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How to Get Paid What You’re Worth!
by: bossmentor on
Date: Sat, 26 Jun 2010 Time: 6:19 AM
Setting fees is always a difficult proposition for service businesses and professional service providers. Pricing an intangible is much harder than pricing a product.
Setting fees that will represent what you are worth, and make money for your business, is based on good judgement, knowing your client, having a good sense of self worth and also knowing what your options are.
Service Fee Options
Hourly fee
This option pays you for your time. This is not advisable as it is severely limiting to the growth of your business, and affects your perceived value with your clients.
As a consultant, I have twenty plus years of experience that solves problems, takes my clients on a growth path and helps them achieve success. I don’t always turn my thinking on and off and many times have solved a problem with insight that comes to me in a moment. Do I charge for the ‘moment’?
On the flip side, I see some consultants and professional service providers in particular, recording every six minute blocks of time and billing their clients part of an hourly fee for that. Each professional in the firm, and every support person, only has so many hours in a day, week, month and year. They reach their limit of billable hours and then need to add a new resource to the firm. As a client, I always wonder if I’m being billed as I chat on the phone to my accountant and he asks me about my holiday…tick, tick, tick…
I have had clients who could honestly remove 60-80% of their client base, focus on growing the remaining clients, and do so with less people, less overheads, less stress, and more profitability. But they don’t because they’re caught in the cycle of billing dollars for time.
If you are tied to this form of billing, don’t forget to raise your fees from time to time. I have had clients who have not raised their fees for five years, simply because they didn’t know how, or didn’t think they could ‘justify’ it.
If you don’t raise your fees, you are sending a message out to your clients that you’re not worth it, of lesser value than others, or just not up to it.
Contingency/Success Fee
This often comes to play when your service is helping a client to win a major piece of business, tender or project. If you charge a fee contingent upon success, you will only get paid when the client wins the business, although you are certainly backing yourself! However, there are many things that can affect the outcome over which you have no control. It is far better to charge for the service, and if the stakes are high, charge a success fee on top of that. It’s like a bonus for exceptional performance.
Project fee
When you are involved in a project, whether it’s helping a client win a tender, developing a suite of marketing collateral, undertaking a customer survey, or installing new accounting software into their business, you can charge a project fee.
The best way to do this is in staggered tranches. For example, you will always be paid faster if you don’t start the project until you receive the commencement fee. If the project is to take five months, for example, and you leave the bulk of the amount to be invoiced at completion, you may not be paid for eight months.
A better progress payment option is 50% upfront, 30% at completion of a (pre-agreed) major milestone, and the remainder on completion of the project. Alternatively, you may decide to invoice 50% upfront and 50% on completion if it is a relatively short project.
Never leave the bulk of the fees to be invoiced at the end of the project.
Retainer
A retainer is the ultimate goal of all people in the service profession. There are many forms for different types of services: monthly fee retainer for the provision of ongoing consulting/advisory services, monthly support fee (for software), monthly licence fee, monthly fee to be available on request for support/training, and so on.
You may decide to charge a retainer on a monthly or quarterly basis in advance.
Do not enter into a retainer arrangement where you are paid after the service has been delivered. You could end up delivering three months of service and wondering when you will be paid.
If your clients really need your help, they will accept your terms – terms that are agreeable to you!
What Are You Worth?
This is the Achilles heel of all service providers, because it’s all about our knowledge, our capacity to think and be creative or solve problems, and it’s based on our accumulated knowledge of usually many years. It also is based on our own sense of worth.
When you deliver value to your clients and help them achieve their goals, and solve their problems, you can justify your fees based on that value they receive.
If you are creating a new brand design and marketing collateral for a client, that in the longer term will achieve results like higher market profile, higher value clients and higher value business, then what you are delivering has enormous value beyond the time you spend creating it.
We started our Mastermind Program many years ago at $300 per month membership. It barely covered costs. With my heart in my mouth about two years later I increased the fees to $600 per month. A year later we recruited new members for $1200 per month – no resistance. The members in the program value what they gain.
Keep raising your fees until you feel some resistance, then you know you’re close to an optimum level at that time. We increased our program fees 300% based on that strategy.
When I first started Boss Management Group, I did a competitive analysis of other consulting and mentoring firms in the market. I developed a range of fees that other people were typically charging, and positioned myself at the lower end of that scale because I was just starting (refer end of article for more on that!). That strategy is not a recipe for success or growth, unless you are marketing a commodity service to a mass market.
Packaging Value
A great way to move toward a value-based pricing model is to bundle products/services together.
If you are an Accountant, you could charge a monthly fee, for example, for compliance and BAS services, annual company return, and four quarterly review meetings per annum with the client. You could also package special reporting packs, the individual’s personal tax return, their family’s annual tax returns, management of their superannuation and a range of other options that suit different types of clients. You could have three basic levels of package starting from $500, up to $1500 per month, as an example. Other clients may opt to remain on an hourly fee (if you decide to give them that option).
That helps with forecasting your revenue, your resource requirements and your profit estimates. Clients know where they stand and exactly what they will receive, and you don’t need to have everyone in the firm record their activities at six minute intervals.
Credentials Raise Value
When I started my business I had no client base to give me leverage, no testimonials, no track record in this business, and a very intense need to get new clients (any clients)!
I didn’t believe I was in a position of power to lead with a high fee strategy. I did get clients at fees that were too low, but as soon as I had enough credentials in my new business, I started to increase my fees. I could have started with high fees based on my credentials and experience to that point. Belief systems are very important to how well you are paid.
When you have a track record of getting results for your clients, your advice is highly valued buy those clients and they are happy to tell others, and you have a credible client base that mirrors the sort of clients you are trying to win over and attract, then you are in a position to raise your fees and charge what you’re worth.
As guru marketer Jay Abraham says, reduce or remove any obstacles that potential clients may have in dealing with you. Once they become clients, as you deliver value and build your relationship, you can then increase the value of those clients (and your fees) over time.
Positioning Dictates Fees
If you really do have the capabilities, track record, skill set and experience that makes you stand out from the crowd, you can use that to position yourself at the top end of the market. You will aim for bigger and better clients who have the ability to pay the fees you demand and the expectation that quality services come with a high fee.
If you are aiming for that market, but you don’t yet have the credentials, remember Jay Abraham’s strategy and go in lower with a view to raising your fees in time.
Don’t be too cheap – it raises alarm bells.
Don’t be too expensive too soon – it will price you out of the market.
Getting your positioning right takes time, as become more aware of your specific target market and the sorts of clients you want to attract, and how far you can raise your fees in exchange for the outcomes you deliver.
Take time, monitor it, and be clear about where you want to be positioned. Higher fees will not precede results.
Your Biggest Hurdle
Don’t forget the power of your mindset in charging fees that create value in your business!
The biggest hurdle that most service professionals face is their own perception of the value of the knowledge.
If you can’t get through this you will need a friend, an ex colleague, a mentor, a business partner, or anyone who has experienced the value you can add to others to reinforce this with you. Someone else’s opinion will have more of an impact on you than your own.
A really good strategy is to make a list of the contributions you’ve made to your clients’ businesses, and if you don’t have a lot of clients yet then go back through your business career and list the value you’ve added, the results you’ve produced, the rewards and recognition you’ve received for a job well done. Use this list to remind yourself as often as you need. This works whenever you need a confidence boost too!
When you produce results and generate outcomes for others, you should be positioned at the higher end of the scale.
Charge for What You’re Worth
If prospective new clients try to force you into a ‘money for time’ situation, don’t go there. You have value to offer the right clients who will pay you for what you’re worth.
You will never be paid what you’re worth, if you don’t stand up for yourself and respect yourself!
Part of your business growth strategy should also be to seek out clients who not only value what you can do for them, but can also afford it. If you find a potential new client who wants your help, but can’t agree to your terms or your fees, you should both reduce the service and reduce the fee accordingly (ie: reduce the ‘package’ you are offering), or walk away.
Forget charging for your time, and start charging for all the knowledge, experience, ideas, capabilities, contacts and resources you have that will ultimately deliver exactly what your clients want, and reward you in the process!
About the Author
Jenny Stilwell is the Managing Director of BOSSMENTOR®, a consultancy providing advice on strategy and business growth for professional, lifestyle-oriented owners of service-based businesses who want to grow their businesses and ultimately spend less time in them. Bossmentor® provides mentoring programs, consulting services, and a range of resources for business owners wanting to grow. Visit http://www.bossmentor.com.au
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