Most of my title is a quote from Warren Buffet and although he was referring to investments it fits here - in as much as price and value are not always the same thing. As I approach a year trading as a Ltd, I’m evaluating my current relationships with suppliers. What I’ve realised is that my perspective around price and value has shifted since I became responsible for generating my own income. Value is more important than price, even to a micro business like my own where every penny counts.
When I set up, I took the path of least resistance and used the accountancy services of the company I had been umbrella contracting with…and I also then went with their recommendations for banking and insurance (ps. don’t do this unless you’re really time-pressured.) I’ve just given my current accountant notice and appointed a local firm to provide the same core service for considerably less. In going from a big player to a smaller business I’m no longer paying for ‘nice to have’ services that I rarely/never used.
The incumbent wanted the chance to review my package pricing with me before I made the final decision to leave them. This sort of response has always made me smile (through gritted teeth) when it happens: with insurance, mobile phone and entertainment providers. Seemingly, the B2B world is no different. When this happens it’s an example of the supplier realising that the long-term value loss of your custom is far greater than the short-term gain of charging you over the odds. It occasionally happens in reverse for employees too – you are suddenly offered more money to stay as a counteroffer if you resign. So why wasn’t I that valuable yesterday? Same reason.
Why would I want to stay with a firm who has admitted that they have been charging me more than they needed to for a year? As it happens, they could not price match anyway, so I wasn’t tempted. They also missed my point when I said that I was moving to a local firm (“but we’d come to meet you wherever you want in the UK.”) No, I want to support a local business with my business, it’s not really about proximity for meetings. Although, it’s very handy that they’re five minutes’ walk up the road from me and are happy to accept walk-ins for a quick “how to” – a definite advantage of them being a small business themselves is that they can define and tailor their terms of service.
My new accountants were one of three local firms that I approached. One has not replied at all. I assume that I may be too small a business for them. If I am ever looking to change my current pensions manager, their firm won’t be on my short-list. They perhaps made a quick decision about me based on the revenue I may generate for them from accountancy services, without investigating whether I may be a higher value prospect for their other services. The second firm did respond, but after quite a few days. Not only was their reply simply a price, it was more expensive than I am currently paying. By reducing their response to a number, they lost their chance to prove their value to me. By contrast, I’d met my new accountants in person by the time the second firm responded, so I had confidence that their quote was a like for like service on what I currently have. The trust had already formed before I signed anything.
Price is an important signal – no one likes to discover they are paying more (or less) than they need to be to get the service required. But with many services, the extra value derived from selecting the right partner (confidence, trust, advisory) often can’t be put into monetary terms. It’s those businesses that take a little time to get to know their prospects who win in the end, regardless of their price. Today’s world of instant sign-ups and online transactions has perhaps made it too easy to compare (on price) and buy, making us less attuned to think about value.
As a business owner, I face similar issues – often needing to convey my price (and value) in a short document including a fee if I am submitting a proposal. Or even, reducing it to a day rate if I am contracting. It’s day rates I’ve got more experience with, so I’ll focus here. Having been a hiring manager who has taken on contractors, I know that day rates are high in comparison to permanent staff. But it wasn’t until I started to contract myself that I fully appreciated why. Out of my day rate comes my taxes (corporate and personal), NICs, pension, holiday / sick leave, office costs (I’m mostly remote), CPD training etc. I live on the rest and that’s the price part – economics.
My day rate also reflects the value that I can offer clients. Two decades experience that means I may need less management because I have thousands of hours of experience – perhaps less of my client’s time required. I’m also an accomplished collaborator if required, flexible and adaptable to changes in scope and priorities – so I could perhaps service a couple of teams at once. For certain tasks I may be able to complete in 4 days what a less experienced person could do in 5 – depending on the differential that could end up being cheaper, or a better bet if you’re time pressured. A “20-year” day rate.
Which is why I smile (through gritted teeth) when my day rate is challenged, and I’m asked if I can drop it without any offer of a negotiation – I’m happy to negotiate. The rationales are also always odd to me – e.g. because you’ve worked with them before. Well, going back to the accountancy example, that wouldn’t that be me admitting it was too high last time around and I can afford to work for less? Nor would I like to explain to HMRC why successive contracts for the same client and role had different rates (I work outside IR35.)
Another argument put to me is “because you work remotely.” To be honest, I think this one originates from remote working still being classified as a perk for permanent employees by many firms – maybe it’s a fair assumption that I’d be prepared to pay for the privilege? But when I work from my home office my fuel and printing costs increase. Yes, I save on travel but when I do travel it’s a significant cost that varies so much depending on location, frequency and time of day that it’s much easier handled separately i.e. my day rate is already a remote worker rate. That detail sometimes gets lost when it’s just reduced to one number against my name.
I’m lucky, neither of the examples above have happened to me often, but I read stories every day from other freelancers who are also challenged on their rates, fees and prices – few of which have been made up on the spot without any thought behind them. Both in terms of an economically viable price to charge and an estimation of the monetary figure on the value they can deliver. When prices are beaten down too much we should not be surprised if some of the value we were expecting evaporates. It’s much better to consider value from the outset rather than immediately reducing to price.