superior solution which doesn’t appear to demand any extra work.

The only way to solve this problem is to persuade your client to step into your world, to see things your way. This is not simple, but it is exactly what the Intelligent Pricing Architecture system was designed to do. This page tells you more about the process, and contains an invitation to explore whether, and how, it could help you.