The Self-Valuation Problem #1: Am I Worth it? Value Pricing Your Services
Laura has met with more than her share of prospective clients, but been much less successful at getting them to hire her. There are several reasons for this, but the one that most urgently needs fixing is her discomfort in quoting a fee, which, of course, the clients pick up on. Her discomfort results from her doubts about being worth the rates her firm charges.
Laura is one of many professionals who have this problem. If a low-end competitor sometimes takes work away, justifying your fees to yourself gets even harder. And if you have no confidence in the value of what you do, it is hard to see why your client should. If you have this problem, it hurts you in two ways: it results in lost sales and reduces the size of your fee, when you win. This is the first of two postings on the subject
Because the problem is as much based in emotion as in logic, logic alone is insufficient to deal with it. But logic is a good place to start. We will come back to emotion in the second posting.
Step One is to keep your focus on the part of the economy you operate in. That others who do more worthy things than you earn much less than you do may at some higher level be unfair, but it is no reason to accept below-market rates for the work you do. After all, the more you earn, the more you can give to worthy causes.
Second, see if you can determine the value clients receive from your work, keeping in mind that there is no necessary correlation between the difficulty or originality of your work and the value received. Earlier in my career a colleague charged a client for a day’s billing at a rate that would probably be equivalent to $7,500 today, for which he reduced the costs of a client’s new facility by what would be more than $3,000,000 today. The client was exceedingly grateful, but so was the next one we provided the same service to, but at a much higher rate.
Anecdotal evidence that my partner and I collected from our clients ten years ago suggested we were under pricing our work. A few trusted friends with whom we shared our logic agreed, and we put through a twenty percent price increase at the bottom of a recession. A few prospective clients lost interest in working with us, but we still sold out every hour we had available.
And it is not, after all, our perception of the value of our services that ultimately determines the upper limit to what we can charge. It is our clients’ view. As an important step to determining what we should charge and getting our clients to accept it, we need to learn the value the clients expect to get from our work. Use questions to draw out estimates of savings or gains a prospective client expects to realize from your services. Often, this requires a series of questions to create a clear picture for both the client and you.
Questions to ask when value-pricing your services:
- What is this problem costing you this year?
- How much more is that likely to be next year?
- Do these costs include the opportunity cost of the time that your department spends on this issue?
- What would you be spending your time on, if you didn’t have to deal with the issues anymore?
- What would that be worth to the company?
Once you understand the value of a solution, use additional questions to determine why the client needs you to obtain it:
- You must have tried to fix this before. What happened when you did?
- You have a capable team, so why bring in outside help for this issue?
When you are done with the questioning, both the client and you should understand why you are worth so much. That will make it easier to ask for his money.
For more advice like this, please see Ford Hardings’ new book: Rain Making, Attract New Clients No Matter What Your Field, 2nd Edition
“Rain Making, in its new edition demonstrates its position as the single most sensible, accessible guide to building a professional practice…”
David Maister, author of Strategy and the Fat Smoker and co-author of The Trusted Advisor (with Charles Green and Robert Galford)
