• What pushed Charlton off his old pricing model, and the moment it stopped being defensible
• The mechanics of fixed fee plus success fee: how he sets the fixed portion and how success gets defined so both sides can live with it
• How he presents the structure to clients, and the objections that come back most often
• What the change did to margins
• Most founders debating a pricing change never make one; the ones who do are the only real source of evidence on what happens next
• Tying part of your fee to an outcome forces a level of specificity about client results that most engagements never reach
• How you handle the objection is the whole game — a model you can't defend in the room is a model you can't sell

Jeff Klaumann: Hey everybody, welcome to the Pro ServPodcast, brought to you by Collective 54. I'm Jeff Klaumann, I'm the presidentof Collective 54, and I'm your host. If you're new to the show, here's whatwe're all about — helping you do three things: make more money, make scalingeasier, and make an exit achievable. Everything we record here is builtexclusively for boutique professional services firms. So if you're in theexpertise business, if you market, sell, and deliver expertise, this show isfor you.

Price is one of the most asked about topics inour community right now. We're debating outcome pricing, we say we'd rather getpaid for the value we create more so than the hours we log, and many who haveactually tried come back and say it didn't work. Today's the counterpoint — theproof, if you will. Charlton moved his firm off hourly, and the change held.The idea underneath it is simple: the fixed fees funded the work, the successfee captured the value. How he nailed that down and got the client to sign isthe show today.

To walk us through it, I have Charlton Evanson the show. Charlton is the founder and CEO of End State Solutions. End Stategets advanced aircraft certifications — drones, advanced air mobility, uncrewedsystems, and FAA approvals that let those aircraft fly. Before that, Charltonflew Harriers as a Marine Corps major, and he still flies today. He's along-time Collective 54 member, and I've known him for years. He's a realexpert in the field. So, Charlton, welcome to the show, great to have you here.I gave the headline, but why don't you tell us a bit more about End StateSolutions, who your clients are, and what they hire you for.

Charlton Evans: Great, thank you, Jeff. So our tagline is WeCertify Autonomy in Aerospace, and that applies from small drones up throughlarger drones, mid-sized drones, advanced air mobility vehicles, eVTOL, and upthrough high-altitude pseudo-satellites, plus all the other traditionalaerospace products that are out there. We really do focus on emerging aerospace— that's our niche — and the autonomous elements of that are typically wherethe new and emerging aspects make it more difficult than traditional aerospaceto certify.

Jeff Klaumann: Fantastic. So, like many firms, you built EndState on the hourly billing approach, and to date the only agreement you havein place is with a legacy client. Take us back to that decision. What pushedyou off hourly, and what did you think you were risking when you did it?

Charlton Evans: Well, managing invoicing when we were hourlywas a nightmare internally. That was problematic, and in fact it becameproblematic sometimes externally, because it gave the clients a whole lot tolook at — that they either didn't look at, or if they did and had questionsabout, we just did cycles. We could always justify our time, because I wassuper disciplined about what we billed and how much, but the level of effortwith that was just over the top. We had a team of anywhere from 6 to 18 folksall billing by the hour in 6-minute increments, and every one of those invoiceshad to be built up out of that. That was insane.

But I didn't know a way around it, and itseemed like the right answer when you could bill a little bit more than it costyou to do business — and therein lied your profit. That works, but it alsocreates systematic business problems on the other end, because big enterpriseclients — even though we may have sold them a book of business worth years ofwork and hundreds of thousands of dollars in the budget — when you go from afew months of small invoices and then send them a giant invoice because you dida whole bunch of work, there's kind of an emotional spike that occurs. Andsometimes it's more than emotional — it's administrative. If you cross acertain threshold and bill them $25K, $50K, or $80K in a month because all thiswork took place, sometimes the accounts payable people have to go get otherapprovals. Because you did all that work, you've got to pay your folks alongthe way — but now the invoice has to go to an additional approval step that cantake weeks or months. So you're waiting for that to occur while the clientfigures out if they should pay you for what you did, meanwhile paying yourfolks. It was lumpy, it was not predictable for either party, it wasadministratively cumbersome — and I didn't know another way until I heard aboutsome of the pricing methodologies that some folks in Collective 54 had alreadyapplied.

Jeff Klaumann: Fantastic. What I heard is lots of friction —friction for you, friction for the client, friction navigating theirenvironment. Just lots of friction in the experience.

So let's get concrete on your approach,because I think that's the part that a founder can learn from and figure outhow to apply to their own firm. Walk us through the structure. What is thefixed portion, how is it presented, and what does the client actually sign?

Charlton Evans: Yeah. So it starts back in understanding theirneeds. Once I've got a prospective client to read back to me what we agreetheir need is, then we can ascribe value to that — and typically it's anapproval that gets them into service in some way. Either into test or intoactual revenue service, whatever the case. It's a major milestone for anaerospace product to get into the air, and typically the approvals they needare their critical path — meaning you can't just go do whatever you're going todo without these approvals. Getting to revenue makes the business case, and toget to the revenue you've got to get over these hurdles. So once we figure outexactly what it is, and we all agree on that — and sometimes the clients don'treally understand exactly what they need, but if we work through that processand land on verbiage that clearly states it and they read it back to me — thenI know I can ascribe value.

And it's a mix. For us, it's been a mix ofwhat we think the market can bear for a given activity or a given approval, andwhat it costs us to produce that. We have enough experience to understand theinternal costs, and we now have enough experience to understand the value of agiven product.

We've used some of the positioning tips andtricks we gained through Collective 54. We get work done that's on par withWashington, D.C. law firms in terms of their policy and regulatory work, but weactually do work that creates artifacts along the way and actually pushes theseemerging tech clients through the process. In a sense, we do more than a lawfirm might do — but we've positioned ourselves price-wise to be less. We ridethe coattails of a K Street firm, so we're not as expensive as they are, but wehave clear outcomes and clear deliverables that actually end up getting acompany over a finish line that leads to revenue service or a required flightactivity.

Jeff Klaumann: Fantastic. This leads me to another relatedquestion, and this is the regulatory side of things. In your world, theregulators can hold up variables that you're not in control of — and that theclient's not in control of either — and that can sometimes make the successhard to promise. So how do you define success in the contract when you don'tfully control all of those variables?

Charlton Evans: So we lean on a lot of internal experience forwhat we believe the timelines will be, reasonably. We do build in some caveats,because it's true — we can't control the FAA timelines. But we have good,high-trust relationships with the FAA where we can often influence them. TheFAA will not guarantee an outcome, nor will they guarantee a schedule. However,if you're working with them in good faith and you don't bring them somethingthat clearly can't or shouldn't be done, the FAA will work with you on gettinga company into revenue service — regardless of whether that's a productcertification or an operational certification. Bottom line is, they want tofind a way to say yes. So if you help them help you, that kind of relationshiptends to breed slightly more predictable outcomes in terms of schedule.

Because of where we operate in the space, wedon't take on clients that have work that clearly isn't going to get donebecause there's no avenue for it in the national airspace. Over the roughly 10years we've been doing this, the FAA has expressed an increasing willingness toembrace projects that are more and more advanced and more and more aspirationalin the national airspace.

Jeff Klaumann: Wonderful. Two things really jumped out to meon that, Charlton. First is that you have the experience — you've seen the playover and over — and it would be really hard to predict whether it wouldactually deliver the outcome the first time. And then you have therelationships with the regulators where you need them in order to help move anengagement forward and take some of the risk out of the overall equation. Sogreat guidance on that.

So there's another question that I think istop of mind for people. Some of your work runs multiple years — it can actuallytake years to deliver. So one success fee at the end is a long time to wait.Have you broken up the overall engagement into multi-year outcomes, milestones,something along those lines, rather than just waiting for the pot of gold atthe end?

Charlton Evans: Yeah, 100%. So in those longer, more complexprojects, there are always milestone events and always deliverables within theoverall deliverable, and those are opportunities for success fees. If there's acomplex manual that we've got to help develop or develop ourselves, we run thatas a fixed fee plus a success fee when it's either accepted or approved —either by the client or by the FAA, depending on what the criteria is. Thereare always milestones within projects, and we use those as discrete deliverablesto anchor the success fees.

Jeff Klaumann: Beautiful. So on the clients themselves —oftentimes smaller, maybe less mature buyers will still want to see hourlyrates, or they'll want to understand exactly how you arrived at your price. Sohow do you address that when the buyer asks for hourly rates andtime-and-material type of engagements, when you have your eye set on anoutcome-based approach?

Charlton Evans: Yeah, we've gotten very little pushback orvery little inquiry about that. We did have one enterprise-level client wherewe presented a fixed fee and a run rate, and their procurement tried to reverseengineer our hourly rates based on what they thought the level of effort wasgoing to be. They came back and said, well, we think that means you're chargingthis per hour, and it's above our corporately accepted rate for your kind ofengineering consulting. And I said, well, that's not correct — but if we haveto back it into an hourly rate, we're probably just not a good fit. It was anenterprise-level customer in the emerging tech space, but I wasn't going toback into an hourly program with them, and I wasn't going to let them negotiateour fixed fee down based on an hourly build-up approach. So that ended thatengagement, and I had no regrets.

Jeff Klaumann: Fantastic — that's the key. Once you start toreally say no to an engagement because it's wrong, now it's a real policy andnot just kind of a preference. So congratulations on saying no to the wrongdeal. That's a smart move and a big part of scaling.

So you've said the change simplified yourworld — related to time tracking and invoicing and things like that. Beyond themoney, what did getting off hours change about the firm and how you run it?

Charlton Evans: Yeah. So we have a controller who is ourBookkeeper Plus, and she manages our AP and AR — accounts payable and accountsreceivable — and she loves it because she manages the entire invoice process. Idon't touch it. She knows that the statements of work define the fees anddefine the run rates, so the invoices are extremely simple. It's a one-lineinvoice for that month's fee, billed for the month going forward — not inarrears. So if we know we're going to work that month, it's simple to send itin advance. We send it 30 days in advance so that the clients have time toprocess it for the month in which we're going to do the work.

It's very simple. And then she just looks forthose triggers and is constantly pinging me: hey, have we delivered on thismilestone that's defined in the statement of work? Can I send the success feeinvoice yet? And that's what it boils down to.

Jeff Klaumann: Fantastic. A lot of simplifying the entireback office function, and some of that human-driven invoicing is just much moresimplified.

So I want to dig into the one project thatreally makes this argument come to life. Tell us about the 777passenger-to-freighter certification. You were brought in late, as I understandit. What was on the line for the client, and how did you compare that to whatyou were being paid?

Charlton Evans: Yeah. We were brought in to the last year of a6-year project that should have probably been a 3-year project. The client hadbeen struggling with the FAA and struggling with a whole lot of it. It's a verycomplex thing to gut a 777 passenger aircraft and replace all the innards withthe necessary engineering to make it a freighter aircraft — the loadingsystems, weight and balance changes. It's basically a remodel on a major scale,including the structure of the aircraft. So understandably it took longer thanthey expected, but they had become stuck with the regulators, bothinternationally and here with the FAA, because it's an extraordinarily complexprocess. When those processes start to come to an end, there are lots of thingsthat need to be tied up — lots of loose ends that are all show-stopping. Theybrought us in to help navigate that with the FAA, make it clear who wasresponsible for what, and what was being delivered when. It was reallyprogrammatics that we helped with — but programmatics on a project this complexare not trivial.

We had a pretty strong run rate. We spent alot of hours just coordinating with the FAA, between the client, the FAA, andactually the international authorities to make sure everybody had what theyneeded to get over the finish line. Most importantly, we put the onus on theFAA — we had no outstanding deliverables from our end by the time it was timeto sign, so the FAA felt compelled to get over the finish line and sign ontime. If they had not signed the approval right at the end of the project ontime, the customers for these 777s were going to start decrementing orders. Idon't know what a 777 costs, and I don't know what they sell it for, but Iguarantee that even losing one of those sales would be a significant hit torevenue.

The time and effort that we spent and what wewere able to bill to that client — the value was never in question. And we gotit over the finish line on time. The day of signing was actually a weekend — aholiday weekend — and we got the FAA to sign it then. The next Monday morning,that client was able to go to their customers and say, yep, here's the paper,we're in business. That was a huge deal, and the value was self-evident.

Jeff Klaumann: You can tell you were selling a painkiller andnot a vitamin in that instance. You're definitely helping them solve an urgentand pervasive problem.

Charlton Evans: 100%, yeah.

Jeff Klaumann: If a member wanted to move one engagement offhours this week, what is the one thing they should do? We'll use this as ourclosing question.

Charlton Evans: I think new clients are obviously easier. Ifyou're going to transition from hourly with existing clients, there's probablya lot of negotiation that has to occur and a change in methodology — whichresults in a change in thought processes, which backs up to sometimes anemotional issue about the value of what you're up to. I think it can be sold,though, as simplicity and predictability, which I think all of our customersvery much appreciate. And if you've already got a solid track record with them,you might actually be able to show them some cost savings on their end if youcan make the project more efficient.

We have tested our value statement againstwhat we charge, and we keep finding that we're probably more valuable thanwe're giving ourselves credit for. So prices will continue to rise — part ofthat's just to keep up with the cost of doing business, but part of that isbecause we recognize, more and more through experience, that what we're doingis super valuable, and that should be recognized through the price that wecharge.

Jeff Klaumann: Outstanding. Charlton, thank you for joiningme today. It was great to have you on the show.

Members, Charlton will be joining us for theprivate member Q&A session, where you can ask him your questions directly.And then two calls to action before we wrap. First, if you're not a member andyou want to keep the conversation going, head over to Collective54.com andstart a conversation with our AI agent. Second, our founder Greg Alexander hasa new book coming out — it's called The AI Native Boutique Firm: How FoundersBuild More Valuable Firms When Services Become Software. It's available forpre-order on Amazon now, so check it out. Thanks for listening. Until nexttime, I wish you the best of luck as you grow, scale, and someday exit yourfirm.

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