Here at Actionable, we see a wide range of pricing models employed by consultancies.
It’s worth contemplating – what pricing structure are you using for your services, and are you capturing the true value of your services through that structure?
Consider this: A consultant who is a friend of Actionable—let’s call him “Jim”—charges $50,000 per quarter for his services.
There are no preset calls in the engagement; rather, Jim is available via text or phone 24/7 for the clients he brings on.
This model has been successful for Jim. In fact, he has had some of the same clients for years.
Jim only works with CEOs who are trying to achieve certain difficult business outcomes, outcomes which will likely be worth millions or tens of millions of dollars to the CEOs in terms of additional compensation.
Despite the fact that most consultants will not charge $50,000 quarterly, the concept of Jim’s pricing structure is an interesting one for many others in the industry.
At its core, Jim’s pricing structure isn’t about charging for the time Jim is spending with his clients. Instead, the structure asks the question: what outcome can these services bring to the client, and what is the value of that outcome?
Jim’s clients want him on their side because he provides them with an advantage.
He points them in the right direction, toward achieving their business targets and earning more money.
Jim has tied his cost (his clients’ investment in his services) to the outcome of his services (additional compensation), which is much larger than simply “access to Jim.”
As a result, Jim doesn’t need to tell clients that his time will cost them $10,000 an hour, even though that’s what the cost probably shakes out to be.
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So, what is Jim really selling?
It certainly isn’t “time”.
We might say “outcomes” but I don’t know that that’s ultimately it, either.
In my opinion, Jim is selling confidence. Confidence that – when faced with a challenging decision – Jim’s CEO client will make the right one.
What can consultants everywhere take from Jim’s pricing structure?
A moment of reflection, at least.
What is the outcome of your services worth to your clients?
Is this more than what your time is worth to your clients on its face?
This is the essence of the “value based pricing” model.
The concept of value based pricing is simple enough, but it can be a tough one to grapple with when we’re conditioned to think of our time in terms of the salary and hourly-based jobs of our past.
When you attempt to place a value on an hour of your time, you’ll almost always feel the number is “off,” whether in one direction or the other.
It’s subject to scrutiny and negotiation.
When charging based on time, there’s always a question of, “is your time really worth that?”
Or, certainly not the most profitable one.
The right question is ultimately, “what is your client TRULY buying? And what’s THAT worth to them?”
Herein lies the power of value-based pricing.
While it may be difficult to say that your time is worth $X per hour, consultants can more confidently deliver a fair flat cost that they know will often lead to a fantastic ROI after working with them.
Consultants interested in value-based pricing should consider the outcome of their services, keeping in mind that they’re great at what they do.
Do you help your clients increase their employee retention by 3%, or increase productivity by 2%?
There’s a good chance the changes you help implement are worth millions of dollars, and your fee is just a fraction of that.
Value-based pricing frames the outcome of your services in terms of the dollar value of your impact.
Getting to value-based pricing requires a few steps:
1. First, understand the business metrics that you and your clients know you can move the needle on.
2. Next, consider what a change in these metrics is worth to your clients.
3. Finally, calculate the value of what you’re doing for your clients in terms of dollars and cents.
If you’re using this information during the proposal building process I invite you to download our FREE Proposal Conversion Amplifier workbook.
Through the 5-Step process included in the workbook you’ll learn how to build a high-converting client proposal that doesn’t have you reinventing the wheel every time.
Actionable is on a mission to help boutique consultancies scale their business by giving them the tools to prove, amplify and ultimately sell their impact (not their time).
If you’re interested in focusing on impact, we’d love to show you how we can help. Book a time to talk with us.
We can’t wait to meet you.