by Jay Niblick | Jul 2, 2019 | Blog, Consulting Fees
Always give the prospect multiple options. Not giving options usually means you just increased your chances of not getting their business. Know any stores that sell one thing and one thing only? Giving people options allows them to feel in control, which always increases the odds that they will buy.
As you put your proposal together, give some thought to how you could create at least three different options. Most people like to choose the middle option of three. So make one lower-cost, one medium-cost, and one high-priced option for anything you offer. You can do that by starting with the highest-priced offering and working backwards, and then taking value off as you lower the price.
As you create these three levels, however, be sure to adjust value equally. Always add or subtract value along with price. By doing this you have given three “yeses” the prospect can choose from as opposed to just one. That’s a 200 percent increase in your odds of getting the business.
If you’re offering coaching, the variables you might play with to create multiple options could be:
- Number of calls
- Length of calls
- Length of engagement
- Number of people being coached (e.g., group coaching versus one on-one) If you’re offering training, the variables could be:
- Length
- Number of people
- Individual attention
- Tools
Get it? Almost anything you offer could be adapted to multiple options, but doing this is extremely helpful in getting more business. Just make sure that, as you create these levels, you don’t create one that doesn’t deliver real value to the client or pay you enough. You don’t want to deliver ineffective loss-leader programs all month long.
The nice side effect of doing this is that you reduce the chances that you will get in a difficult negotiation with a client who wants a deal. With one option, they are free to ask for the same value but at a lower price. When you have another option below, it creates a blocking effect. This allows you to counter the request for lower cost with, “Well for that kind of price let’s take a look at Option C.” It’s much harder for a client to rationally argue, “I like Option B best, but we want it at Option C price.” How often do you think someone walks into a car dealership and asks if they can have the deluxe four-door model, but at the economy two-door price? There is a great deal of psychology behind
having three options, and all of it has to do with protecting your profits.
Lastly, many times we’re in a rush in a negotiation. It’s on the fly, dynamic, and sometimes a little contentious. The last thing you want to do is be rushing to think in your head irrationally about what the best deal is, then find yourself standing in the parking lot going, “Damn, why did I agree to that”?When you create formal options, you do so in the calm of your office, alone, slowly and rationally. You ensure that each deal is optimal for you. Then, when you’re in live negotiations, you can move to any one of these options knowing it is already well thought out and that it will be a good deal. This is why I say multiple options make the buyer feel they are in control. In reality, they are only choosing from options you’re in control of already.
by Jay Niblick | Mar 7, 2019 | Blog, Consulting Fees
There’s a huge misconception about the purpose of proposals for business consultants. Many business and management consultants mistakingly view them as a sales vehicle. If this is you, listen up.
The mistake begins when the consultant receives an inquiry from a prospective client. They immediately send over a stock proposal that explains their consulting services, what they will provide, and how much it will cost.
Their hope is that the prospect will love what they see and either buy right then and there, or call them in to negotiate a final deal.
The other equally misguided approach is to meet with a prospect, have a great discussion, and then, when the prospect asks, “What would you charge to provide this service?,” you respond with, “Well, let me go crunch some numbers based on what you’ve told me, and put together a proposal and send it over.”
Either tactic is normally the kiss of death.
The only way a consulting proposal should ever be used is as confirmation of what you and the prospect have already agreed to verbally or face-to-face.
Here’s your gauge to know if you’re screwing up and using a proposal incorrectly. If your prospect has to learn the specifics of what will be delivered and how much it will cost by seeing it in the written proposal for the first time, you’re doing it wrong.
The right way would be to discuss all of the deliverables with the client first, negotiate your proposal verbally, and arrive at an agreement. Only then should you draft a proposal and send it to them. Proposals are confirmation of what has already been agreed to, not a sales or negotiation vehicle.
The only exception to this rule might be a formal request for proposal (RFP) scenario, where the organization has to follow rigid rules for requesting multiple proposals from multiple vendors, and the only way you could join the running would be to do as they dictate.
Large government contracts are almost always conducted this way. That said, my question to you would be, “Do you want to be just another vendor”?
I wouldn’t tell you to turn down a large contract, but whenever you are hired as a vendor, you’re a commodity and relegated to the ranks of “whoever provided the minimum we needed at the lowest price.”
Such contracts are also the least secure, because the next consultant to come along with a lower price is likely to take that business away, since your greatest value proposition to such clients is just your price. A good proposal has the following characteristics:
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 | May 5, 2018 | Blog, Consulting Fees
Time to start deciding what you will charge. The first thing you need to do is to determine your “true hourly base rate.” However, this rate is for your information only, not for your clients. It is the hourly price you will use to calculate what you will charge based on the overall effort you will put in, and the return you would like to get for that effort. It is not the figure you will tell the client you charge per hour. Even though it won’t be used on all types of pricing structures, it’s an important number to understand regardless of the pricing model you use.
To calculate your total base hourly rate, you need to fill in the following variables:
A. Desired annual revenue $____________________________
B. Number of work weeks (annually) ____________________
C. Number of hours worked per week ____________________
D. Working base rate (TBD) ____________________________
E. True hourly base rate (TBD) ________________________
Once you have these figures you want to plug them into the following formula:
In this formula you have:
- A (which is the total desired revenue annually) divided by:
- B X C (which is the sum of total weeks worked in a year multiplied by number of hours worked per week), which gives you:
- D — your working base rate (D).
- The last step, since you will never work 100 percent of your week delivering services for fees (think sales and marketing time, admin-istration, networking, hand holding, project updates, travel, etc.) is to assume that at best you get to spend 50 percent of your week delivering revenue-generating work. So, you multiply “D” (your working base rate) times two (2) to arrive at:
- E — your true hourly base rate.
Here’s a real-life example:
- You want to make $100,000 in a year (A).
- You start with 52 weeks in a year, but subtract 4 for vacation, sick leave, holidays, and so on, so you have 48 weeks of work in that year (B).
- You take an average of 40 hours worked per week (C).
- You multiply 48 times 40 (work weeks X work hours per week) and get total hours worked in a year as 1,920 (B X C).
- You divide annual revenue by total hours worked (100,000 divided by 1,920) to get your working base rate of $52 (D).
- To adjust for true hours worked, you multiply that working base rate X2 to arrive at your final true hourly base rate of $104 per hour (E).
However, you’re still not finished because you will have expenses. Even working from your house you will have Internet bills, cable, phone, supplies, non-reimbursed travel expenses, membership fees, and so on.
You need to add your operating expenses into your true hourly base rate to make sure you cover those costs as well. A good rule of thumb is to use 10 percent of your projected revenue for expenses or the cost of doing business. Obviously this figure can vary widely, but it will work well for now. Once you get your business running you can come back and revisit true expenses if need be.
The fastest way to do this is to simply take 10 percent of your true hourly base rate and add it on. In the example above, my true hourly base rate is $104.00. Ten percent of that is $10.40. Combine them and you arrive at $114.40, but keeping it easy, round it up to $115.00 per hour, and that’s the figure you should use in some of the fee structures we will tackle next.
I’ve created an automated Excel spreadsheet that will help do these calculations for you. Visit www.innermetrix.com and look under the “Consultant Support Library” to download it.
by Jay Niblick | Apr 28, 2018 | Blog, Consulting Fees
In consulting, perhaps one of the most recurrent reasons for poor profits is undercharging. It’s unfortunate, because it has less to do with not understanding what should be charged and more to do with the consultant’s lack of confidence, insecurity, or most commonly desperation.
Let me share the story of a friend of mine named John Butler. John was a seven-figure management consultant in Dublin, Ireland, and he had been a client of mine before he passed away. John attended a conference I was hosting in Germany some years back, and over beers one night we got to talking about this vexing issue, and how so many other consultants we knew suffered from it.
John had indeed built a very profitable practice years earlier, but he had grown tired of working so hard and was considering retiring from the 80-hour-a-week job he’d built for himself. He wanted to pull the throttle back and relax a bit.
He struggled with the thought of having to let clients go, so he figured the best way to avoid that confrontation was to get the clients to voluntarily leave him instead. He decided that if he raised his prices significantly, enough clients would walk away, and if he did keep some small percentage of his clients the addition in fees would cover the losses. Near the end of one year John informed all of his clients that he would be quadrupling his fees!
Thinking that this move would surely thin out his client base, imagine the shock when he found out he had only lost approximately 20 percent of his customers! And thus John’s profits skyrocketed into the seven-figure range.
The moral here is that too many consultants think it’s safer to charge less and get at least some business than charge more and risk not getting any. In reality you’d be surprised at how charging more doesn’t scare off clients as much as you may think. I would argue that it actually only scares away the cheap ones you don’t want anyway, and it creates the impression of superior value in all the ones you do want.
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