Changing your pricing strategy is the quickest way to scale. On this episode, we interview Chris Neumann, CEO at Cro Metrics to discuss how evolving his pricing strategy has allowed him to scale.
Sean Magennis [00:00:15] Welcome to the Boutique with Collective 54, a podcast for founders and leaders of boutique professional services firms. I’ll go with this show is to help you grow, scale and exit your firm bigger and faster. I’m Sean Magennis Collective 54 Advisory Board member and your host. On this episode, I will make the case a change to your pricing strategy is the quickest way to scale. I’ll try to prove this theory by interviewing Chris Neumann, CEO at CroMetrics. Crowe Metrics drives revenue growth through strategic, data driven experimentation. They optimize your website for conversion, boosting key metrics such as revenue and engagement while you learn more about your customers. You can find Chris at CRO metrics that CROmetrics.com. Chris, great to see you and welcome.
Chris Neumann [00:01:19] Thanks for having me on the show.
Sean Magennis [00:01:20] It’s such a pleasure. So, Chris, let’s start with an overview. Can you briefly share with the audience an example of how changing a pricing strategy can impact scale?
Chris Neumann [00:01:32] Sure, actually, this is a core strategic advantage for us a year or two ago, I set up a biweekly meeting that anyone in the company could attend called the pricing console. Culturally, we’ve created a safe pay, safe place for people to bring up pricing issues and people from all levels do. So the issues surface of this meeting have led to some pretty big competitive advantage for us and we’re always looking to it’s coming from a place of always trying to deliver more value to the customer through pricing changes, and it’s even actually led to a wholesale change in how we price our our services.
Sean Magennis [00:02:05] I love to hear that, and let’s go a little deeper on that because you know your concept of creating a pricing console I love because in my experience, tackling pricing is a very loaded and can be a difficult conversation. Is that what you find? Is that why you started the pricing council concept?
Chris Neumann [00:02:26] Absolutely. I think that actually the right strategy is to always be playing with pricing. So the accountants are one group that are not so enthusiastic about that, but everyone else, including most importantly, the customers, is. So I think another part of this is, you know, we’ve you talked about in the intro, we run revenue optimization and do a bunch of experimentation and some of the most impactful experiments we’ve ever run have been pricing experiments. So why not do that for ourselves?
Sean Magennis [00:02:56] Exactly. It makes complete sense. And so, Chris, what I’d like to do is get your thoughts and some of the best practices that we recommend in this area. You know, I understand from you what you think about them. I’ll go through five specific things. I’ll walk through each, get your thoughts and feel free, you know, to share whatever your experience is in these regards and add to them. So the first one is a pricing change does not require an investment to implement. There’s no staff to add or service offering to develop, and the benefits can be immediate. So charge more today than you did yesterday. What are your thoughts about this concept?
Chris Neumann [00:03:37] Yeah, I mean, people’s time is always an investment, so there’s maybe a little bit of cost there, but it’s not a hard cost. And so conceptually, I totally agree. I think some of the biggest impacts have been empowering the team to contribute to pricing. Yeah. So with my pricing council bringing it just helps us understand more what the customer actually wants. And so we’re always examining this and trying to just deliver more value to those so totally agree that you can just make a whole bunch of small and incrementally changes with almost no direct cost.
Sean Magennis [00:04:06] Excellent. The second one that we find as boutiques often do not know what their services are actually worth to their clients, and they’re often unaware of what clients are willing to pay for those services. Many firms cannot even logically explain to prospects why they charge what they charge. And worse, they cannot quantify the amount of value a prospect receives from an engagement. What are your opinions about this, Chris?
Chris Neumann [00:04:34] Well, I guess there’s a bunch of hard won experience that I don’t ever speak to. One thing we always do is calculate the ROI in our services, and we do that in conjunction with the client. So it’s not just our calculation, it’s the one that they agree with you. Mm-Hmm. Ideally involving their CFO and those sorts of folks. Yes. And we do that and we present it to the the staff at the customer in a quarterly business reviews. So we make sure we’re all on the same page. Before we were doing that, we’re often, you know, why was I calculate it was much easier for them to and our engagements. The other thing we’ve done is we’ve looked at a number of different pricing models because of that. You know, the value thing you talked about a second ago, we ultimately landed on hourly because in our industry, performance doesn’t really work, and the unit of value is an experiment for us. And so the cost to deliver an experiment varies watch to wildly to warrant a fixed price, which is what we are doing. And that was a very painful lesson to learn since the sort of scope creep on the bigger ones just sort of ate us alive on margin.
Sean Magennis [00:05:34] You know, that’s such an important thing, and we have had several episodes. And then in our book, we talk about that. But making sure that you clearly manage the scope that you’ve priced well and that you don’t go into the red on on a particular project and only pricing is a way that you have fun to get there. I love your point about the ROI calculation that the client agrees with and involving the CFO. Brilliant. The third recommendation that we would make is to develop a pricing strategy that matches your business strategy. What I mean by that, for example, is if a firm sells to small businesses, the high volume, low price model makes sense. If you sell complex solutions to larger companies, a higher cost, lower volume approach is best. What do you think about that, Chris?
Chris Neumann [00:06:27] Yeah, I think it ties to your business model in general. Right, so we actually sell to a wide range of customers, but our engagement model really isn’t that different. So larger complex organizations just require more hours because there’s different departments and, you know, bigger meetings you have to have. But the core engagement model and pricing really isn’t that different. So I think there’s like a maybe a yellow flag you might see if you’re starting to like, try to go for a low volume price or start to get out of your lane. It might cause a problem, right? Like a law practice that does patent litigation will be high cost regardless of client size, whereas an IT offshoring will probably all have low cost, high volume engagements.
Sean Magennis [00:07:08] Yeah.
Chris Neumann [00:07:09] Is that about your experience?
Sean Magennis [00:07:11] Absolutely. Maps to my experience and really good points. So another recommendation is to focus on price positioning as it affects perception and in this context. Perception is reality, so the price you charge sends a signal to the client. If you price too low, your work will be considered, which can be considered low quality if you price too high. You may be perceived as being difficult to engage. So if you price the same as your competitors, you may be perceived as undifferentiated to maybe unpack some of those concepts with me Chris.
Chris Neumann [00:07:48] Sure, so we’ve definitely struggle with this as well. I think the big temptation is to try to sort of win on price, and I would recommend that you not do that unless your core you have a know you have a core cost advantage over your competition, and that’s like your main value proposition. Yep. Instead, what we do is we try to price the value. So I talked about that ROI calculation. Yeah, we do the ROI assessment in the sales process. We’re trying to I don’t want to take people’s money unless I know I’m going to give them a really good return. Yeah, I tell them that at the very beginning. And so we priced towards value because at that point, the conversation is about the parameters of value of the customer versus like how much as a unit of work cost an hour or whatever. A of value pricing is key.
Sean Magennis [00:08:32] I love that. And then going back again and reinforcing do the ROI in the sales process, which justifies your price to value? I love that. The fifth one. So one more, you know, there may be an understanding of what the client’s value at the attribute level is. So a mistake often owners of processor firms make is they think in the aggregate. When it comes to pricing, we advocate being Sure to understand what attributes of your offering are valued most and influence the perception of your performance in the specific area. This will result in the ability to charge more because there’s more perceived value. Do you do you agree with that? What are your thoughts on that?
Chris Neumann [00:09:17] Sure. Yeah, I totally do. And you know, as we’ve grown, we’re about 75 people now, so I find myself increasingly sort of almost in an ivory tower. And that’s where the pricing council’s incredibly valuable right. We we talk of the people doing the work and talking with the customer, and they get a real sense of what the client cares about. So like one example specific for us is we were doing this thing. We were selling at a lower rate after a number of hours, using a month to be sort of a bulk discount and, you know, procurement and maybe the people we were working with on the sales process like that. But it turned out there was no behavior change in our clients. They didn’t value it. No one there was no behavior change whatsoever. So we moved away from it because it was basically a sales gimmick. Yes, I mean, this could be fine, but I really want to drive customer value.
Sean Magennis [00:10:04] Ultimately, that’s a fantastic example. And you know, you said something, you know, it’s 75 employees. You’re feeling that you’re potentially or you you are. You feel sometimes that you’re an ivory tower and you’ve used your pricing counsel to help you stay connected to your client, I think is phenomenal to share with me why it’s important that you really have your finger on the pulse of what the client is doing, thinking, feeling.
Chris Neumann [00:10:32] I just think that that’s the way you get value, right, understanding the customer ultimately through all of our experimentation we do for them when you get to understand those customers better. So while I might be talking to a more senior person, the engagement, the actual people doing the work or talking to my people. And often there’s a weird power dynamic where if I come to a meeting, it’s causing things to be different. So I need the folks on the ground to be talking to me. So I know what’s going on. It’s just almost impossible for me to, you know, there’s too much observation by us. If I show up to I on tactical meeting,
Sean Magennis [00:11:06] I think that it’s well said Chris. And you know, our listeners, please take take that to mind, particularly if you’re the founder of your business and avoid that ivory tower mentality by by getting in and really listening. And also this bias that could creep in when you’re the maybe the highest paid person in the room, you’re the founder of the owner or you’ve got the lead intellect. Is give yourself an opportunity to really get to that real insight. Fantastic, Chris. Thank you. These are great Real-Life examples that you’ve shared, and this takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows the listener to apply the lessons to his or her firm. Our preferred tool is a checklist, and our style of checklist is a yes no questionnaire. We aim to keep it simple by asking only 10 questions in this instance. If you answer yes to eight or more of these questions, your pricing strategy is working for you. If you answer no too many times, pricing is more than likely getting in the way of your attempts to scale. Chris has graciously agreed to be our peer example today, and Chris, I’ll ask you the the yes, no question so we can all learn from your example. So let’s begin.
Sean Magennis [00:12:27] Number one, do you know what your offering is worth to clients?
Chris Neumann [00:12:33] Yes.
Sean Magennis [00:12:35] Number two, can you quantify the value of your work in hard dollars?
Chris Neumann [00:12:42] Yes, that’s the ROI calculation. Yep.
Sean Magennis [00:12:44] Number three, do you know what clients are willing to pay for your services?
Chris Neumann [00:12:51] Yes, we do.
Sean Magennis [00:12:52] Number four, can you explain the logic of your pricing in a way that makes sense to your clients?
Chris Neumann [00:13:00] We can now if we didn’t use you. But so yes, we turned that from a no to a yes.
Sean Magennis [00:13:05] Excellent. Number five, does your price illustrate to the client the link between price and value?
Chris Neumann [00:13:14] Absolutely. That’s the ROI.
Sean Magennis [00:13:16] And I loved your point about involving the client in that and where possible, the CFO. So they they own it. They’re invested together with you. I love that. Number six, do you charge the most for the service features that your clients want the most?
Chris Neumann [00:13:31] I think so. I don’t know for sure, but I’ll go with you. Go and check off to really know. Yeah, definitely.
Sean Magennis [00:13:38] Number seven, do you charge the least for the service features that your clients don’t care about? Similar thing, right?
Chris Neumann [00:13:45] Yeah, I think so. But it’s hard to hard to know for sure, but definitely a good thing to bring back to the pricing console. Yup.
Sean Magennis [00:13:51] Number eight, do you allow for clients to choose their price by presenting options?
Chris Neumann [00:13:57] Absolutely. We learned that lesson very early on. Correct. You want to choose between multiple options versus just yes, no.
Sean Magennis [00:14:04] Like that. Number nine, is your sales team skilled at overcoming price objections?
Chris Neumann [00:14:11] Absolutely. You have to be.
Sean Magennis [00:14:14] And number ten, have you built into your system an annual price increase?
Chris Neumann [00:14:20] Just yes, only recently, though, so it’s good we’ve got that coming up.
Sean Magennis [00:14:24] And have you found it? Have you had enough time, you know, to run?
Chris Neumann [00:14:28] So yeah, it becomes really easy, you know, a couple percent increase for some engagements and then another others we reevaluated.
Sean Magennis [00:14:35] Yeah, outstanding. So in summary, taking what Chris has shared with us, our listeners really, please understand your worth. Don’t undervalue yourselves. What each of you do is exceptional. Price accordingly and scale quickly. Chris, a huge thank you for sharing your expertize today. If you enjoyed the show and want to learn more. Pick up a copy of the book The Boutique How to Start, Scale and Sell the professional services firm written by Collective 54 founder Greg Alexander. And for more expert support, check out Collective 54, the first expert community. For founders and leaders of boutique professional services firms, Collective 54 will help you grow, scale and exit your firm bigger and faster. Go to Collective54.com to learn more. Thank you for listening.