It's about solutions and remedies, not costs! Yet buyers of our services want to know what it costs before we start. If we work from a cost perspective, we are setting ourselves up as one who sells commodities and competing with others on a price basis, i.e., the cheapest price wins the job.
For a consultant, competing on price is the wrong approach to build a business and one's reputation in the marketplace. The goal should be to be the best value, not the best price provider.
This discussion came up when a friend asked how he might price a consulting opportunity. He is employed with a technology company and would be working the consulting job as a favor to a friend.
Given: This is a first consulting assignment. He has much expertise and work with his current employer.
Here is what I suggested:
1. Set yourself up to be seen as a valuable provider -- a) make a list of the key areas (relevant to job needs) you work in and make a list of the successes you have had with your customers. Convert the list into small case descriptions using the "CSI" approach, i.e., Challenge presented by the client; Solution you used to resolve challenge or need; and Impact you had on client's needs on both the work at hand and also on the people involved. b) Gather any commendation letters, accolades from work you did with clients; list certifications and relevant outside recognition (advanced degree; post-graduate work). In other words, any 'third-party' recognition of your past successes and qualifications are useful to demonstrate 'value.' c) You will want to demonstrate you are a professional in your field, you should belong to your industry association. If time permits, volunteer on committees and/or become an officer in the association. d) Write useful blogs, a newsletter, or write a book to demonstrate your expertise. Remember, you cannot sell value if you cannot document those things that speak of knowledge, practiced experience, and thus value.
2. Establish your pricing philosophy to avoid hourly rates. Are you worth $10,000 for the 10-hour effort or just $1000? Your value-based price is based on your education, expertise, experiences, and standing in your industry, not the hours it will take to do the work. Of course you need to understand what you can do and how much time it will take and how much 'hand holding' and customer input you anticipate will be needed to come up with a project price. Your customer needs to know that you will do what it takes to complete the project at the project-based price. That value price is a much larger number than any hourly rate you can reasonably quote! That value price cannot be equated to hours worked! Use project rates and do not back down from them. Remember that once you start quoting hourly rates, you have discounted all your background as a valuable provider and your customers will compare your rate to all other consultants. Then you will have lost your leverage around the significant value you provide.
3. As a means to demonstrate your understanding of the customer's needs and the value you bring to the assignment, provide three pricing scenarios for the customer to consider -- low, mid--range, and premier price options. By this approach, the customer becomes aware that you have much to offer (i.e., you bring value) beyond what they requested. Here's how:
Low price solution -- Provide a project price for a bare bones base solution, one that precisely meets the client's request. (Pricing: 1-unit of cost)
Mid-range solution -- To create a mid-range solution, add next relevant options from the premium solution to the base solution. (Pricing: 2 units of cost)
Premium solution -- Every assignment has numerous options that enhance the base solution. Think about options that help the client better compete in their industry. Identify those options and insert them into the premium solution option. Be certain to provide compelling justification for adding enhancements. In other words, the options need to be valuable to the need. The price for this will be 3 or more-units of cost depending on the enhancements.
In our experience, the client generally likes the premium solution but has not budgeted for it. Thus they find themselves selecting the mid-range solution because they now know (because you educated them) that they want to get closer to the premium than the bare bones one.
As a consultant, you provide customized, client solutions requiring higher level thinking than selling hamburgers. You should be paid for the value you provide, not the hours you work!
Good reference: Value-Based Fees by Alan Weiss, Jossey-Bass/Pfeiffer Publishers, 2002.
© Baldwin H. Tom CMC
www.tbgroupconsultants.com
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