This post of a section in the last chapter of the book bookends a section in the very first chapter: You Are What You Charge For. It stated that if you charge for undifferentiated stuff, you’re in the commodities business. If you charge for tangible things, you are in the goods business. If you charge for the activities your people do, you are in the services business. If you charge for the time customers spend with you, you are in the experiences business.
And if you truly want to be in the transformation business, then economically you should charge for the demonstrated outcomes your customers achieve.
This section, then, shows you several different ways of doing that, with many examples. Please let me know your feedback via the form at the bottom of the post – especially if you know of any other examples I can use!
Joe
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Charging for Change
As discussed in Chapter 1, you are what you charge for. With transformations, that again means aligning what customers pay you for with what they value by charging for the demonstrated outcomes your customers achieve.
Many companies do the exact opposite, paying people instead of or in addition to charging them for, say, exercising, dieting, saving, and so forth, usually as an element of gamification. The US Army Preparatory Course, for example, pays bonuses to those who pass its course and join the Army because of the benefits to Uncle Sam. And life insurer YuLife, based in London, offers the employees of its clients rewards to exercise, meditate, even help clean the ocean, in order to enhance employee fitness and wellbeing so that they cost their employers less money in benefits.
That’s not a bad thing, and gamification can work, at least in the short term. But what the customer or beneficiary, as the case may be, aspires to become rarely matters, other than in great generalities such as exercise more, eat less, or volunteer. And the incentives tend to peter out over time as they offer only extrinsic motivation, when what it takes to achieve true aspirations is intrinsic motivation.[i]
In researching over a hundred companies that charge for change, four distinct ways summarize the varied ways they do it:
Transformation guarantees. Agreeing to a specific fee, but with some or all of it subject to the value of the outcome achieved. Calibrate has a “Results Money Back Promise” which offers a 50% refund of the total Membership Fees whenever members do not lose at least 10% of their weight after one year. And recall Texas State Technical College (TSTC), which guarantees that graduates in certain majors get a job within six months or they receive their entire tuition amount back. Scores of other colleges, certification programs, and assorted educational institutions do the same.
Transformation guarantees make some or all of the fees subject to the value of the outcome achieved.
For example, Service & Co. Guideschool, founded by Palle Højsholt in Skanderborg, Denmark, has been guiding transformations for over 25 years, turning young Danish people into tourist guides. They pay about US$4,000 for a 5-week program where they learn the ins and outs of being on stage in front of tourists on buses & boats, in museums, and at historical sites. “Our vision is to inspire ALL students. They have to give it their all for five weeks and be the best version of themselves, especially working with all the things they are good at”, Palle told me. His Guideschool has a “job guarantee” that if students graduate and do not get a job as a guide within four months, they get their money back. It has never had to pay out that guarantee, although a few (two out of 143 across all 2024 classes) do not graduate for various reasons. As Palle made clear to me in conversation, that guarantee encourages him and his instructors to do whatever it takes to ensure students learn the ins and outs of the vocation, and also work directly with potential employers throughout the process.
Starizon Studio also made its income dependent on the outcomes of our aspirants with our transformation guarantee. Twenty-five percent of our fees were paid completely at explorer discretion, based on whether they think they received the outcomes committed to in the engagement. In over 15 years of business before founder Gary & Leigh Adamson retired, only two customers did not pay it all, precisely because we viewed it as a catalytic mechanism for ensuring we did what we said we would do, and aspirants got out it what they desired.
Success fees. Being paid based not on a predetermined amount but one established after the fact (or on an ongoing basis) based on outcomes. Many management consultants have long charged based on success for some engagements, using such parameters as efficiency gained, revenue increased, and market cap valuation. But such charging mechanisms have never become endemic in consulting, even though it has always been a transformation industry. And many accounting, legal, and other such professional firms use “TIP” clauses – for “to improve (or insure) performance”, also known as retrospective or success prices – where customers decide on the value of the work afterward, and voluntarily pay accordingly.[ii]
Success fees establish the fees after the fact (or on an ongoing basis) based on outcomes.