Applying Trust Principles to Pricing

A New Perspective on PricingLet’s get tactical.

Friend Mark runs a small coaching business, mainly by himself.  He focuses on an intersection of personal and business development issues: helping people get unstuck.

The usual approaches to pricing in that business are tried and true. Rates are typically quoted for a month at a time, over a planned period of months. Variations on the theme are weekly rates, or hourly rates with a stipulated number of hours agreed upon up front.

Basically, it’s a time-based fee linked to some agreement about the period of time over which the agreement will be in effect. It’s an arrangement familiar not only to coaches, but to consultants, lawyers and other professionals.

Attempts are occasionally made to introduce value-based billing. The attempts succeed or founder based on both the definition of value, and the percent of said value attributable to the professional. I’d love to hear from readers about successful examples, but I’ve rarely run across them.
Mark, however, has some interesting ideas.  Let him tell it.

Many of my clients are hourly-type billers like me.  Since it takes me 8 hours, on average, to get a client from stuck to where they want to be…one approach is to charge them 8x the rate THEY bill at. Using their rates rather than mine, I suspect, is both easier to comprehend for them, and it strikes them as client-focused.

Another approach is that I figure I can work with about a hundred paying clients a year.  So, each client represents 1% of my income.  So I now ask 1% of their income as the fee.

Again, from what I can see, it engenders even more trust in the coaching relationship, helps things go faster, and makes it more likely for clients to refer.  Now, there’s no way I’d ask them to verify that the figure they give me is 1% of their income – I leave it all up to them.  And, of course, if they aren’t satisfied with the journey, I don’t charge them at all.  I leave that entirely up to them.  [David Maister used to do the same—CHG]

I see two powerful themes in the approaches that Mark is developing. First, I’m sure the pricing feels more ‘fair’ to his clients, because he is overtly working off their economic model, not his. It’s the opposite of one size fits all.

The other thing is that he trusts his clients – right from the outset. And as I’ve often written about, the impulse toward reciprocity plays out strongly in trust. We live up to the trust people place in us – and live down to the suspicions others have of us.

I asked Mark, “Have you ever, to your knowledge, been screwed over by an unscrupulous client taking advantage of your ‘honor-box’ approach to pricing?”

Mark’s answer: “Never.”