On to this week. When it comes to the future of our fees, what is the writing on the wall? And please don’t whine – to me or yourself – about them. Value pricing expert Ron Baker offers this analogy: people don’t care about the labor pains; all they want is to see the baby. To a certain degree, trying to justify our fees to clients is asking them to care about the labor pains of birthing a valuation. They just want a report that is suitable for their needs.
And if you’re new here, welcome aboard. This is what we do!
One thing I found last week: 6 Times You Should Turn Down Work. This article acknowledges that we all need to pay our bills. But once we get to the point where we have a stable (or stabilizing) level cash flow, it’s ok to turn away work that isn’t right for us. The six examples are easily transferable to our professional practices.
My take: You don’t need to – and you shouldn’t – take on every engagement that you can propose on. If you are doing a decent job of marketing and promotion, your phone will ring again. And when it does, you’ll have the time and energy to take on the opportunities that are in your wheelhouse.
How big data firms are making their presence felt
Here are the three big anchor points I see companies like BizEquity imposing on our cottage industry:
- Their ease of submitting information for a valuation project.
- Their short turnaround time for delivering a report.
- Their low pricing for providing the service.
Each in response to the client saying:
- It will take me hours to complete this information request.
- Why will it take 4-6 weeks until I see a draft report?
- Why does a valuation cost so much?
Again, don’t whine. Look at this from the client’s perspective because it is the only one that matters.
Based on my conversations with valuation colleagues around the country, pricing is coming down except for the most high-end, complex cases. And since relatively few of us practice in that rarefied air, we bear witness to harder-felt fee erosion.
So as time and technology march on, we are likely to find ourselves occupying one of three positions in our BV practice areas: transactional, relational, or a purgatory between the two.
When the idea is to create value by reducing friction (e.g., #1 and #2 above), transactional usually wins – more volume, lower fees. This is BizEquity’s game. And no matter how much we scorn BizEquity’s process and product, their strategy is working.
It’s working because our clients don’t know the difference between what they are getting and what they could/should be getting.
It’s working because our credentialing organizations don’t sponsor a marketing campaign that educates consumers about the greater value we provide. Our organizations are great at providing the resources to help us do the work, but we’re on our own when it comes to educating our user base one (or one roomful) at a time.
It’s working because BizEquity, with their private equity backing, has invested heavily in the computing power to streamline the valuation process. Individually, we just don’t have the resources to invest in our practices so that we can become a profitable low-cost provider of valuation services. In effect, we are the mom-and-pop bookstores to Amazon’s infinite library.
The other end of the positioning spectrum is relational, which means you are part of the client’s trusted advisory team. But it takes time and effort to build those relationships. And it takes time and effort to create your visibility and credibility. Are you writing, speaking, podcasting, You-Tubing, or doing anything else other than going to BV conferences and waiting for your phone to ring to make those things happen?
The process of becoming relational can be hastened if you also figure out how to make the attorney’s job easier and/or the client’s experience better. What is the one thing you could change in your practice right now that would have that effect? Do it!
As you can imagine, problems abound in purgatory. If you aren’t transactional enough to compete against other transactional players, you have to (somehow) create an alternative value proposition that is meaningful to your clients to get their work.
And if you aren’t relational enough to charge the higher fees you need to support the time and effort required by relational positioning, you will be relegated to the purgatory positioning of just “good enough.” Is that what you want to be known for?
As a result, the challenge of purgatory positioning is that you are forced to compete against the other two positions. And you can and will lose engagements to your more transactional and more relational competitors.
In real life
Here is my own relational positioning example.
In 2002, Amy and I forged a relationship with a Philadelphia investment firm on the back of networking, meals, entertainment, in-person presentations, and specific mailings. In 2004, we rescued them from a valuation jam related to some of their largest private equity funds. We made ourselves available. We under-promised and over-delivered. We finished on time and on budget.
Over the next 3 years (before they brought the service in-house), we valued about 25 of the firm’s investment funds every six months. Over the next 10 years, we did the gift/estate tax valuations for all of the firm’s individual clients who needed that service – about 100 in all.
Every time that firm needed valuation work done, they called us … because of our relationship, not because we were a low-cost provider.
You may not like what I’m saying … but I believe most practitioners need to reset their expectations when it comes to fees, especially if they are going to practice in the transactional or purgatory worlds.
Why? Because as someone correctly wrote to me last week, our appraisal industry is so fragmented that, we are price takers rather than price setters.
We may be able to talk clients up somewhat from BizEquity’s pricing, but not to the level that existed back in the late 1990s and early 2000s (aka, the Golden Days of Business Valuation). Why? Because, in general, CLIENTS don’t perceive our services to be as valuable to them as we believe they are to us, particularly for “routine” tax purpose and financial reporting engagements.
But it’s not all doom and gloom. There are ways to maintain, if not increase, your revenues … which I will talk about next week.
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