Pricing Strategies Selling VALUE instead of HOURS
Pricing Strategies Selling VALUE instead of HOURS
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 & Good Selling!
Russ Lombardo
Pricing Strategies Selling VALUE instead of HOURS - To learn more about this author, visit Russ Lombardo's Website.
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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 & Good Selling!
Russ Lombardo
Pricing Strategies Selling VALUE instead of HOURS - To learn more about this author, visit Russ Lombardo's Website.
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George LudwigGeorge Ludwig is a recognized authority on sales strategy and peak performance psychology. An international speaker, trainer, and corporate consultant, he helps clients like Johnson & Johnson, Abbott Laboratories, Northwestern Mutual, CIGNA, and numerous others improve sales force effectiveness and performance. Though it's George's strategies and processes that help corporations increase productivity and performance, it's his tremendous energy and dynamism that spark the transformation. Again and again, clients remark on his amazing ability to unleash human capacity and inspire men and women to break out of their comfort zones. The result is a whole new type of salesperson. His customized presentations teach achievers to make stunning advances in their lives. From helping salespeople realize cherished dreams to helping corporations exponentially accelerate revenue streams, George Ludwig leaves audiences and individuals empowered, emboldened, and clamoring for more. George is the best-selling author of Power Selling: Seven Strategies for Cracking the Sales Code and Wise Moves: 60 Quick Tips to Improve Your Position in Life & Business. - Visit George Ludwig's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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