Matt Homann of LexThink lets his customers decide how much to pay him. He calls it "You-Decide" invoicing and it is another real world example of pay-what-you-want pricing. In Matt's case, he found out he wasn't charging enough.
In the Q&A below, Matt and I go back and forth about how it started, how he explains this method to clients, and what it has meant for his business.
Todd: Tell folks, what you do for a living.
Matt: I'm a speaker, facilitator and consultant. Much of my work is with lawyers and law firms, though I also design and facilitate meetings for companies like Microsoft. My blog, the [non]billable hour, focuses on innovative ways lawyers (and other professionals) can serve clients better and make more money.
T: When did you first get the idea for client-decided pricing?
M: I've always hated time sheets, and kept experimenting with ways to price my services that weren't tied to the time it took me to provide them. Since my clients regularly told me that my prices were too low, and that I was giving them a bargain (but one they only recognized once I'd completed the work), I thought I'd let them take the pricing dilemma out of my hands and pay me what they thought I was worth — after they'd received my services.
T: How specifically do you present it to the client (before and after the engagement)?
M: I always give clients the option to pay me what they think I'm worth at the conclusion of the engagement. I explain to them that once we've gotten to the pricing discussion, I trust them to treat me fairly. When they agree to my novel approach, they get my "You Decide" invoice that asks them to write in an amount for my fee and give me an explanation for why they paid what they did. And even when clients would rather pay me a quoted price, I still give them a money-back guarantee.
T: What benefit do you think you get for creating this kind of commercial relationship with your client?
M: I'm convinced that by trusting them first, they return the favor. I feel like I'm entering into a mutual trusting partnership with many of my clients very early into our relationship. And, because my price isn't set based upon anything other than the final result, we're both free to tweak the engagement (things like length of time, desired outcome, etc.) as we plan more. Finally, because I know the result is the ultimate measure of my compensation, I find myself motivated to deliver the best experience I can every time.
T: Can you give some quantitive indicator for how this fee structure has affected your business?
M: Since I've been doing this, my sense of the value I give my clients has increased. I've recognized that my clients don't care about the time I spend working for them, but rather the results they get from working with me. Quantitatively, my income has doubled in the past year, because clients pay me more on my blank invoices than I would have charged them. I've also increased my per-engagement price (when I'm asked to give one). I know charge roughly three times what I would have quoted before my pricing experiment began.
T: Most of the pay-what-you-want experiments have been in media specifically digital media. 60 to 80 percent of customer choose free in those cases. What do you think makes it work in a consulting services business.
M: My clients see me doing the work and they experience firsthand the fruits of my labor. In digital media, there's not such a direct correlation between the laborer and the final product. One other thing I've found is that because I often work with people who've put a value on their time (like lawyers, accountants, etc.), they're less apt to think my time has no worth.
For some more thoughts on pricing, check out the ebook Fixed to Flexible.