The Fastest Way to Increase Consulting Profits

If you’re still charging by the hour and are happy trading your time for money then skip this article. Best of luck to you.

But if you understand that value-based fees are the single fastest way to exponentially increase your income without having to work longer hours, then read on.

First, understand that value-based fees take you out of a task-oriented relationship and into a value-based relationship with your client. Your value is tied directly to the results the client receives, not the effort you put in.

This fee structure is all walk-the-talk by tying consulting fees to results, not effort. In the end, the average business owner doesn’t really give a damn about how hard you worked, only what results they receive.

In value-based pricing you outline the scope of work you propose to your client in the exact same way as any pricing model, but when you give them your fee you give them one fee and one fee only.

You should include all the tasks and materials you will provide in a bulleted list (e.g., training, coaching, teaching, investigating, meetings, reports, profiles etc.), but you will not place a price on any single item in this list, ever. At the end of the proposal you give the client one price for everything. The items on the list aren’t up for debate.

If you show price, you open yourself up to negotiations you don’t want, like “If we take the personality profiles off, how much would that save us?” The answer to such a question would be, “Nothing because I’m not charging you anything for profiles. They are an important tool I need to deliver the overall objective, which is what I’m charging you for.”

One type of value-based fee structure is Project-Based Fees.

Project-based fees are where you charge a single overall fee for the entire deliverable. One of the trickier aspects to this type of pricing is accurately projecting the amount of hours you will need to put in to deliver results. To be safe, when you’re new and not sure how long it will take you, calculate your best guestimate, then add at least an extra 30 percent to your estimate to cover overages.

Using the true hourly base rate, your task in this model is to break down all the things you will need to do to deliver the objectives. Determine how many hours it will take you to complete that work, multiply those hours times your true hourly base rate, and arrive at what you should consider charging your client. Even though you’re using your true hourly rate, it is only for your purposes.

Never share that with the client or report hours spent back to the client during the project, as it shouldn’t matter to them in this model. Likewise, don’t include hours to be worked in these proposals. You will work however many hours you need to make sure the objectives are met. The focus is on getting results, not what tasks you do to get there.

The following are points to make to the client as to why they want a project fee:

  • It always leaves the focus on results, not activity
  • There is a cap on their investment. They know exactly what they will spend up front, no surprises
  • There is never a “meter running.” They do not have to worry what it will cost each time your help is requested
  • It is unfair to place them in the position of making an investment decision every time they need help. They shouldn’t have to make a budgetary approval decision before they ask you to handle some unforeseen problem
  • It’s very easy to judge what their return on investment will be compared to the cost of the problem
  • This is the most uncomplicated way to work together. There should never be a debate about what is billable (travel, report writing, phone calls, research) or what should be done on site or off site

The argument to the client is that they will never find a proposal with less risk. This is, in effect, a 100 percent commission-based structure. You eat what you kill. They get your expert services for nothing out of pocket up front. If you fail miserably, they pay nothing. If you win big and deliver tons of new revenue, you get to keep your fair share. Yes, there is still risk to the client in investing time and resources, but they will need to do that with whatever solution they decide on, so I consider it a wash.

Where this becomes sticky is if the client doesn’t agree that you delivered 100 percent on the objective. Then you’re left in a black hole of subjective definitions about who thinks what percentage has indeed been met, and what percentage of payment that justifies. And that can be a very ugly place to be! This is why it’s only a good model to take when the results you will deliver are easily quantifiable (sales numbers, human turnover, reduction of costs, etc.).

It can work with things like leadership development or strategic planning or even executive coaching, but you must tie your fees to measurable outcomes of those leaders or processes, not intangibles like “They’ve improved as a leader dramatically.” Feel free to provide any solution, but always tie your fees to the overall end results in the company that are absolutely measurable. That is either going to be money made, or money saved. Top or bottom line doesn’t matter, just as long as those are the only two metrics you use to determine the success of your work.

About Jay Niblick

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