This week we are talking with Kirk Bowman, founder and Visionary of Value at Art of Value, a business model that aligns the interests of the customer and the professional through a fanatical focus on value. Kirk teaches how to create happy customers and make more money by exploring value pricing and how to implement it in your business.

Kirk has another company called Mighty Data, which is a custom software consultancy. In the first 15 years, he billed by the hour. Then in 2009, he participated in an industry panel discussion on estimating and billing practices. He took the position that hourly billing was the best way, however, there was another consultant there who said value pricing was the better way and he said something that rocked Kirk to his core: “If you bill by the hour, there is an arbitrary limit to your income.” You can only raise your rate so high, you can only bill so many hours, and ultimately it creates a conflict of interest with the customer. So after the discussion, he went back and studied that business model and after 90 days he decided to switch his software business over to value pricing. The first year he increased revenue by 56%, second year by 79%, and then he realized this was something he was passionate about. So now he gets excited about helping others make the same switch.

1. Kirk, what is Art of Value, and what inspired you to launch it?

Art of Value is a consultancy that desires to help service professionals, create happy customers, and make more money while they’re doing it. Now that sounds like a bold statement, and it is. But we do it simply by focusing on the value that we are creating for the customer and as we are able to increase that value, we are able to set a higher price and still create outstanding ROI for the customer. When I saw the change that happened in Mighty Data, I had some people inquire about it and I actually gave some presentations on it and I really found a new passion for this business model. It isn’t just about making more money; it’s the fact that it has become what I call a “value lifestyle” for me. I am so focused on creating value for the customer - it’s an obsession. It’s given me the opportunity to take the creativity that I used to use in software and other things and apply it to this area of “how do I create more value for the customer?”

2. Do you have first hand experience switching from the billable hour model to the value pricing model?

I do. I know what it is like to have to track your time. I know what it's like to forget to track your time and have to recall it. You have to go back through emails, phone logs, notes, trying to reconstruct it. I know what it is like to even create an hourly invoice – even that takes time having to proof it. I know what it’s like having to send the invoice to the customer and hoping they don’t balk at having to pay it because they don’t understand it. I was good at hourly billing, but I can say I am so happy that I don’t do it anymore.

3. Value-based pricing sounds complicated, how do professional service providers make the switch from hourly to value-based pricing? Is it scary?

This is a great question. I would say that you have to commit to the business model. It is a business model change, even a philosophy change. Now certainly you want to start out slow. I would say make the commitment to switch, study the business model, and then start with one new customer. And then based on that, start with another new customer. Then once you’ve worked with new customers in the business model for 3-6 months, then you’re ready to start transitioning existing customers. This is where you may run into problems. Because when you switch existing customers they’re either going to love it, they’re going to try it and decide it’s not for them, or they’re not going to even be willing to make the switch. And so when you make this business model change, you have to be prepared that you probably will have some turnover in your customers. But that’s ok because the customers who stay are the ones you want and the ones who leave probably weren’t the best fit anyways.

When I made the change with MightyData, it was extremely scary. However, it was scarier with existing customers because you have to go through this conversation of why you are changing your business model. So you say that you want them to be able to buy services just like you do for anything else and find out what the price is up front. Notice there is a difference in vocabulary: hourly billing and value pricing. Billing happens after the work is done. Pricing happens before any work is completed. Customers will pay a premium for a price certainty. It also communicates confidence to your customer. I will tell my clients that I just want them to be able to buy a fixed scope for a fixed price.

4. For someone who has gotten completely away from the billable hour and moved to value based pricing, do you still track time, and if you don’t, how do you know how productive your employees are?

As far as tracking time, we did try tracking sheets for the first year as we made the transition over to value pricing. Then once the transition was complete, we stopped tracking time. Now my employees tell me that if they had to start tracking time again, they would leave. It’s been so freeing for them. As far as knowing if they are productive, I would suggest simply setting deadlines or milestones and see if those have been met on time or not. Really there are only three things I care about: (1) Did we do it on time? (2) Is the customer happy? (3) Did we do it with quality?

5. We noticed that one of your podcasts features David Wells of Moores, a legal practice in Australia. Can law firms and lawyers actually get away from the billable hour?

Absolutely. I’ve known several law firms that have done it. It’s a mind shift and the legal industry, like other industries, has deep roots in the billable hour, so to change it starts with commitment from the top. You have to have commitment from all the principal partners and leaders of the organization. They’ve got to be fully committed to it. The law firms that are most successful with value pricing are the ones that don’t track time because it is getting rid of the time sheets and it is like getting rid of the anchor that’s going to hold you to the old way.

6. What’s your mission with Art of Value?

With Art of Value, I want to help professional service firms make the transition from the billable hour over to value pricing. If they are already doing fixed pricing, great, but we still need to move them over to value because most fixed prices are based on an hourly estimate. Whereas when you are truly pricing on value, you are finding out what’s important to the customer, what really matters to them, and once I understand that then (1) I can make sure I am pricing for what is important to them, and (2) I’m not trying to sell them something they don’t even want or need. With value pricing you have an opportunity to offer them a guarantee, which I know sounds scary. You can't obviously guarantee a result in the legal field, but you can guarantee a service.

7. What piece of advice would you give to a first-time entrepreneur starting out?

Save money. Be financially sound. It is much easier to make sound decisions as an entrepreneur when you have a solid financial base. That means having 3-6 months of expenses personally in the bank. It means not doing it through debt. It means doing things frugally and so forth. I think that is one of the best things a first-time entrepreneur can do.

8. What’s your “one thing” that most drives your professional success?

I get just flat out giddy when I help an entrepreneur or business owner figure out how to offer a new option that creates new value that they’ve never offered to their customer. They get to offer it in a different way, they get to offer it at a price that’s two or three times their competitors, and their customers will actually pick them. That drives me – I would do that for free. Obviously I don’t, but I love it that much.

To listen to full podcast interview with Kirk Bowman, visit our Podcast page.

For Conversations with other thought leaders and innovators in the financial industry, see innovator Diane Seimetz of Launch Agency and innovator Reid and Heidi Rasmussen of freshbenies .

For more information about related legal issues, read our Professional Services industry page.  

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