Million Dollar Consulting® Mindset
From Alan Weiss
Volume 1 Number 2
A monthly newsletter with the objective of quickly and pragmatically helping consultants to improve their craft, results, and lives.
How to Build Your Fee
Charging by the hour is madness. It is equivalent to Picasso charging by the brushstroke, or Sinatra charging by the song. (If you can’t see your own contributions in those terms, then who will?)
The buyer is best served by quick resolutions. When you charge by a time unit, you are best served by lengthy resolutions. That is an inherent ethical —not to mention pragmatic—conflict. Aren’t you more valuable when you implement improvements and solve problems quickly?
Here’s my formula for creating value-based fees:
- The tangible results you provide (e.g., greater market share, higher revenues, less downtime) times the annualization of those results, PLUS,
- The intangible results your provide (e.g., better repute, less stress, greater confidence) times their emotional impact, PLUS,
- Peripheral benefits (e.g., easier to attract talent, happier investors, less internal turf battles) times their perceived worth.
Based on a conservative estimate of the above, assign a fee (several fees if you provide options), and that fee should produce at least a 10:1 return on the buyer’s investment in you. Who else is delivering that kind of ROI?
The length of time and frequency of your work do not matter.
This is an absolutely true story.
Someone I coach called me and summarized a proposal they were sending. The options for the buyer at the conclusion were for $38,000, $54,000, and $77,000. The firm was huge and the benefits were extraordinary. The proposal was providing an incredibly increased Internet presence and communications device for the client’s customers that would dramatically grow business.
“Charge $184,000, $279,000, and $377,000,” I said. “Don’t change anything else in the proposal.”
There was such a prolonged silence I thought he had hung up. But I could hear him breathing! After more delay, he said, “I’ll do it.”
Two week later he called me and it took few minutes to understand among the excitement that the client had chosen option #3. In one phone call lasting perhaps ten minutes we increased the consultant’s income on one project by $300,000. (The client probably would have turned down the $77,000 original option because it would have seemed inadequate for what was to be done.)
People believe they get what they pay for. That’s why they pay so much for great works, no matter how quickly they may have been created. How much money are you leaving on the table every year that you’ll never, ever recover?
Frequently Asked Question
Q. What do I do when a buyer says, “Everyone else has charged a daily rate, what’s yours?
A. Make sure you’re talking to a buyer, and not an HR person or gatekeeper. Focus on building a strong relationship and focus on the outcomes, so that price isn’t an early issue. But if you’ve failed to do that well, simply respond, “That’s exactly why you need me! Everyone else is charging you based on their production capability, and I establish an equitable compensation for the agreed-upon value I’ll deliver.”
For readers of this newsletter: 10 percent discount on the Million Dollar Consulting® Colleges in April in London and Newport in May/Oct. Click the month for details and registration. Use the email link below to alert me you’re taking advantage of the offer.
© Alan Weiss 2011. All rights reserved.
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