Home » Blog » Business Book Summaries » Value-Based Fees: How to Charge, and Get, What You’re Worth by Alan Weiss

Value-Based Fees: How to Charge, and Get, What You’re Worth by Alan Weiss

Post image for Value-Based Fees: How to Charge, and Get, What You’re Worth by Alan Weiss

by Sheldon Nesdale on 23 January 2014

in Business Book Summaries

This book has changed the way I do business. It’s that good. I also know much more about value-based pricing and I am able to provide advice to friends/clients/acquaintences who still stuck in the work-for-an-hour-get-paid-for-an-hour trap.

Here, I’ve recorded the parts of the book that were particularly useful to me. I encourage you to read the book yourself in your entirety because you are bound to find different sections more relevant to you.

My notes on Value-Based Fees: How to Charge – and Get – What You’re Worth by Alan Weiss

CHAPTER 1: The Concept of Fees – Will People Actually Give Me Their Money for My Advice?

The mistakes consultants make about fees at the conceptual, strategic, and 50,000-foot level are these:

  • Failing to understand that perceived value is the basis of the fee and consequently attempting to manage (lower) the fee rather than manage (raise) the value
  • Failing to translate the importance of their advice into long-term gains for the client in the client’s perception and therefore believing that they must base their value on deliverables, time, and materials, which are actually low-value commodities
  • Failing to create a relationship with a legitimate, economic buyer, meaning that the client may not do the right thing ethically (delay payment, argue about your value, arbitrarily change objectives)
  • Failing to have the courage and belief system that support the high value delivered to the client, thereby reducing fees to a level commensurate with the consultant’s own low self-esteem. That’s right, consultants, not clients, are the main cause of low consulting fees
  • Failing to listen to modern consulting business advice and immersing themselves amid the old guard, who foolishly believe that you take your annual income need, divide it by hours available, and thereby establish an hourly fee. Even the atavistic legal profession, which recently introduced $1,000-per-hour fees, seems to recognize that this is a good tactic to drive clients to a project-billing system
  • Failing to “push back” at the client and explain that it doesn’t matter that every prior consultant charged by the hour (or day or parsec), but that value-based fees are more ethical and productive for the client.

Instead, focus on the outputs:

  • What will the project accomplish in terms of business goals?
  • What is my contribution to that lasting benefit?
  • What is the proper fee to be paid in exchange for that large contribution, which the buyer has already stipulated?

Thirteen Questions for Establishing Value with the Buyer

  1. What will be the difference in your organization at the conclusion of this project?
  2. What if you did nothing?
  3. What if this project failed (or have these attempts failed in the past)?
  4. What will you be able to do that you can’t do now?
  5. What will be the effect on revenues (sales, profits, market share, and so on)?
  6. What will be the difference for your reputation (image, standing, stature, and so on)?
  7. What are the three greatest impacts of the result of this project’s success? (People love to think in threes.)
  8. What will your boss’s reaction be to this success? (Even economic buyers have a boss; sometimes it’s the board.)
  9. What will this mean to you personally?
  10. What peripheral and secondary value do you see accruing to this project?
  11. What will you be proudest of at the conclusion of the project?
  12. What will be the legacy of this project?
  13. What will it mean to be on the leading edge, the thought leader in the field?

People believe they get what they pay for—and with their careers and businesses, they want the best.

Prospect Education Checklist

  1. Never quote a fee before project objectives and their value to the client are stipulated (see Chapter Four)
  2. Don’t quote any time unit basis at all.
  3. Explain to the client, if pressed, that single, value-based fees are in the client’s best interests
  4. Resist comparison to other consultants by pointing out that your potential client probably also operates differently in many respects from his or her own competitors.
  5. Never commit to arbitrary amounts of time for the accomplishment of objectives
  6. Focus on results, not tasks
  7. Never accept a prospect’s conclusion—stated or implied—that you will constantly be onsite or that you’re available “on call.”
  8. Emphasize results, not deliverables; in fact, minimize deliverables.
  9. Don’t accept contingency fees or “pay for performance”; you’re not a trained animal act. Variables are often outside your control, and besides, you’re being paid for your best advice. It’s up to the client to implement it effectively
  10. Provide value immediately. Shift the focus to how much value you provide, not how much work there is to be done.

Most consultants place their value proposition at the wrong end of the equation: they focus on their ability to do rather than on the client’s ability to improve.

Vignette

I was contacted by Mercedes-Benz North America, which has an incredibly stringent method of choosing consultants.

First, Mercedes sent a delegation to hear me speak at a client event.

Second, they invited me in to meet with another level of evaluators.

Third, they placed the few of us who survived in front of the buyer.

The buyer, a tough authoritarian figure from the German parent company, told me how the consulting project would be conducted, asked me how I would conform to those specifications, and wanted a precise schedule of deliverables.

He also demanded to know the precise depth of my auto expertise and what I intended to do prior to the engagement to strengthen it.

I told him that I didn’t operate that way and that it wouldn’t help him even if I did. He was aghast. (His subordinates ducked for cover.)

I told him, as I gestured around the room, that he was surrounded by auto experts, and the last thing he needed was another one from the outside.

Mercedes knew how to make cars. I wasn’t going to tell the experts how to improve the cars’ fuel injection or brake linings.

But I knew how to consult, and I wasn’t about to let Mercedes tell me how to gather data or validate my findings.

The partnership had to be based on what each of us was good at, or else there could be no synergy and hence no partnership.

I got the job, and the fee was never discussed until my proposal was signed.

The buyer, since retired, told me much later on that he wished his subordinates had the courage to speak to him the way I had.

Quantitative And Qualitative Measures And Criteria

The direction of the result is far better—and safer—than the specification of the exact result. There are too many variables involved for you to rely on the attainment of a “magic number.”

Prospects will often tell you what they want, but they won’t often articulate what they really need. That’s because they often don’t know.

“Why?” Why does the buyer want a sales training program?

  • If more sales are required to compensate for client turnover, maybe the real need is better customer service.
  • If the buyer wants coaching to improve delegation skills, maybe the real need is to change a culture that is authoritarian and rejects empowerment and delegation.
  • If the client wants a mentoring program to improve retention of new employees, maybe the selection process is using incorrect criteria or the competition uses better nonfinancial incentives to lure people away.

No one cares, really, about how good you are.

Clients care about how good they are going to be when you’re done with them.

The Subtle Transformation: Consultant Past To Client Future

  • We are not worth our on-site visits, we are not worth our technology, and we are not worth our tactical advice.
  • We are actually worth the transformation that we achieve in turning our history into the client’s future.

CHAPTER 4: How to Establish Value-Based Fees

Three essential building blocks for a value-based project:

  1. The business objectives to be met
  2. The metrics or measures of success to assess progress
  3. The value to the client of meeting those objectives

Establishing Your Unique Value

  1. Why me?
  2. Why now?
  3. Why in this manner?

1. Why Me?

  • Is the buyer talking to other consultants? If so, to a limited range or a great many?
  • Do you possess some unique expertise or history (you “wrote the book,” you once worked in the industry, you worked for the buyer in the past, or the like)?
  • Have you been referred to the buyer by a trusted source?
  • Are you known within the industry, or do you have a unique reputation?
  • Are you at the right place at the right time (you’re local, you’re available to start immediately, and so on)?

2. Why Now?

  • What if the client were to do nothing?
  • Would the situation be stable or deteriorate still further?
  • Is there a limited window of opportunity during which gains must be made or they will be lost?
  • Has something occurred that has increased the urgency significantly (for example, the CEO has said, “Get it done!”)?
  • Are certain conditions in place that need to be capitalized on or they will be lost (for example, a competitor’s temporary misfortune)?
  • Is there funding available that will disappear if not used (often the case at the conclusion of a fiscal year)?

3. Why in This Manner?

  • Why aren’t they doing this internally?
  • Have they tried this in the past and failed?
  • Have they used other consultants in the past, and if so, with what result?
  • Why is this buyer the one sponsoring this project?
  • Who else is involved in this project and why?

Creating The “Good Deal” Dynamic

Focus on these “good deal” factors while building your relationship and establishing conceptual agreement (and find out which are most crucial to your buyer):

  • Responsiveness (a plus for solo practitioners)
  • Referral source (the transferred trust from the person referring you)
  • Speed of completion
  • Transfer of skills so that the client can replicate
  • Using an “authority” or acknowledged “expert”
  • Documentation
  • Involvement of client personnel
  • Confidentiality, nondisclosure, noncompete restrictions
  • Use or transfer of proprietary material
  • Guarantees and assurances
  • Industry knowledge or experience
  • Accountability for tough decisions (you are the “black hat”)
  • Ability to travel and visit sites
  • Technological compatibility
  • Safety (malpractice insurance, liability insurance, and so on)

“Fees” or “costs” are never mentioned as part of the “good deal” evaluation.

That’s because the good deal is based on value and not on fees.

At no point are we attempting to establish a good deal on the basis of lower price, because a good deal must benefit both parties, and lower fees do not benefit the consultant.

Consequently, fees should not be a part of this list.

The “good deal” equation for the buyer can include any or all of these variables:

  • Duration: The benefits of the project are annualized and forever, while the fee is one time and fixed
  • Skills Transfer: The client’s people will be able to do this themselves in the future, not only solving the immediate problem but also creating an internal capability for future problems
  • Leading Edge: The client will be assuming a leading-edge position in the industry, marketplace, community, or other environment; above and beyond the issue, the perception and image impact are substantial
  • Control of One’s Destiny: Just by dint of doing something—hiring you—the client has extricated the organization from the morass; almost any action can have a positive effect, even if results aren’t immediately appreciated.

The Incredibly Powerful “Choice Of Yeses”

By simply providing options, you move the sale to an assumptive close and the fees to a “migratory range” that is ever upward. Every buyer wants to lower fees, but not one wants to lower value.

Here are ten guidelines for options, or the “choice of yeses”:

  1. It’s OK to discuss possible options during conceptual agreement, but never assign any fees to them, ever. Simply impress on the buyer that he or she will have choices to make with varying degrees of value and protection against risk
  2. Don’t “bundle.” You’re better off “unbundling.” Most consultants don’t have options because they place every single thing they are able to deliver in their “go or no-go” proposal, as if that’s the only way to justify their value
  3. Keep a good distance between options. You don’t want a mere $5,000 of separation. Each one must represent significantly more income to you
  4. Commensurately with option 3 in the example, make sure that each option clearly provides additional unquestioned value to the buyer. Simply promising more of something or greater frequency does not add value; it merely adds time and materials. For instance, in the sample list of options, there is no option for additional focus groups or interviews. Each option is clearly distinct.
  5. Some options may include prior, lower-value ones, and others may stand alone no matter which prior option is chosen. In the example, options 1, 2, and 3 are mutually exclusive, each higher one containing the former; but options 4 and 5 can be combined with any of the first three
  6. Cite your options formally in your proposal, under a heading such as “Methodology and Options.”
  7. Don’t attach fees to the options. Cite the fees separately in the proposal under a heading such as “Terms and Conditions.” This is because you want the buyer to focus solely on the value of each option and not immediately connect it with investment. Let the buyer make a mental choice prior to introducing the fee
  8. If a buyer says, “I like option 3, but I only have the budget for option 2,” reply, “Fine, then option 2 it is.” This is not a negotiation.
  9. If a buyer asks for a slightly lower fee associated with a particular option, reply, “Fine, but what value would you like me to remove?” Never decrease a fee without decreasing perceived value.
  10. Keep your options relatively simple. This is not rocket science. And be prepared to show the differences in value (or the decrease in project risk) as you work your way up the choices.

The Step-by-Step Choice of Yeses

Step 1: Establish the value with the economic buyer in the conceptual agreement phase, after ascertaining objectives to be achieved and the measures of progress. (Questions to ask for the conceptual agreement components appear in the appendixes.)

Step 2: Establish your own value based on your uniqueness (why you, why now, why in this manner).

Step 3: Create your options, clearly delineated by increasing value. They may be cumulative or mutually exclusive.

Step 4: Given the value of the project, estimate a profound and significant return on the investment, working backward. In other words, if the buyer has stipulated a $2 million savings annualized, then a return of 20 to 1 on the first year alone would be represented by a $100,000 investment.

Step 5: Create your “choice of yeses” using that conservative 20-to-1 return rate as your least expensive option. Increase your other options by a factor of a minimum of 20 percent. In this case, option 2 would be $120,000, and option 3 would be $144,000 (20 percent above option 2).

Step 6: Now go back to step 2. If your own unique value is high on the why me, why now, why in this manner scale, add another 20 percent to each option. If your uniqueness is moderate, add 10 percent. If your uniqueness is low, don’t add anything above the step 4 calculations.

Step 7: Look at the project objectives and value to the organization in their entirety, and then review your fees resulting from the first six steps. Ask yourself, “Is this a good deal—a bargain—for the client in view of the value, and is it a good deal for me in terms of large margins? If not, adjust up or down, but by no more than 15 percent. Then submit it.

Step 8: Stop worrying. You’ll close about 60 to 80 percent of these deals, which is better than your prior rate (don’t lie) and at higher profitability.

If you must use a formula, fix it at 20 to 1 or better—in other words, 10 to 1 is just fine. Bolster your case with these beliefs (mainly for yourself):

  • The client is probably spending more on warranties for copy machines and ruined postage than for your project
  • The value to the organization, if anything, is probably understated and conservative
  • Your fees are highly conservative (actually, a 5-to-1 return would be a great investment)
  • You’ve probably underestimated your own uniqueness for this client
  • The value is based on first-year returns. The annualized basis would probably represent a return of 100 to 1
  • It doesn’t matter whether you could have done it for $20,000 less or the client would have paid $20,000 more. The margins are still terrific for you, and the benefits still terrific for the buyer. That is all that matters.

CHAPTER 5: How to Convert Existing Clients

Offering New Value

  • Provide “unlimited access” to you.
  • at any time, subject to mutually convenient schedules, by phone, fax, e-mail, or in person, if needed.

Finding New Circumstances

The Great Year.

  • Suggest to the buyer that this is a time to consider a more comprehensive and more flexible relationship.  There are funds often crying to be used or lost.

The Horrible Year.

  • Suggest an easier and less burdensome way to work with you next year, since the fees will be capped, fixed,

The New Buyer.

  • Opportunity to educate a new buyer correctly, rather than try to reeducate an old one accustomed to old habits.

The Acquisition.

  • Suggest that this is the time to simplify everything possible, including your billing arrangements.

The Divestiture.

  • The new spun-off or purchased unit probably represents high potential for you because you were familiar with it when it was still part of the original organization.
  • Remain in contact with current acquaintances moving into the new configuration.

The Competition.

  • Offer a set fee to create at least some order out of the uncertainty.

The New Initiative.

  • Almost every organization regularly trots out a new initiative, hot product, reinvention of itself, or some other strategic change
  • Use the initiative as an excuse to alter the past fee basis.

The Travel Need.

  • A value-based project fee, including all travel time (although, of course, not travel reimbursement), will remove that unnecessary expense.

Optimal Conditions For Retainer Arrangements

Ten Criteria for Lucrative Retainer Agreement Conditions

1. The Client Is Educated That Access Is the Value.

  • The client has no intent to use you as a de facto marketing vice president or chief of staff.
  • Nor does the client believe he or she is entitled to see you three days a week, regardless of need.
  • Nor is this a “make work” exercise if you’re not actively engaged for a time.
  • The client is paying for your availability and your smarts on an “as needed” basis, no more and no less.

2. The Client Understands That Access Is Not Instantaneous.

  • The idea is to create reasonable expectations of access.
    • all calls within ninety minutes, all e-mail within a day, and all correspondence within a week.
    • The key aspect of “access” is “responsiveness,” not omnipresence.
  • There Is Agreement About Who Has Access.
    • In most cases, retainers are with a single person.
  • Access Must Be Unlimited for the Client.
    • You can’t position some times as more important or convenient than others or declare a block of time “off limits.” You would then be driving the client toward certain restrictions, which devalues your access
  • Payment Must Be in Advance of the Time Frame.
  • Boundaries Are Established.
    • expenses are extra, as would be any subcontracting required.
    • While access to you is unlimited, what you will provide after being accessed clearly is not.
  • The Time Frame Is Finite and Not Turned On and Off.
    • If the client doesn’t access you for two weeks, that’s life. You’re providing access during a given, finite time frame, not a cumulative time frame of access.
  • The Procedure for Renewal Is Clear.
    • guarantee the next time frame and advance payment if all is going well for both of you.
  • Carve Out High-Priority Potential Areas for Collaboration.
    • In this way, you have the ability to follow up and pursue certain issues with the buyer.
    • Although it may seem ideal, receiving a retainer and not being accessed at all will guarantee just one thing: no renewal business.
  • Always Stress That This Is a Collaboration.
    • It’s about ongoing advice,
    • Keep your eye (and your client’s eye) on the larger picture.

Quick Tips for Gaining High-Value, High-Profit Retainers

  1. Define access.
  2. Provide unique value to the access.
    • You might provide your home, cell, and car phone numbers, which are normally never provided (nor should they be) to conventional clients.
  3. Set your calendar to intervene in silences.
  4. Ask the client for unique access.
    • Unscreened e-mail address?
  5. Go above and beyond in an obvious manner.
    • Let the client know you’ll reschedule something noncritical to meet the buyer’s urgent schedule.
  6. Don’t promise too much.
    • You can’t really reduce turnover, improve sales, or increase market share on this basis.
    • What you can do is give the buyer peace of mind and improved skills, as well as validation for the buyer’s thinking.
  7. Remember that as a consultant, you seldom surprise people who know what they’re doing.
    • In other words, merely verifying that a position or course of action makes sense to you as an objective outsider is often sufficient.
  8. Do some studying. 
    • Learn your client’s lingo, and study your customer’s customers.
  9. Push back as needed.
    • You’re not there to salve the buyer’s ego but rather to help make the buyer successful.
  10. Finally, be willing to walk away.
    • It’s unethical to sit back and keep the money if you believe that a long-term retainer isn’t working. 
    • Think of future business and future referrals

Organizing The Scope And Managing Projects Within The Retainer

You have to make clear to the client that any discrete projects that may arise during the retainer’s time frame are not included in the fee for the retainer itself, and this is easier said than done.

The client will tend to view you as a resource—almost as an employee—who can be “assigned” as the client sees fit, if you don’t counter that notion early in your retainer education.

As you identify potential projects and initiatives that the client should consider, always suggest ways that the client could accomplish them internally or with external resources other than yourself. Don’t recommend yourself, but don’t rule out that eventual option either.

If the client wants you even after being presented with alternative resources, you can then legitimately accept the work, for a project fee.

Aggressively Marketing Retainer Relationships

  • Include testimonials in your press kit and on your Web site that stress the benefits of your having been on retainer (in addition to your overall quality)
  • Place “typical results” achieved from your retainer work, specifically, on the Web site and in your press kit
  • Conversationally mention your retainer work in speeches. For example, “When I was on retainer to the…”
  • Write articles on the value of retainer relationships, or mention those relationships (as in the speech example) in your other articles
  • Where appropriate, include a retainer option in your proposals—generally most effective when the prospect “doesn’t know what he or she doesn’t know”
  • Consider structuring some of your pro bono work on a retainer basis, even though you’re not being paid; that is, become an adviser to the pro bono client, rather than engaging in a particular project or serving in a particular capacity

Ethics and Fees, Fees and Ethics

Q: When do I exceed high value and simply become very expensive, seeking “whatever the traffic will bear”?

A: When the client’s ROI becomes so low that there is a question about the wisdom of the investment, you’re probably overcharging (or underestimating value—be careful).

I think a 10-to-1 return on a conservative estimate of value is very powerful, and don’t forget that the buyer has agreed to that estimate of value during the conceptual agreement stage.

I’ve worked with consulting firms in the manufacturing field that believe that a 3-to-1 return is very significant for their clients, so you can see that this is very persuasive ground.

There are few places, if any, where the client is generating 10-to-1 returns.

So long as you can demonstrate that kind of dynamic, quantitatively or qualitatively, you’ll never be accused of “gouging.”

Seventy Ways to Raise Fees and/or Increase Profits Immediately

  1. Establish Value Collaboratively with the Client.
    • It’s imperative to reach agreement with the buyer as to the real worth to the organization of achieving the business outcomes specified in the objectives.
  2. If Value Differs, Fees Can Differ.
    • Just because you’re doing the exact same thing for two different clients doesn’t mean the fee must be the same.
  3. Base Fees on Value, Not on Task.
    • Never base a fee on your doing something. Always base it on the client’s achieving something.
    • Tasks (surveys) are commodities. Value (market share) is a unique client improvement.
  4. Forget About What’s Happened Before.
    • It doesn’t matter if the client has always paid by the day for a certain type of help or if the client places limits on fees for consultants.
  5. Never Use Time as the Basis of Your Value.
    • Your value is in your talent, not in your showing up.
  6. Practice Stating High Fees.
    • That’s right, practice saying, “It will be between $150,000 and $225,000” out loud. When you say these things matter-of-factly, the client assumes that he or she is out of step if the amount sounds high. If you giggle or turn red, you lose a certain amount of credibility.
  7. Think of the Fourth Sale First.
    • Fees are cumulative, not situational. Don’t be greedy. Even on a value basis, the goal is to develop a relationship and implement successful projects that will lead to years of work.
  8. Don’t Use Round Numbers, but Don’t Be Ridiculous.
    • ridiculous to cite $123,687.90. The client is going to want to see the worksheet that generated that kind of precision.
  9. Engage the Client in the Diagnosis; Don’t Be Prescriptive.
    • The client perceives much greater value when you and the buyer are jointly diagnosing the issues, instead of you prescribing some off-the-shelf medicine.
    • Value is based not just on what you contribute but also on your embrace of the ideas and desires of others.
  10. Never Voluntarily Offer Options to Reduce Fees.
    • The only option I ever recommend is a small discount if the client pays the entire fee up front, at the time of project acceptance,
  11. Never Deal with a Purchasing Manager or Accounts Payable.
    • Obtain firm agreement on your agreement while you and the buyer are together.
  12. Add a Premium If You Personally “Do It All.”
    • it costs more if I’m the only one to work on the project, not less. I’m the talent; the subcontractors are not.
  13. Remove Fees from All Printed Materials.
    • Purge any reference to fees in your printed, Web, and other promotional materials.
  14. If Forced to Consider Fee Reduction, Reduce Value First.
    • Sometimes a client will say, “We can’t afford to lose that” and will concede the fee, but in any case, you don’t want to be seen as someone who has a padded fee awaiting reduction.
  15. Always Make It Clear That Expenses Are Extra.
  16. Always Provide an Option That Exceeds the Budget.
    • There will still be two or more options within the budget limitation, so you’re not risking anything but just may be laying the groundwork for higher profits.
  17. As Early as Possible, Ask the Question Guaranteed to Result in Higher Fees, or QGTRIHF: “What Are Your Objectives?”
  18. Broaden Objectives as Appropriate to Increase Value.
    • It’s relatively easy to broaden the objectives—and, consequently, raise the fees—by asking a few innocent questions.
  19. Ensure That the Client Is Aware of the Full Range of Your Services.
    • Prospects will sometimes jump to a conclusion about your “specialty,” or they may have been misinformed by a reference source.
  20. If Something Is Not on Your Playing Field, Subcontract.
    • subcontract what you can’t handle. It’s the overall relationship that counts, not individual mastery of every implementation element.
  21. Always Ask Yourself, “Why Me? Why Now? Why in This Manner?”
    • If the buyer has a raft of choices, you’re less valuable, but if you’re one of the few with the expertise or reputation, you’re much more valuable; can wait, window of opportunity is closing, can do this internally, external consultant is mandatory,
  22. Use Proposals as Confirmations, Not as Explorations.
    • Don’t submit a proposal until you have conceptual agreement on objectives, measures of success, and value to the organization. Otherwise, the proposal becomes a negotiating document, and the options you have listed will be the point of departure to negotiate downward.
  23. When Asked Prematurely About Fees, Reply, “I Don’t Know.” Don’t be cornered.
  24. If You Must Lower Fees, Seek a Quid Pro Quo from the Buyer.
    • There is usually some barter arrangement that is attractive to both parties.
  25. Don’t Accept Troublesome, Unpleasant, or Ugly Business.
    • No matter what the fee, these clients will cost you more than you keep.
  26. When Collaborating, Use Objective Apportionment.
    • Use whatever formula you like but use one that’s clear and objective so that everyone understands the ground rules for revenue sharing.
  27. Any Highly Paid Employee Must Bring in New Business
    • Delivery, research, and support are commodities for which you should subcontract.
    • Don’t pay people for delivering your business acquisition unless it’s on a pay-for-performance basis.
  28. Seek Out New Economic Buyers Laterally During Your Projects.
    • be on the lookout for opportunity as you are implementing.
  29. Respond to “Scope Creep” with “I’ll Send a New Proposal.”
    • Whenever the client requests work clearly outside the objectives of your original agreement, accept it graciously provided that you can send a new proposal—with new objectives and new fees—to cover the additional work.
  30. It Is Better to Do Something Pro Bono Than to Do It for a Low Fee.
    • Don’t ever be pegged as a low-priced option. If there’s something you’re dying to do or a cause you feel more than merits your attention, do it free of charge as part of your pro bono work. Don’t allow yourself to be pegged as a “cheap resource.” Rule of thumb: never do pro bono work for a profit-making entity.
  31. If You Do Something Pro Bono, Send an Invoice.
    • Show the pro bono client what your actual fee would have been, and then waive it, showing a net of nothing due.
  32. Fees Have Nothing to Do with Supply and Demand, Only with Value.
    • Every year, ask your trusted advisers and clients to help you assess the value you’re providing.
  33. Raise Fees at Least Every Two Years.
    • Actively and aggressively increase your fees for the same kind of value you’ve provided in the past about every two years or so.
  34. If You Are Unaware of the Current Range of Market Fees, You Are Undercharging.
    • When you network and talk casually to clients, try to find out what the general ranges are for a variety of projects.
  35. Stay Acutely Sensitive to Margins. It’s not what you make but what you keep that’s crucial.
    • Analyze how much you are keeping, and adjust your fees or your expenses accordingly to maximize margins.
  36. Psychologically, Higher Fees Create Higher Value in the Buyer’s Perception.
    • Buyers believe they get what they pay for, which is why McKinsey, IBM, Rolex, and Ferrari don’t enter into price negotiations. No one says,“This is the cheapest consultant I could find, and I’m proud to have him!” Instead they say, “This person is costing us a fortune, and we were lucky to get her, so listen up!”
  37. Value Can Include Subjective as Well as Objective Measures.
    • A high-level buyer’s relief from stress, anxiety, unpleasant situations, poor image, safety concerns, and similar pressures is worth a great deal.
  38. Use Other People Only When Absolutely Necessary.
    • Use subcontractors if (a) you don’t have a requisite skill, (b) you need “legs” because you can’t interview all over the country on the same day, or (c) you’re bored with the nature of the work. But don’t use them as a show of force or because you think doing so adds credibility. What it does is decrease profit, no matter how much you’ve boosted the revenue line.
  39. Introduce New Value to Existing Clients to Raise Fees in These Accounts.
    • Don’t simply sit back and do the same thing every year.
  40. Do Not Accept Referral Business on the Same Basis as the Referring Source.
    • If a colleague refers business to you from a client paying by the hour or the day, don’t accept the same terms. Immediately educate the buyer that you work differently and so your arrangements will be somewhat different.
  41. Ask the Comparison Question.
    • When a prospect says, “That’s more than we intended to spend” or “We never imagined it would cost that much,” point to a copy machine or computer and ask, “What’s your annual cost for warranties on this equipment? It’s more than the sum total of this project. Are you really so willing to invest more in preventive maintenance than you are in human development?” (Of course, you should make whatever case it is that benefits your project.) Do some homework, and work out these comparisons in advance—you can use ruined postage, cafeteria subsidies, carpet cleaning, all sorts of things. It works wonderfully for putting your fees into perspective.
  42. When Forced into Phases, Offer Partial Rebates to Guarantee Future Business.
    • offer a rebate from the fee for the prior phase on the succeeding one if the buyer commits before the prior phase is completed.
  43. Cite a Time Frame for the Proposal’s Acceptance.
    • Tell the buyer that the fees—and any discounts you may be offering for one-time payment, for example—can be honored for thirty days, after which a new proposal will be required.
  44. At Least Every Two Years, Consider Jettisoning the Bottom 15 Percent.
    • All of us are burdened by business that made sense at one time but no longer does, business that is accustomed to too much service for too little money, and business that is comfortable but unchallenging.
    • We can’t reach out unless we let go, and we must let go of nonproductive, low-potential business.
  45. At Year-End, Always Emphasize Early Payment.
    • Clients will often have “money to burn” in the fourth quarter of their fiscal year, which is returned to the corporate coffers if unused.
  46. Practice Saying, “I Can Do That for You.”
    • When a buyer trusts you, the buyer will often remark about things that have to be accomplished outside of your project.
    • But don’t do it for free. As always, provide the buyer with some options. Often the buyer won’t realize that you are as multifaceted as you are.
  47. Start with Payment Terms Maximally Beneficial to You Every Time.
    • For example, explain that your policy is to receive the full fee paid in advance. If the client finds that unacceptable, offer 50 percent on acceptance and 50 percent in forty-five days (no matter what the length of the project).
  48. Suggest Key Objectives Beyond the Project.
    • Don’t be blatantly self-promotional. Simply suggest, “Here are three things to accomplish next year…”
  49. If Payments Are Late, Pursue the Buyer.
    • Don’t fool around in accounts payable if a scheduled payment or expense reimbursement isn’t received. Immediately go to the buyer and state, “We have a small problem.” The buyer will always be in a better position to expedite things internally than will you from the outside.
  50. Offer Incentives for One-time Full Payments.
    • You never know until you ask. By offering a modest (5 to 10 percent) discount for payment on acceptance, you just may put a six-figure check in the bank tomorrow.
  51. Be Clear on What the Client Owes for Expenses.
    • If you’ve created something unique that was required for that client and did not simply use your generic materials or equipment, chances are that it might be reimbursable.
  52. Send in Expense Reimbursement Requests Promptly.
    • submit reimbursement requests zealously, with receipts, to avoid questions and delay.
  53. Read the Fine Print; Then Push Back.
    • respond to your buyer
    • Tell the client that you have just learned that the two of you have a few unexpected conflicts to work out. At worst, you can probably compromise on the most odious parts.
  54. Never Accept Payment Subject to Conditions to Be Met on Completion.
    • Manual laborers get paid when their work is done, knowledge workers when their work is beginning.
    • You don’t pay for a book after you’ve completed reading it, and you don’t pay for software after you’ve mastered it.
  55. Focus on Improvement, Not on Problem Solving.
    • Everyone can solve problems, and problem solving is a commodity. But few people can systematically raise the bar and improve the performance of already stellar operations. Yet that’s where the value is.
  56. Have the Client Absorb Expense Billing.
    • Many clients will, and an administrative assistant can take care of everything. Not only does this help cash flow by preventing payments and waits for reimbursement, but it also reduces the number of invoices a client sees and reduces the total costs associated with your project (since the expense amounts are usually absorbed within corporate accounts).
  57. Provide Proactive Ideas, Benchmarking, and Best Practices from Experience.
    • Don’t become “industry-bound.” Demonstrate value to the buyer by bringing to bear experiences in other industries and under other conditions that can contribute to improving the current client’s condition.
  58. Quote in U.S. Dollars Drawn on U.S. Banks.
  59. Practice Stating and Explaining Your Fees.
    • Practice your responses so that you’re neither sweating profusely nor losing eye contact.
  60. Always Be Prepared to Walk Away from Business.
    • Few tactics increase your fees as much as this one. Never be anxious.
    • If you’re at an impasse, simply say, “I’ve enjoyed meeting with you, but I don’t think I can undertake the project, given what you’re offering. Let’s stay in touch.”
    • Often you’ll be stopped before you’re even out of your chair.
  61. Make Sure Your Fee Increases Exceed the Inflation Rate.
    • A great many consultants forget that even in periods of modest inflation, there is inflation.
  62. Push Toward Being the Bentley of Your Field.
    • At the beginning of your career, it’s fine to be more competitively priced to draw business. But as your career trajectory continues, you should be building the contacts, referrals, and expertise to demonstrate that you are the class act in the field.
  63. Build Strong Brands and Nurture Them.
    • People are attracted to brands and pay far less attention to price.
    • You’ve all heard, “If you have to ask how much it is, you can’t afford the purchase.”
    • Brands draw clients who don’t care about the fee, only the results and being associated with you.
    • Never forget that the strongest brand is your own name.
  64. If You Are Active Globally, Consider Both Differential Rates for Overseas Work and Being Paid in Local Currency If That Helps.
  65. Never Allow Local Taxes to Be Deducted from Your Fees.
  66. Accept Wire Transfers from Clients.
  67. Use Multiple Invoicing If a Client’s Level of Authority Is Surpassed by Your Proposal.
  68. Keep Boilerplate Out of Your Proposals.
    • Use plain language and rely on your relationship with the buyer for honorable behavior.
  69. Never Allow Accounts Payable to Do Anything but Send You the Check.
    • Their job is to enforce existing procedures, not to help exceptions. Have your buyer sign off on everything,
  70. Look in the mirror and say, “The fee is $176,000.”
    • When you can do that without giggling, you just may be there.

The Four Fundamental Areas Of Resistance

Resistance Point 1: “I Don’t Trust You”

  • are you known to potential clients?
  • are you referred by current clients?
  • do you possess an inherent level of trust from a cohesive body of work in the field?
  • Creation of a name, brand, and reputation are quick routes to establishing trust with any potential buyer

Resistance Point 2: “I Don’t Need You”

  • raise the bar to new heights, not just to fix problems
  • Even the best of organizations can steadily improve; thus there is always a need that can be created, even if there is nothing obvious to be fixed.

Resistance Point 3: “I Don’t Feel Any Urgency”

  • In this general resistance area, the consultant must create urgency.
  • This can be accomplished by these methods:
    1. By pointing out competitive actions that will threaten the client
    2. By identifying a unique and limited window of opportunity to address the issue
    3. By showing that the prospect is incurring far more damage than perceived
    4. By demonstrating a far greater return on investment than the prospect believed possible
    5. By showing that the prospect is not on a plateau but that the condition is actually causing a decline that is increasing in its degree and speed
  • Time is never a resource issue; it is always a priority issue.

Resistance Point 4: I Don’t Have the Money to Pay You

  • So the money objection is the easiest, most common, and most misunderstood. It is almost always an excuse, a cover-up for one of the first three areas not being satisfied.
  • When a client does say, “We need to do this and I want you to do it for us but I don’t have budget,” the consultant can help the client find the funds.

Boring In On The Subject

The prospect believes—quite seriously—that the fee will be around $5,000, while the consultant’s most inexpensive option, which the consultant considers a “good deal,” is $55,000.

How can this happen so far into the discussions and after conceptual agreement?

The cause is twofold:

  1. Some consultants fail to develop a sense about the client’s philosophy of return on investment and overall spending.
  2. Some clients are totally out of touch with investment needs.
    • The client has never used consultants in the past and so is totally unfamiliar with investing in external help.
    • The client used very inexpensive and inexperienced consultants in the past, which has caused an incorrect “education” and precedent.
    • The client has tight cost controls and a zealous focus on the expense side of the business; doesn’t see ROI, only costs
    • The client tends to focus overwhelmingly on the short term
    • The client’s firm is losing money and in desperate straits
    • The client is a small business owner, weighing personal and business expense needs
    • The client sees the consultant as “too new” or not totally credible and feels that the consultant is getting a chance to prove himself or herself, so the fee can be commensurately low.

After conceptual agreement is reached but before the proposal is even created, ask the buyer a variation of the following question: “You’ve been very kind, and I’m in a position to offer a proposal with some investment options for you. Since there are options for achieving these goals, is there a budget amount you’d like me to stay within?”

Another approach is this: “We’ve made fine progress, and I don’t want to waste your time or mine as we go forward. Is there a budget—or even a rough amount in your mind—that represents the limit of your investment in this project?”

And here’s one more, which I call the New York (direct) approach: “We’re ready to move to a proposal, but before we do, my experience has shown that it’s important to understand any constraints on our approach. What is the budget you’ve allocated, now that we’ve reached this level of agreement?”

Common Response 1:

  • “I don’t want to disclose what I’m prepared to spend.”
  • You should respond, “I’ve come to respect you and don’t want to waste your time. My judgment at this point is that the investment range is going to be $35,000 to $65,000, depending on how much certainty you’re seeking. Is that in the ballpark?”

Common Response 2:

  • “Our expectation is that the project should cost somewhere around $20,000.”
  • If that’s realistic, respond, “We can work within that, and I’ll get the proposal to you tomorrow.”
  • If it’s unrealistic, say, “I don’t think we can do it for that amount. We’re probably talking about $35,000 at the low end to $65,000 at the high end. Do you want to discuss this further?”

Common Response 3:

  • “We’re willing to spend whatever is reasonable to make this happen.”
  • Your reply here should be, “Thanks, I’m sure you’ll find the investment well within reason in view of the benefits we’ve already detailed. The proposal will be here tomorrow.”

Here are the conditions:

  • You have been talking to the economic buyer all along
  • You have achieved conceptual agreement with the economic buyer
  • You are uncertain of the buyer’s understanding of the level of investment required.

Using “Smack To The Head” Comparisons

There are times when the client will balk at a fee, even when you know darn well that the fee is entirely reasonable and the good deal is terrific.

  • Ask what one lost customer a week is costing
  • Ask what the cost of a very bad hire is.

Entry-Level Fees

  • One of the worst strategies that I’ve ever encountered at entry level is to price low in order to get business.

The Book’s ROI: Alan’s Axioms For The “Good Deal”

1. You Are Entitled to Be Compensated for Your Value

  • We live in a capitalist system, which works better than all others.
  • People believe in such a system that they get what they pay for.
  • However, the first sale is to yourself.
  • You must believe that you are entitled to fair remuneration, and you must appreciate your own value.
  • Creating shared success with the client is the best way to create shared value, at any time in one’s career but particularly early in that career.
  • The “good deal” occurs when the client believes you’ve been a bargain in terms of the results you’ve helped produce, and you believe you’ve been paid very well.

2. Basing Fees on Time or Materials and Not on Value Is Simply Crazy

3. Buyer Self-Interest Is Based on Results

  • “deliverables” are only a commodity that will be comparison-shopped by most buyers.
  • A report, a training session, or a coaching regimen are simply tasks performed.
  • But improved morale, faster customer responsiveness, and more effective leadership are highly valuable organizational outputs.
  • The consultant brings his or her past experiences, through an intervention, to dramatically affect the client’s future. It’s that final part that merits high fees: the future. The consultant’s past is only an input, and the intervention is merely a device. Fees should be based on future improvement, not on past technique.

4. Conceptual Agreement Is the Linchpin

  • The ability to reach agreement with an economic buyer on objectives to be met, metrics to assess progress, and value to the client is the centerpiece of fee strategy.
  • This creates a return-on-investment mentality instead of a cost mentality.
  • It’s critical to establish clear outcomes at a fixed investment and not to surrender to vague outcomes at clear costs.

5. Existing Clients Can Be Converted to Value-Based Fees

6. Retainer Business Is Discrete and Sound Business

  • Retainers represent access to your “smarts.”
  • Be sure that the conditions are carefully spelled out and that you’re not mixing project and retainer work together.
  • Ensure that the buyer’s expectations are the same as yours.
  • Coordinate project work and retainer work for the same client through separate proposals and payment schemes.

7. There Are Scores of Ways to Raise Fees and Margins

8. You’ve Heard All the Objections Already

  • ask about the buyer’s budget
  • Offer rebates
  • Use comparisons
  • Ignore the competition. The client’s self-interest will serve to overcome any objections.

9. Nonconsulting Activities Are Lucrative

  • speaking, coaching, products, licensing

10. Identify Where You Are in the Fee Progression Strategy

CHAPTER 11: Technology and Fees

Marketing Enhancement

For you and me, our Web sites are credibility statements. They are places buyers go after they have decided that we are potentially of value to them. Therefore, this is your repository of expertise. Using your Web site as a “passive” press kit and publicity site is highly effective.

Be sure to include all of the following on your site:

  • Typical results your buyers can expect to derive
  • Case studies (challenge, intervention, result)
  • Testimonials
  • Position papers
  • List of articles published
  • Client list
  • Books, columns, newsletters (lists, archives, and so on)
  • Biographical sketch

The Publishing Prerogative

  • Press Releases
    • Whenever you receive an award, accept a speaking assignment, launch a new service, travel to an exotic location, or pick up a new client, send out a press release.

  • Columns
    • Write for a monthly publication
  • Newsletters
    • Focus on high-content, low-promotion

{ 1 comment… read it below or add one }

1 Jo Allum January 26, 2014 at 12:30 pm

Great post Sheldon. Useful cliff notes for all of us involved in creating long term value for customers. I’d also recommend this text on the same subject… http://www.amazon.com/Value-Based-Pricing-Creating-Communicating-Capturing/dp/0071761683

Reply

Leave a Comment

 

Previous post:

Next post: