by Jay Niblick | Feb 12, 2019 | Blog, Consulting Fees
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.
by Jay Niblick | Feb 7, 2019 | Blog, Managing Your Consulting Business
Our modern day school system would have us believe that if we’re weak in a subject (Math, English etc.) that we should study longer, harder and smarter in order to make our weakness stronger.
This can be a healthy thing for us early in life; we all need to spell, read, and count money to a minimum sustainable level. But why do we believe we need to develop a personal strength in business where none exists? Shouldn’t you fix those weaknesses? The answer is a resounding NO!
The strengths and weaknesses I’m talking about aren’t deficits in knowledge or experience. I’m speaking strictly to innate talents or traits that you cannot develop in a training program or by reading a book. There is a myth about these natural strengths and weaknesses, one that states we all naturally possess them.
In reality, we don’t…
What we do possess are natural talents and non-talents, but these are not the same as strengths and weaknesses. In reality, you only have potential strengths and potential weaknesses.
You can’t disguise a weakness as an opportunity for development. It’s ridiculous to think I can fix a weakness by developing it into a strength. If one of my clients is suffering from a weakness I tell them so; but, the key is that this weakness isn’t natural, it’s manufactured.
This can be challenging to understand…
Let me explain. When you allow your success to depend on your talents, you create strengths. When you allow your success to depend on your non-talents, you create weaknesses.
Think of talents and non-talents like two boxes. The first box contains a gift (talent) and comes all gift wrapped with a bow. The second box contains trouble (non-talent) and is marked Pandora’s box. Regardless of the contents, however, each box only contains potential. The first box is only potentially good, the latter only potentially bad. Nothing happens until you actually open the boxes.
Talents and non-talents work in very much the same way. If you never rely on your talents (open the gift box) than you never realize the strengths contained inside. Likewise, if you never rely on your non-talents (open Pandora’s box) then you never suffer the weaknesses contained inside.
“Your job is to make the strengths of your people more effective and their weaknesses irrelevant.” ~ Peter Drucker – Management Consultant and The Father of Modern Business Management
What controls this potential is how you apply yourself. If you have a non-talent for strategic thinking and create dependence on that non-talent by selling strategic planning consulting to your clients, you just manufactured a weakness. If you make sure your success doesn’t depend on you being a great strategic planner, however, then you don’t manufacture a weakness for yourself. That non-talent remains only a potential weakness.
When you make this shift in perspectives and realize that any weaknesses you have only exist because you manufactured them, you should also realize that you could correct it by removing that dependence.
The most successful consultants understand this. They know that they are the only ones responsible for whether they benefit from strengths or suffer from weaknesses. They don’t spend their time trying to fix their weaknesses. Instead they just make sure their success doesn’t depend on their non-talents.
To make sure you don’t manufacture any weaknesses, be sure to create a role for yourself that relies as much as possible on your natural strengths and as little as possible on your weaknesses. Give specific thought to what services you will provide and ask yourself if you’re manufacturing a weakness by doing so. Take a look at the duties you have inside your own business. Are there tasks or responsibilities for which you have a weakness, yet you’re the one who must do them? Could they be outsourced?
by Jay Niblick | Feb 4, 2019 | Blog, Managing Your Consulting Business, Starting Your Consulting Business
When you made your “big leap” as an independent business consultant, there were several defining reasons why you decided to stick your neck out and become a member of one of the world’s greatest professions.
As time passed however, you realized that the practice of consulting was very different from the act of selling your consulting services. You suffered the agony of having to convince prospects that you and your services were better and more effective than anyone else.
Unless you have a natural talent for sales, and most consultants don’t, this is an all too familiar description of the pain that consulting professionals go through from day to day in order to try and make a living from their traditional sales efforts.
The skills and talents required to perform consulting work are very different from the skills and talents required for your typical salesman. And that’s exactly why why you shouldn’t sell!
Selling is counterproductive to the way most consultants prefer to work and detrimental to the long-term success of their business. The only way not to sell to a prospect is to entice the client to come to you through
Multi-Leverage Marketing and solving their problem using the Diagnostic Sales Process.
Since we’re talking about sales in this post, we’ll start with the Diagnostic Sales Process and the 4 steps to a successful and happy client.
Even though I’ve been using the word “sales” to define the process, it’s exactly the opposite. Your objective is to listen to your prospect and ask questions, make a recommendation, provide a verified diagnosis, and lastly, solve their problem.
The 1st step requires a good ear to listen to your prospect in order to discover the problem they’re facing in their business. At this time the well-established 80/20 rule should apply. 80% listening 20% talking.
The 2nd step is where you get to do most of the talking. You need to let the client know that your expertise lies in helping many others just like themselves. This isn’t bragging but reassurance for the client.
In this step you’ll also be trying to identify the root of the problem. Making any reference to sales at this point is useless and a waste of your time. Remember, if you weren’t born to be a salesman then don’t act like one!
The 3rd step is to prove to yourself and to your soon-to-be client that your diagnosis to their initial problem is correct. There are several behavioral and motivational profiles you can use that will help you get the most out of the Diagnostic Sales Process.
The 4th step is to go back to the original pain point that they initially defined for you. Give them an action plan and a reminder of why this is important to do in order to resolve their problem. If the problem is big enough and your solution will remove the roadblock then the client will more than likely hire you.
Remember that you are best suited to educate and to train but NOT to SELL. As a professional consultant, the DSP allows you to work easily, more confidently, and faster throughout your business which increases your profit with each new client.
To read more about how to become a profitable consultant using the Diagnostic Sales Process, Go here.
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