This guest post is by Bill Zipp of Billzipponbusiness.com.
You’re so excited!
The blog you’ve been writing faithfully, the list you’ve been building consistently, the newsletter you’ve been sending out weekly just paid off. You got a call from a reader who’s asked about the Holy Grail of blogging success: consulting.
When you actually talk with this person, you get even more excited.
What this company needs is exactly what you provide, and, unknown to you, many of the employees at this firm regularly read every post you write. They’re ready to work with you and ask this question, “What’s your hourly rate?” (or words to that effect).
Any answer—and I mean any answer—you give to that question, no matter how ridiculous $500 an hour sounds to you right now, sets you up for ultimate failure.
Charging by the hour is unfair to your client
What could be more fair than a simple exchange of time for money, right?
When a consultant charges by the hour, that consultant is best served by a project that extends for many hours. The client, however, is best served by exactly the opposite. The client is best served by the quickest possible solution to the problem.
Do you see the conflict of interest here?
Yes, I know, as bloggers we are an honest, ethical bunch, but the moment a system of charging by the hour is implemented, all of us become blinded by our own self-interest to simple solutions that may serve the client best.
Charging by the hour is unfair to you
Not only is charging by the hour unfair to your client, it’s also unfair to you.
Case in point. I was speaking with a solo consulting client of mine who’s a leading coder for WordPress plugins, and I asked him this question, “Over the years as you’ve done this work, have you become faster or slower as a coder?”
“Faster,” he said (really fast).
“So,” I replied, “when you charge by the hour, you actually get paid less for doing more. Am I right?”
“Yes,” he said (really slow).
But, you say, you can charge a higher hourly rate when your get faster, right? Wrong again.
People will only pay so much money per hour, and there you are getting faster and better at what you do and receiving less for it. Or doing it fast and lying about the actual hours you spend on the project to get paid what you’re worth.
Charging by the hour is unfair to your business
Finally, charging by the hour is unfair to your business.
When solo consulting, there’s only one you with only so many hours in the day and only so many days in the week. You must do the work of your business, write your blog, market, sell, attend to bookkeeping, administration, professional development, and a whole host of others things that come up.
When you charge by the hour, you instantly limit your business’s growth to the time you can trade for money. Your business will be capped by your personal capacity to work.
So you do.
You work and work and work and work, pay your taxes, buy health insurance, invest in technology, and go to the occasional conference or two. Then you come to the end of the year with very little to show for it. Not to mention the fact that you failed to put anything away for retirement.
Remember? You’re a solo consultant and no one’s going to do that for you.
There is a better way!
Yes, there is a better way. It involves not going down the path of charging by the hour in the first place, and learning the secrets to value-based pricing instead. Alan Weiss is the premier thought leader on the subject and presents this approach in his book Value-Based Fees.
Here are four lessons I’ve learned from Alan’s book:
1. Build a trusting relationship with the economic buyer
Many times in the initial conversations of arranging consulting work I’m not talking with the economic buyer, that is, the actual person who will make the final decision and write a check.
This is tricky, because the person I first talk to usually influences the buying decision in some way, so I don’t want to alienate him or her. But that person isn’t the one who can approve the project.
Graciously, but firmly, I work to arrange a conversation with the actual decision maker and begin building a trusting relationship with that person.
2. Identify objectives and outcomes
The next step in this process is reaching conceptual agreement with the economic buyer around the work that needs to be done. Conceptual agreement is found in outlining what objectives will be reached and the measurable outcomes for those objectives.
One of the biggest consulting mistakes I’ve made is rushing this step in my excitement to get started. Lack of goal clarity, however, has ruined more that one consulting project for me. Projects where I ended up doing stuff the client didn’t even want, and not doing stuff that, from their perspective, was absolutely essential.
Invest time up front clearly defining objectives and outcomes. It will pay off in big dividends later.
3. Agree on value
Here now is the very heart of value-based pricing and how I begin to determine what to charge for a project.
If the objectives agreed on are fulfilled and the outcomes for these objectives are achieved, what difference will it make? What monetary value will be gained by the organization?
I’ve found that I don’t need an exact number for this, a range will do, but I do need a number. I even use this discussion as a way to differentiate myself from other consultants by helping my clients understand exactly how they will benefit from working with me.
I bet you’re asking this question right now (because I’ve been asked this question scores of times by the solo consultants I coach), “How in the world do I get people to talk about money like this?”
Remember, you’re a blogger, and they’ve been reading your blog. These people know, like, and trust you. That’s why bloggers have such an amazing advantage in arranging consulting work. Also, you built a trusting relationship with the economic buyer, so they’ll tell you this stuff. They really will!
4. Present multiple options
Armed with value-based information, I present a proposal with three graduated options—Tall, Grande, and Venti.
These options are created from achieving some, or all, of the client’s stated objectives and outcomes. Each option is priced, not on an hourly rate, but on a 10:1 return from the first year’s revenue in completing the project.
I used to present proposals with one solitary option and had terrible acceptance rates. One solitary option has a binary, take-or-leave-it effect (so they leave it). Multiple options create what Alan Weiss calls, “a series of yeses” that lead a buyer into the consulting alternative that makes the best sense for their business.
There’s lots more to mastering value-based pricing, but these are the fundamentals.
It starts with a different mindset
For most of the solo consulting clients I coach, however, the biggest shift they need to make in mastering value-based pricing is the way they think about their business. That’s probably true for you as well.
Ask yourself these questions:
- What’s the true value I bring to the marketplace?
- What are the measurable results I deliver my clients?
- How are people’s lives different when they work with me?
When you have real answers to these questions, you’ll have a value-based mindset and become convinced that you’re worth much more than a mere exchange of time for money.
In other words, if you don’t take your work seriously, don’t expect anyone else to. Ever.
It’s this mindset that’s the key to building a successful consulting practice and the starting point to enjoying the life you’ve always wanted, as a blogger and a consultant.
Speaker, coach, and consultant, Bill Zipp helps busy leaders do what matters most in business and in life. He also helps other solo consultants build a thriving, successful practice. To learn more about Bill’s work visit: http://billzipponbusiness.com/consultants.