Passion, People and Principles

How to Set Fees

post # 330 — March 14, 2007 — a Client Relations post

A reader asks:

In light of some things you teach, ideas from Rob Nixon, and the VeraSage institute; it seems a very bad idea to bill by the hour, especially if you are a new consultant just beginning your practice. Yet, most smaller clients one would probably start with would think in terms of hours. Ultimately, you would want to find some way for them to pay you according to value added, right? But how is this done?

The best I can come up with is offer a free consultation (a few hours or whatever) just long enough to show them you are worth your fees and long enough to find out if you want to work with them). Have in mind what your time is worth to you. Estimate with them the length of the project. Come up with a (fixed price) estimate. If they feel like the price is worth it to them, then you are essentially measuring the value added (maybe lower than value added). Then if it takes longer or shorter, it was based on their value and not your hours. And in the future, as you get more efficient, you still bill the same for the project.

Is this the right approach for a beginning consultant?

***

So, what does everyone think? This seems to be toay’s conventional wisdom on pricing, but would anyone else provide different advice?

35 Comments

Michael said:

We do this all the time at my firm (a small IT consultancy). Or rather, we think about it all the time. We think about offering the potential new customer some “free” work, to demonstrate our value. Sometimes we get to the point where we believe the customer trusts us enough to actually make the offer. And sometimes they accept.

My perspective on this is that the free work has a far better risk/reward outcome than doing cold-call business development. And much more likely to lead to a solid, long-term relationship.

Said differently, if we have a choice between spending, say $30K over the course of a year to try to get in with a new customer, or doing $30K of free work with a customer already-identified, that’s a no-brainer.

posted on March 14, 2007

David (Maister) said:

Michael, thanks for this. Please add more, if you will. Do you also price on a fixed quote basis, a monthly retainer, or by the hour? What’s your philosophy on the fee-setting part of the question?

posted on March 14, 2007

Mark Shead said:

As a consultant I will usually tell clients how to solve their problems for free. I will charge them if they want me to actually solve the problem for them. Many people have been burned by consultants who come in and charge them thousands of dollars to help define the problem.

When I tell people that I’ll figure out a solution for free and once they see the solution they can decide if they want to hire me or get someone else, they usually tell me “I wish the last 4 consultants we hired worked like this”.

This approach also helps keep me from getting into price competition. I tell clients that my prices are higher than the competition because I provide so much up front risk free.

As far as flat fee vs. hourly, I really like the idea of flat fee. However in actual practice, it can limit your business. Most organizations have the problem they are trying to solve immediately and a whole host of problems that need attention in the future. If my contract is setup to require a new contract to deal with other things the client needs, they may not ask for help because of the paperwork involved. I try to keep my contracts open ended so if they need additional help they can just call me up.

If I can solve a problem in 15 minutes that would take them 8 hours to figure out, I’m offereing them a lot of value. If the process of getting a contract approved takes them 5 hours, the return on investment of what I provide goes down significantly.

posted on March 14, 2007

Pat McGraw said:

I agree with your approach, David. I will meet with the prospective client for an hour or two in order to get a feel for the project and understand if the client is someone with whom I can work. If I think the project and client has promise, I charge a flat rate for a 1-day discovery session where I meet with the rest of the client team in order to gain their insight and perspective. At the end of that day, I can then scope out the project and offer a flat rate price with a breakdown of type of service I will provide as well as hourly estimates. This allows me to [a] charge an appropriate hourly rate for the types of services I offer (for example, I charge less for gathering secondary research than I do for the time I spend on analysis and recommendations), and [b] frustrate the potential client that likes to try to figure out what my hourly rate is so he/she can try to lower my rates.

I have quoted fixed rate (with a specific timeline and scope so that whenever we get into “Can you do this…” I create an addendum for approval and add it to the overal agreement/contract. I have also quoted monthly retainers…but the foundation for everything is my hourly estimates of time on the job.

posted on March 14, 2007

Jim McHugh said:

David,

I always try to incorporate some free work as part of the business development process for new (not old or existing) clients. In fact, I have a button on my website (using the Seth Godin concept) called ‘Free Prize’. The Free Prize is my free time ‘for a while’. Spending some time (hours, a day, maybe two) to meet, talk, review material, understand the real issues etc. helps me with the proposal process and better clarifies expectations with the client. I will either propose a fixed fee or a manday range for a project. I don’t like hourly billing since my strategy and performance improvement engagements tend to have some length to them. The free time does not guarantee getting the work, but I think it improves the odds and enhances the outcome. Another wrinkle on this is if the free time involves travel to the prospect. In that case, I typically ask for my travel expenses to be covered in lieu of billing for the (still promotion) time. That seems to be accepted as a good trade with most people.

posted on March 14, 2007

Bob McIlree said:

One has to be careful, particularly in IT, about taking on fixed-price work without the necessary control & authority over the work and/or project. This is dependent, more or less, on whether you’re coming in as a consultant or as a contractor that is part of a larger project or operations effort. I’ve watched a number of consultants go down in flames on fixed-price work from a profit perspective because they took on work with too many uncertainties that were not planned, priced-out on the bid, or contractually stipulated for extra budget if the client changed their minds.

Nonetheless, I’m not a big fan of ‘per-hour’ pricing because it has too much of what I’ll call ‘wage stigma.’ Let’s say for example that I charge $100 per hour for my services. The automatic assumption most people make is that the $100 per is going diectly into my pocket. Which is untrue after one subtracts business overhead, insurance/benefits, and taxes from that figure, but employee-types never realize that.

I never cut rates if a client or prospect asks, I cut the scope of the work. If I cut the rate, a client would most likely perceive two things: a) I’m overpriced; or b) I don’t know what I’m doing. Long-term clients that I want to serve and keep know the value that I provide. In my experience, those looking for a deal generally have a whole slew of negative issues that puts them on the C,D, or F-list in a short period of time and prevents me from finding those great A-and-B-listers…:)

posted on March 14, 2007

Steve Roesler said:

David,

A timely post…I was just speaking about this morning with a relatively new consultant who was seeking some guidance.

I never charge by the hour. Ever. If you charge by the hour, you are a commodity. If one wants to be seen that way, then I guess that is fine.

It’s always worked well to identify with the client:

1. What the outcomes will be

2. Discuss the savings/revenue, or whatever, that this could mean.

3. Price the fees in a way that is consistent with how they see the value of the project.

At the initial meeting, I explain that I will begin consulting immediately and I hope that they will find the discussion useful whether we decide to work together or not. It’s important to let folks know that you are working from the outset. There is never a fee for an initial meeting, however.

Depeding upong the type of engagement, if they want to “try out” something, I’ll identify it as a pilot. I do charge for the work done but let them know that I will deduct the cost of the pilot from the overall project. That way, they get something of value; I get paid; and they do get an actual freebie should we agree on a longer term engagement.

Always a tough topic for any consultant and a real stickler for folks just starting out.

Good conversation!

posted on March 14, 2007

Heidi Ehlers said:

Trading hours for money?

Didn’t we stop doing this in our last high school job?

How do you even begin to quantify the number of hours of research and study in your particular area of expertise that it took to create your expertise on a given subject?

Where do you put that on the balance sheet? If you did, wouldn’t it be a ridiculous, unbelievable number? Maybe we could put a research levy on each hour!

Also, how do you quantify the number of hours that you are saving (or money) for the company you are being engaged by? How would you put a price on that?

I think your suggestion is bang on. What I do, is ask what my service is worth to them – it starts a dialogue on how much they ‘value’ what I”m offering. I don’t just want to sell my expertise on a particular subject, I want to impact change, and see the passion I put into something result in a dramatic outcome for my clients. If they don’t ‘value’ what I offer, they won’t get behind it, and if they don’t get behind it, it doesn’t matter how great my service is, nothing will change.

And there’s no invoice big enough to make that feeling go away.

I always use a shoe metaphor. You know those shoes you paid $10 for? How do you treat them? How about those ones that you REALLY had to think about before buying them? I bet they’re in cedar shoe trees, and get a caring spritz of protectant now and again.

And of course, there’s the famous story of the guy who is called in to fix the assembly line that’s just gone down. He walks to the assembly line, turns a screw a quarter turn to the right and the assembly line springs back to life. He writes up an invoice for $30,000 and the owner of the company says, “You charged me $30,000 to turn a screw?!!?” “No,” he says, “I charged you for knowing which screw to turn.”

And most of what it took to get to that point if you’re applying the hours for money model would have been unbillable hours.

Great post, thank you.

posted on March 14, 2007

David (Maister) said:

Hey, people. I’ve got a confession to make.

I DO have a (very high) daily rate, and clients ask me what it is. Sometimes it’s because they only want me to do a single-day speech or seminar, sometimes just because they think in those terms. So, much of my work ends up being quoted by the day.

I don’t disagree with the majority opinuion here that value billing is the key, and fixed quotes after careful examination of scope and value are a great way to go.

But I don’t think we should leave the impression for all readers that this debate is all wrapped up and over in all marketplaces. Many people, both at the high end AND the low end of various marketplaces are asked about their rates.

I just don’t buy the argument that if I quote by the hour or by the day, then I’m a commodity. Don’t I show to the marketplace that I’m NOT interchangeable with others when I charge (and obtain) premium fees?

Folks, I don’t think this debate is over yet. there’s more to be done and said before everyone can adopt the same approach, even if we all think there is one “preferred” solution.

posted on March 14, 2007

mary wynne-wynter said:

I’ve designed and developed a menu of fixed-price/fixed-time programs, including a “mix and match”. They are more like products. I publish all my prices.

I spend as little time as possible on data collection and prefer to get what I need to know “on the fly”. I never liked paying for intakes when I was the client.

I don’t offer free consultations to get business. I do try to give prospects a sense of my capabilities by asking questions, sharing my insights, and relating their problems to something “they don’t know they don’t know”.

posted on March 15, 2007

Steve Roesler said:

Well, I would havd to agree that the debate is definitely not over!

One of the tough parts of posting-commenting-posting is the evolving undertstanding of the real definition and parameters of the issue at hand.

I had mentioned the value-pricing vs. commodity thing. But I, too, have a fixed daily rate for organizations who find it comfortable dealing in those terms. And it took a little while to determine what that rate should be given the expertise and value provided, as well as trying to determine all of the ingredients that go into valuing one’s time.

The hourly thing I still wrestle with and don’t do. But I’m always open to seeing things from another angle as people continue commenting thoughtfully.

Thanks for continuing this discussion, David.

posted on March 15, 2007

Nancy said:

I agree. Letting your clients have a piece of your talent is a good start. Drawing them nearer to you like the sweet taste of wine which you have to taste before buying.

posted on March 15, 2007

Barry Wilkinson said:

If only this were so simple.

Setting my remuneration has proved no simpler than setting partner remuneration, or staff bonus schemes.

Over the years I have priced in several ways and they all have upsides and downsides.

I should maybe start by saying that over 80% of our clients are law firms. many of which have a “hourly rate” mindset – and the smaller ones are reluctant to spend money on consultancy unless they are guaranteed a payback!

The most lucrative, but also the most risky, has been straight contingency fees – linked to reduced costs, increased revenue or increased profit. It is not only in IT that to make this work you have to have control. But if I am doing a turnround, and the client has little option other than to accept my advice and use my implementation team it works fine.

We do not offer free consultancy up front these days. Our experience with both upfront freebies and contingency fees is that clients do not value our time – and tend to waste it.

We do charge for the initial problem diagnosis – This is a fixed fee WITH A GUARANTEE that our fee will not exceed the value of our recommendations. (Never failed yet). We then offer the client the option to do some or all of the implementation themselves, and leave us to do the balance. We almost always under-recover on the initial work – due to time over-runs. However it showcases our ability, allows us to get to know and understand the partnership dynamics and we get more than enough follow on work to justify the under-recovery.

Therafter, we give the client a choice – fixed fee for specific projects, daily / hourly rate for longer term work, or a trade-off.

Our preferred approach is a modest daily rate plus a performance incentive. We can usually over-deliver and our clients are happy to pay more for better results.

That way, we cover our costs from the fee, and make our profit from the incentive.

There is an old salesmans saying. “Always give the client a choice between something and something. If you make them choose something or nothing – they may choose nothing!”.

So Mr Client, (now that you believe in us) would you like to pay by the day, or on a results basis…?

posted on March 16, 2007

David (Maister) said:

Thanks, Barry – very helpful!

posted on March 16, 2007

Lance Dunkin said:

Barry, can you give us some guidence on performance incentive? Do you assess how much money you have saved the client or how much their revenue has increase over a certain period of time after your project?

Is this something you measure or does it come from the client’s reports? As client reports can be very private, have you ever encountered problems with this system?

Does anyone else use this performance incentive approach, and would anyone mind sharing some examples of how it is done?

posted on March 16, 2007

Irene said:

That’s a great strategy. A good way of enticing your clients into giving in. Building some sort of trust gainer to have a better deal at the end. It will only cost you time if your thing didn’t work with them.

posted on March 16, 2007

Sean said:

I’m also curious about how to add a performance incentive. Can someone tell me an idea that has worked? David, what would you suggest?

posted on March 17, 2007

Lance Dunkin said:

I sincerely apologize if I am being a nuisanceâ€”I have just gotten so much out of this discussion, I am so fascinated with this topic, and I feel there is a lot of good discussion left hereâ€¦

We came up with help your potential clients define a problem for free. Then either set a daily or fixed rate to help implement the project. Then potentially add an incentive for adding value above and beyond (helping the client meet a target above the scope of the project). We are clear on most of the first steps. But what about that last stepâ€¦

Our work would either be increasing revenue or decrease cost (or both). If the client was willing to pay us more for adding value beyond the scope of the project, what ways could we effectively measure what that additional value is so we could share it with the client?

posted on March 17, 2007

David (Maister) said:

Lance, bear in mind that the participants here come from a broad variety of professions, so “increasing revenue or decreasing cost” are not the only ways advisors add value. It really is specific not only to professions, but to the niche you are in, and the SPECIFIC goals you have been contracted to achieve.

Is the value employee retention? more repeat business from existing clients? More new clients? Maybe you’ve done your job if you help your client gnerate more new leads even if they don’t turn into revenue – maybe that latter part is their responsibility.

Little of this is generalizable: it dependss on whether the service you offer lends itself to quantitative atrgets, and if your client wants to do a deal based on those targets. Such circumstances do exist, as we’ve heard in this blog, but they are the exception rather than the rule, I think.

I’m nervous about performance-based fees, particularly when they are formulaic ratherthan judgmental, because they focus the provider’s attention on the things they are going to get rewarded for, not necesarily the best long-run health of the client. We’ve all heard about consultants who achieved cost-savings by “slashing and burning” the clients headcount, leaving behind a demoralized workforce.

Finally, I think the best way to get paid for adding more value than the project you were hired for is to work with the client so that he/she feels you deserve a generous extra payment. That keeps you aligned with the cliant on the same side of the trust equation.

posted on March 17, 2007

Ed Kless said:

My colleagues and I at the VeraSage Institute have been following this dialogue with great interest. On behalf of them I want to thank David for once again bringing this topic to the forefront.

Because this is an area we have studied in great detail my post will be on the long side. Also, note that while I am a fellow at the VeraSage Insitiute, the views are my own, we do not believe in group-think or group-speak. Our motto is â€œthink with us, not like us.â€

My reply is organized by concept. Thanks to all of you who posted for provinding great input.

My input. provided who you Thanks concept. by organized reply> On the concept of a lost leader: Michael hit the nail on its head when he said, â€œMy perspective on this is that the free work has a far better risk/reward outcome than doing cold-call business development.â€ This marketing idea is an old as dirt, or least as old as the Gillette razor. They still lose money on the razors to sell the blades. We do feel, and a few of you stated this as well, that charging some fee for this upfront work is preferable in certain areas. We have found that getting the customer (even in professional services we call them customers) to commit some money (even at a loss to us) upfront enhances their participation in the discovery process.

On the difference between fixed fees and a value price: A value priced engagement is a form of fixed fee, however every fixed fee is not a value price. â€œValue pricingâ€ derives its name from the fact that the value to the customer is taken into account before a fee is set. In short, understanding the value precedes price which precedes costing. When the value to the customer is not understood upfront, the pricing (while it may be a fixed fee) is still a cost-led price. This is even true for â€œhigh daily rates.â€

On a daily rate as opposed to an hourly rate: Pat McGraw, Jim McHugh and David M referenced this. To me a daily rate is nothing more than an hourly rate on steroids. It does not overcome the majority of the problems because it is still cost-led pricing. (See the Chapter entitled the Deleterious Effects of Hourly Billing in Ron Bakerâ€™s book, The Professionalâ€™s Guide to Value Pricing.) The highness (sic) of the rate is intended to cover your our perceived â€œhighâ€ costs and your beliefs about yourself. (N.B. I do not take issue with this value, just the fact that it is cost-led.) All cost-led pricing is based on the Labor Theory of Value which has its roots in Karl Marxâ€™ Communist Manifesto.

On providing estimates for hourly/daily engagements: Estimate is consultant-speak for guess. People donâ€™t like to buy guesses. Providing a fixed price upfront with a 100% money back guarantee avoids this guessing. A great book which speaks to this is Mahan Khalsaâ€™s Letâ€™s Get Real or Letâ€™s Not Play. His mantra is â€œNo Guessing.â€ This means both on the customer side and the provider side. He rightly points out that often the customer is guessing at the value (cost) of the problem while the provider is guessing at the price (again cost-led) to fix it. It is a miracle we sell anything with this model.

On scope and phasing (project management): The reason for this guessing in my mind is inadequate (in some cases lazy) project management. With professional services we should all be the Babe Ruthâ€™s of scope. The creating of a great scope document provides value in and of itself to the customer. Often as a few of you pointed out the customer does not even fully understand the root cause of the problem. Getting to this problem behind the problem is clearly one of the most valuable things a professional can do.

On commoditization: David (Maister), commoditization is only one of the problems with hourly/daily rates. In Peter Blockâ€™s landmark book Flawless Consulting, he tells us that one of the superordinate goals of all consulting engagements is collaboration. Hourly/daily billing violates this because it is in the customerâ€™s interest to keep costs down while it is in the professionals interest to keep them up. This does not make professionals evil, however, the practice of hourly billing is. In addition, this practice leads to what I have termed â€œsolutionism.â€

On menu pricing: Mary Wynne-Wynter speaks of â€œa menu of fixed-price/fixed-time programs, including a “mix and match”. They are more like products. I publish all my prices.â€ Menu pricing is fine for some things, but in many cases you are probably not getting paid for the value you provide.

On simplicity: Barry Wilkinson said, â€œIf only this were so simple.â€ He is right, pricing is an art, not a science. Hourly/daily billing removes the art. One of Ron Bakerâ€™s axioms of pricing is that if your price is based on a formula it will be lower than one not based on a formula. Please remember that pricing, specifically how you develop and set your pricing, is one of the few things that you actually control. It is intellectually lazy to relinquish it to your customerâ€™s dictates.

On providing options: In his book Value-based Fees, Alan Weiss strongly recommends giving your customer at least three options based on three levels of service (note: not your cost). One great example of this is Hewlett-Packard. When looking at printer in a CompUSA you may have noticed that HP always has three models that look exactly the same, the key difference is speed, pages per minute. If you were an engineer at HP would you design the low-end model and figure out how to make it go faster or design the high-end model and slow it down. They do the latter; therefore, the â€œcostâ€ of the low-end model is more than the high-end. So, when scoping and pricing, design the high-end and strip out value in two lower priced options. The great part is, unlike HP, we can strip out the high cost stuff thereby, increase profitability on the lower priced options.

On utilization based performance/compensation schemes: These are all fundamentally flawed and they completely kill innovation for professionals. Why should I figure out a way to do something in three hours that used to take me 30. Where else can it be said that if I figure out a way to do something better or faster I should get paid less not more! (See also, Trashing the Timesheet by Ron Baker.)

On companies that value price: Please feel free to visit the VeraSage siteâ€™s Trailblazers section. There are some great stories about firms who have moved away from the billable hour.

PS — To Steve Roesler and Heidi Ehlers, I cry a hearty, â€œHere-here!â€ Great points!

posted on March 19, 2007

David (Maister) said:

Ed, this is, of course, incredibly valuable to me and to everyone, especially your plentiful inclusion of links to references. (I know most of them, and they ARE worth checking out by everyone.)

Do you have views on what has been called here “performance” – based pricing?

posted on March 19, 2007

Ed Kless said:

Yes, in fact, Ron Baker just did a posting on this. It is called the TIP (to insure performance) clause. Quote from Ron’s post: “I would have recommended you negotiate a TIP Clause with the customer (sometimes referred to as a success price, or retrospective price), up-front, before you began the work, and certainly before you discovered the solution. The fact the job was a three day rush is not the issue. If I take my car to a mechanic in an emergency, he’ll fix it, but he’ll give me a price up-front; same with Kinko’s doing a rush job, or an airline making capacity for me at the last minute to get on a flight (by bribing another passenger off the plane, for example). When you believe you might obtain a great outcome, and you work is poised on the top of the Value Curve, a TIP is an appropriate method to capture some of that additional value created. But you can only effectively receive a TIP if it was part of the discussion with the customer BEFORE you performed the work. Afterwords, they are likely to simply ask: “How many hours did you spend?” And if you have a signed representation agreement that mentions your billing rate, you’re stuck with your billable hour. If your agreement doesn’t mention price at all, you may have more leeway, but it’s still going to be based on precedent.

This is not to say we haven’t seen professionals receive a TIP after the fact who didn’t discuss it up-front, but it’s a minority of cases, and usually depends on the nature, generosity, and length of the customer relationship, less so than the value of the result.”

Click here for the post in full.

posted on March 19, 2007

David (Maister) said:

Thanks, Ed. As some readers will know, I also discussed variations of this approach (up-front negotiated agreement for the client to pay a bonus based on satisfaction) in my book TRUE PROFESSIONALISM.

posted on March 19, 2007

Ed Kless said:

Of course, David, my apologies. Sometimes I just assume everyone here has read your stuff!

posted on March 19, 2007

Ric Willmot said:

Excuse me for coming to the party late, David.

A colleague of mine, Tim Dalmau, referred me on to you, and mentioned I may have some input to help this thread.

I will try to be brief.

Firstly, let me state that I do not believe I have the only right way or that my opinions are set in stone and are the royal route to success. What follows is merely my take on how as professionals, we should conduct ourselves. It works for me; I hope others may gain benefit if only to challenge their thinking.

My personal bias is to build a relationship with the prospect and gain conceptual agreement before ever going to a proposal that cites fees. Most consultants use the proposal as an exploration, whereas it should really be a summation of everything you agreed with your prospect.

The proposal should have the prospect nodding his head in agreement as he reads. The only component that will be new to the prospect in the proposal is the fee.

Whilst meeting face-to-face with the person who has the authority to write a cheque and approve the project without any further authorisation, I want to establish the following matters:

1. Establish the objectives of the project, the ideal outcome, the results necessary, and why they are seeking to do this work.

2. Quantify the metrics around which the client will measure the success of the project when we are done.

3. Assess the value, both tangible and intangible. What will the results mean to the organisation? What if this project fails, what will happen?

4. Clarify the investment range. Has the prospect considered what they will be expecting to invest to make this happen? Are there any parameters we must stay within?

5. Ask if the prospect is amenable to me providing options. This way I can provide alternatives that may be higher than their expected budget.

6. Clarify (and this is really important) how rapidly they are prepared to begin once they see the proposal? This will identify for you any unforeseen problems, obstacles or further hurdles prior to gaining approval to commence.

7. Do you believe it??? If you don’t … the prospect never will.

Many of you might be thinking, that my approach is far too much work. My approach is to invest considerable effort in the conceptual agreement stage with the prospect. It means that I don’t send as many proposals as Deloitte’s might. But I have a very high success on acceptance. The work up front in building the relationship and clearing these matters before writing a proposal, saves a lot of heartache and rejection.

In assessing my fees, I also use a process which I have read by Ron Baker, Alan Weiss and I think, Paul O’Byrne:

Why me? (Why is the prospect speaking with me? The more unique I am, the more valuable I am and the fees should reflect that.)

Why now? (Why is the prospect seeking to do this work now. The more urgent and or important, the more valuable I am.)

Why in this manner? (Do I have some unique abilities, competencies or methodologies or has the prospect used another consultant and it failed? Once again, this makes me more valuable.)

I have a fourth that I have not read elsewhere …

What’s in the relationship we have together? (Do I have a stronger than normal relationship with the prospect that compels her to use me? Referral, recommendation, etc.)

Finally, we have to be comfortable with ambiguity. It is not and does not, have to be black and white, shades are allowed!

Rgds,

Ric Willmot

http://www.executivewisdom.com

posted on March 20, 2007

David (Maister) said:

Thanks, Ric. Immensely helpful.

posted on March 20, 2007

Stuart Cross said:

As someone who has fairly recently left the corporate world to set up my own consulting firm you have no idea how reassuring it is for me to know that I am not alone in wrestling with this issue.

Instinctively I feel that Ric’s comments are spot-on. The “trick”, I guess, is Ric’s point that we have to believe our own value before the prospective client will believe it.

In my first three assignments I have wanted to propose value pricing but, to be honest, have ended up proposing a fixed fee based on my view of an appropriate day rate. Going forward I intend to use Ric’s quesions of Why me? Why now? Why in this way? as a way of moving (myself) to a value based position.

David, this is a really helpful thread – thank you

Stuart

posted on March 20, 2007

Tom "Bald Dog" Varjan said:

I’ve been working on the value-pricing model for about 9 years and it works really well. Years ago, when I bought David’s book, The Trusted Advisor, I sought out Charlie Green’s site and found a great article there about “Selling by doing”. So, I implemented a sample session with “Ready to Buy” prospects.

================= SAMPLE SESSION ==========

“At the agreed time you come to my office equipped with a $1,000 cheque and all your business and financial documents. When we meet, you will put the filled in and signed cheque on the desk and we start our intensive sample session.

After 60 minutes we stop and three things can happen:

1) If you decide you do not want to work with me, you take your cheque and leave.

2) If you decide you do want to work with me, we start the project, and I will take the cheque and lump it into the last payment of your investment for the project you have just sampled.

3) If I decide I do not want to work with you, I will ask you to take your cheque and leave.

=======================================

By the end of the sample session prospects understand the advantages of value-pricing, and most of them want to go ahead. And when some prospects make a fuss about the cheque, I instantly know that there is no reason to meet.

So, I’m forever grateful to Alan Weiss of Summit Consulting Group for the value-pricing concept he brought into my life through his book, Million Dollar Consulting. (And since then all the books he’s written)

When prospects understand that for a pre-set flat fee they have unlimited access to me, most of them instantly see the advantages. So, it’s a win-win.

posted on March 23, 2007

Rob Nixon said:

Greetings from Australia,

Seeing my name is at the top of the list (and seeing I was asked to contribute) I thought I would contribute by writing 2 articles on pricing in editions 13 & 14 of my e-newsletter.

As an overriding comment – advisors do not sell time. If you structure your business to sell time then you have structured it like a labour hire business. Often Massage therapists & Mechanics make more money than accountants and other advisors. You sell intellectual property, knowledge and know how.

You can get free access to the 2 articles I have written (edition 13 & 14) on my website. Both editions offer explanation to why I think time based billing is like what Henry Ford said to his customers and why there is no right or wrong price for any intellectual property based service.

If you feel inclined you can sign up for the free newsletter as well. Hope that helps. Rob

posted on March 27, 2007

Peter Abbott said:

David this would have to be the best blog I have seen.

Thank you very much for a wonderful discussion.

I really like Ric Willmot’s post here. He makes good sense, and I feel that he is keenly in tune with people like you (David), Ron Baker and Alan Weiss – and he has a grasp that is great common sense, practical and useable.

I know I will be taking enormous value from all of the ideas here.

Thank you once again David. This is fantastic.

posted on March 28, 2007

Ric Willmot said:

I noticed a couple of people have mentioned me.

Thank you.

There is nothing new under the sun, but what we do, with what we learn, is key.

I have gained greatly from reading Weiss, Baker and Maister and all three have strongly influenced my thinking.

And I sincerely agree with Peter Abbott, that this work by David is some of the best I have seen.

Rgds,

Ric Willmot

http://www.executivewisdom.com

posted on March 28, 2007

Andy Maclour said:

David,

I like Ric Willmot’s thinking — but I wonder if there is an easier way to get to proposal than doing everything he sets out. (No offence Ric)

I am thinking that this is a bit too much for the client/prospect.

Andy

posted on March 30, 2007

David (Maister) said:

Hugh Williams, the founder and managing partner of a UK accountancy firm has written a short but very useful book (actually, closer to a booklet) called “Life Without Timesheets.” It includes “Help Sheets” showing exactly how his firm switched to value billing.

Hugh acknowledges his debts to Accountants Bootcamp and Ron Baker, but if you want a real-world practitioner’s description of how his firm instituted the approach, it’s a great (and quick) read. You can get a copy for 20 pounds (sterling) from info@stedwardspress.co.uk

posted on April 2, 2007

Ken Hedberg said:

Sorry to be a bit late to the party. In a response to the March 21st post, “How Client Can Get the Best Out of Us”, my comment started with the following statement.

“First, be clear with me what you intend to buy.

If you want expertise delivered in a one-time project, let me know. I can do that and plant seeds through my efforts that may lead to future similar engagements.
If you want a ‘product’ (e.g., a leadership program design, with delivery choices made independently), let me know. I can do that, and structure our work to meet your needs and also preserve the value of my intellectual property.
If you want an organic partnership, characterized by regular advice on relevant topics/issues (perhaps my preferred ‘ideal’ client relationship), let me know. I can structure our relationship in ways to maximize the opportunities and value add of such advice, and allow the relationship to be punctuated by other types of delivery over time, as needed.

It isn’t always easy for clients to envision the subtleties of these differences. I make a point of engaging in discussion about them to help the client choose how to get the best value from me.”

I think clients expect pricing to reflect the sort of service they’re buying. In each of the above three price/value/delivery alternative, value can and should be the basis for determining price. But, the structure of the price will be quite different within each framework. This three-part framework of the client’s solution mindset shapes our pricing policies.

posted on April 2, 2007

Sameer Panchangam said:

Hello David,

Is there a way you could do an analysis like this one:-

http://donxml.com/allthingstechie/archive/2007/02/04/A-Guide-To-Information-Technology-Consulting-Rates.aspx

Thanks!

Sameer Panchangam

posted on April 20, 2007