By James L. Moore, JD, CExP, Law Offices of James L. Moore, PC
What is price versus cost? Let’s look at an example:
There were two couples sitting in a meeting with our team of collaborative advisors. One couple was worth $35 million and one couple was worth $2 million. The couple worth $2 million walked out of the meeting and said, “The price for all that brain power and experience is too rich for us.” The couple worth $35 million left the meeting and said “We can’t afford not to hire those people.”
It wasn’t a matter of money. The people worth $2 million could definitely have afforded the help. It was their paradigm that kept them from getting the expertise they needed. The same paradigm that would keep them at $2 million and bar them from ever reaching $35 million. Ultimately, this was a matter of price versus cost.
Price and cost are not the same. Price is what you pay today. Cost equals the long-term effect of what you did or did not do. You should always weight the price of any advice against the long-term costs, benefits, or overall savings.
For example, we once had a lady who did not want to do her Family Wealth Protection Planning™ because the “price” was too high. However, her inaction was going to cost her estate $10 million in estate and other taxes. Was the $15,000, $100,000, or even $200,000 that she might have paid to get her wealth structured correctly too much to pay in order to save $10 million?
You Get What You Pay For
Should you be looking for a bargain when it comes down to setting and achieving your goals and/or managing your wealth? We hear it all the time: “My alma mater said they will set up my charitable trust and manage the money for free.” “My son-in-law is a financial planner, and he’ll do my estate plan and life insurance for a fraction of the cost others would charge.” “My friend at church is an attorney with a general practice and he can create an estate plan for me for less than half of what the estate planning firm will charge.” Have you ever heard these statements before?
Our response to statements like these is, “You get what you pay for.” Price is only an issue when you fail to understand true value. Let me share a story I heard a long time ago that demonstrates this concept.
There was an elderly plant maintenance supervisor who ran the hydro-electric plant where he worked like a well-oiled machine. For years, this plant functioned so smoothly that hardly any members of the corporate board even knew there was a maintenance supervisor. Eventually, he retired, and a younger professional took his place.
Shortly thereafter, there was a malfunction at the plant. The entire operation was soon at a standstill. Neither the CEO, plant manager, nor the new young professional had the faintest idea of how to solve the issue. Every hour of down-time translated into $6,000 of lost revenue for the plant. Finally, someone thought to call the retired maintenance supervisor and ask him to come in and fix it. He obliged, donned his cap, and returned to his former workplace.
Within minutes of being briefed on the malfunction, he took a few moments to walk around the plant and observe the machinery. Then, he walked over to a huge turbine, ran his hands along the side, and then tapped it at a certain place with a pipe wrench. Everyone watched in amazement as the entire plant started back up. The old man left after providing a hand-written bill for his services. The total of the bill was $10,000 itemized as follows: (1) time to fix the problem, 10 minutes, charge $50; (2) knowledge and experience accumulated over a life time to know how to fix the problem — $9,550.
Was it worth it? Should he have worked up a sweat and made the repair seem more difficult for him in order to justify the bill? The CEO knew the true value of having the plant shut down and he knew the value of results. The price may seem high, but when he looked at the price versus cost, there was no question that it was worth it. He happily paid the bill and had no trouble sleeping that night.
I don’t mean to imply that you should pay an exorbitant fee for an acceptable result. Clearly, the fee should be in accord with what the market will bear. But what we need to understand is that what seems to be top-dollar fees can be worth the price (if not downright inexpensive) when measured against the results, benefits, and savings they bring.
The Importance of Expertise in Price Versus Cost
Expertise is the combination of knowledge and experience. Expertise is worth the price when it produces the desired results. Would you want your brain surgeon reading from a textbook during the operation? Do you want your attorney to charge you for research time when a more qualified attorney has successfully implemented and defended the strategy many times? Services you thought you were getting for less almost always end up costing you many times what a true specialist would have charged. Why? Because of a lack of experience, competence, or a hidden agenda. Price is only an issue in the absence of true value.
So, to the consumer I would say: Don’t be cheap. If you’re going to be a cheapskate, you’re not going to get the quality you want. Do you deserve the best representation possible? It’s unreasonable to say, “I want you to represent me. I want you to solve my problems. I want you to help me become fulfilled as a person and lead me to financial freedom,” and then say, “Oh, by the way, I don’t want to pay you what you’re worth.” This is what it looks like to disregard price versus cost.
If you’re not willing to pay for the best, then you deserve to get discounted service. You’re not going to get the same level of service and the same level of performance, but you will save a few bucks in the short term. If you’re cheap, you’re not going to get the expert representation you need and deserve.
The True Value of “Free”
In a world where nearly everything is being discounted, determining value is more difficult than ever before. If you surf the web you will find all kinds of free or discounted offers. “Free” software to help you do your own tax return is available by subscribing to certain magazines for a year. If you subscribe for two years, you can also receive an added bonus: software that will help you write your own living trust. And with a three year subscription you will get a guide to allow you to do your own brain surgery!
Well, maybe they wouldn’t go quite that far, but you get the point. So-called “free” investment advice is also everywhere. Do you really believe there is such a thing as excellent free advice? How can anything of great value actually be free? From time to time, you will come across some reasonably valuable free items or services, but nothing of great value ever comes free, or even easily. Often this is a cruel lesson of life, and the earlier you learn it, the better.
Value-Based Billing System vs. Hourly Rate
Top-notch professionals utilize many different methods of billing or compensation. I believe the method used by the best performers is a “value based” or “performance based” system. In essence, value billing has very little to do with the time spent (i.e. hourly rate) and more to do with achieving the objective. Similar to the story of the retired plant maintenance supervisor, you are charged for the depth, breadth, and wisdom of your expertise. Only relevant and specific experience will allow you to deliver the desired result.
This is why the rule isn’t price versus time, it’s price versus cost. It might only take a few minutes to do, but without an expert to do it, your company could lose tens of thousands of dollars. Isn’t that worth paying a few thousand?
The best advice I can offer is this: In order to develop truly great outcomes, you must think and act in a win-win paradigm. To get what you want, you must help others get what they want. It must be fair for everyone, not just great for you. If you do not embrace this new paradigm of outcome-based value billing, then you must recognize that someone is losing. Anything less than a win-win situation equals a zero sum game in which only one party in the relationship receives true value.
Here’s the most astounding part of this win-win paradigm: Great people produce great outcomes, and they cost less than people who charge lower prices. Often the price of greatness is higher, but the overall cost is almost always less.
I have learned that I get what I want when I make sure everyone involved gets what they want, too. They have to see the venture as personally rewarding monetarily, and enjoy the work and the environment. Everyone then gets paid well and also has fun. That’s how everyone involved wins. What’s more, they will be available and dedicated the next time I need their help.
Life is a team event. Success demands a great team comprised of all-stars. All-stars won’t work if they aren’t getting paid enough or if it isn’t fun, because they don’t have to work on unrewarding cases or with unpleasant or uncooperative people.
The Importance of Sharing Values With Your Client
A few years ago I received a call from a financial advisor who had been referred to me by his firm’s management. He demanded that I come to Alaska in February to meet with one of his “potential” clients. I politely declined. The financial advisor told his manager that I had responded arrogantly, because I had rejected this “fantastic opportunity”. They asked, “Don’t you realize that this advisor is one of our largest producers? Most people would jump at the chance to work with him.”
I explained that what the advisor perceived as a “fantastic opportunity” was not an attractive expenditure of the time, talent, and resources of the law firm. For example, in our initial phone conversation the advisor had said, “I just prospected a guy who’s worth over $50 million. I think I can drag him into a meeting with you.”
My response was, “I very much appreciate your confidence in our law firm. However, before we meet with someone it is important that we decide if we are going to be a good fit. Why don’t we have an initial interview over the phone? Or, you and your prospect could attend one of our business owner webinars and then decide if we all want to take the next step together.”
The advisor was shocked that I wasn’t ready to hop on the next flight to Alaska (in February!). He couldn’t believe that the law firm had requirements to meet before anyone spent time, energy, and money for a meeting.
This particular advisor was suffering from a type of business-culture clash. In his environment, anyone would travel far and wide to meet face-to-face with someone worth $50 million. However, in our “value-based” culture at the Law Offices of James L. Moore, PC, we see it differently.
Our Business Philosophy with Price Versus Cost
To make the most of everyone’s time, talents, and resources, we developed a system to meet only with truly interested and qualified potential clients. The system is this: potential clients can determine if they like our philosophy or not by attending any of our educational events for advisors and prospective clients, either live or online.
The investment of a couple of hours to attend a seminar or interactive conference is a small price to pay to see if they like our process. It also allows our firm to determine if we can provide value to them, and if it will be a pleasant and financially rewarding endeavor for everyone involved. The only way for everyone to be satisfied is if the client considers the price versus cost of our services, and sees that what we offer is truly valuable.
In the culture of our law firm, and our supporting organization The National Network of Estate Planning Attorneys, we are totally transparent. We have no hidden agenda, and we’re not salespeople. We receive a consistent flow of pre-qualified referrals from satisfied clients and other professional advisors.
Our behavior is consistent with our mission. And what is that? To educate and empower people to act in their own best interest to plan for, protect, and preserve their wealth.
To help our partners and the people they serve achieve their goals, we provide books, videos, seminars, training, and consulting. It is really quite simple. The Law Offices of James L. Moore, P.C. seeks to:
- Help the client achieve a better vision of who they are and what they really want to accomplish.
- Educate both clients and their advisors
- Empower clients, their families, co-owners, and advisors
- Provide accurate micro and macro strategic plans that fulfill the client’s desired outcome
- Facilitate outcomes in which everyone involved wins
Some financial services firms have begun to see our system as a superior method of engaging in business. Neither the advisor in Alaska nor his manager saw the value of our culture. They did not have a win-win, value-based paradigm. They live in a world where chasing clients is the norm.
The truth is that great people produce great outcomes. It is best if everyone has a financial gain in the desired outcome. Sales systems are unnecessary for this type of work. Value-based, outcome-driven billing is the best way to receive great performance, and is the win-win approach to doing business.
This creates a world where everyone wins and success is inevitable.
Ready to get started? Just book a no-cost discovery session with us today!