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Pricing
Strategies
Selling
VALUE instead of HOURS
A
consulting colleague of mine recently sent me an
email with a dilemma he was facing. His email
said, "Hey
Russ, I have two clients that I'm meeting to
review how I can help them improve their
sales. We are looking at their business plans and
reviewing their geographical market. What's a fair
hourly rate for someone to come in and review
sales, processes and do a SWOT analysis?"
When
I hear "hourly rate", I usually think of
my mechanic. "Well, your framastat isn't
passing signals to your defibulator, so we need to
run some diagnostics and probably will have to
replace your entire transgasual system. I'm
guessing 12 hours at $200 per hour. Yes sir, we're
talking about $2400 or so for the job," as he
spits his cigar stub out of his mouth and into an
oily can sitting next to my poor unsuspecting car.
While this may be fine for the trades, business
consultants can't operate this way. We have to
look at the big picture and consider the value of
the work being done.
Rarely,
if ever, do we go in and fix something that's
broke, like a framastat. Instead, we analyze
symptoms, recommend ways to improve those
conditions, and implement processes to enhance the
customer's situation. I liken that more to what a
doctor does. They analyze what's wrong and
prescribe alternatives to correct the situation.
If you agree with their prognosis, then you can
either use that doctor to resolve your problem,
choose another doctor, or take no action at all,
in which case the problem will go away by itself
or persist until you don't feel it any longer or
pass away as a result of ignoring it. In either
case, you paid for the diagnostic visit, which is
of value to you since you, a) know what's wrong,
and b) know what alternatives from which to
choose. And the doctor's visit costs the same
amount no matter how long it took. He charged by
visit, not by hour.
I
never charge by the hour since it is
subject to debate, negotiations, etc. I am not a mechanic?
In fact, I don't even charge by
project. I charge by "value". Here is
how I responded to my colleague's email. "Consider this --
I'm sure you will do some prep
work in advance of your meeting, and that
will take some time. You will spend time on-site
with your client.
And, you will undoubtedly do follow-up work, such
as write a needs analysis or implementation plan. Now, this final
analysis or report is of value, right? And, your
client could take it to another consulting firm
to implement, or do it themselves. So you have to make sure you get
enough out of it by showing your client it's
value, regardless of how many hours it takes you
to complete. By the way, do you really have any
idea how many hours it WILL take? Of course not.
"The real question is not how much to charge per
hour, but how valuable will this project be to
your client? And that is something only you (and
your client) need to work out. But I will tell you
this -- I do nothing for just a few hundred
dollars. It's not
worth my time to get a few bucks for a small project, unless it is one step toward
a committed larger project (i.e., Phase 1). Why?
Because my time is valuable too. These small jobs
are often the customer's attempt at trying to get
free advice. If it only takes a brief moment to
figure out, and therefore only worth a few
dollars, then how valuable can it be? Not very!
However, if this is multi-phased project and the
first phase is a brief project plan or needs
analysis, then it is definitely a valuable exercise
and therefore worth doing, since it is part of a
larger project. If the customer decides to use
someone else to implement the solution you
recommended, so be it. At least you'll get paid
for your efforts and the value delivered to the
client. You need to ask a lot of questions to
learn what pains they are having, find out the
cost of those pains to the client, then associate
a VALUE to the solution. That's what your fee
should be based upon.
"Oh,
and by all means, DON'T DISCOUNT. If you do, you
will be the 'discount guy' of your area
and everyone will find out (because they'll tell
each other, especially if they are referrals) and
you will forever have to discount for everyone.
Bad habit! Instead of discounting, take away some
value and sell what's left for a lower fee."
So,
he took my advice and changed his approach. Darn!
I just realized that I gave him free advice that
had value. Oh well, it wasn't that bad. My
colleague ended up taking a full-time position
with one of his clients. Perhaps he isn't quite
ready to enter the exciting world of consulting.
When he learns about value-pricing, then I'm sure
he will be one step closer to a new career.
Good luck and
good selling!
Russ
Lombardo
PEAK
Sales Consulting
russ@peaksalesconsulting.com
(702)
655-5652
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