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Pricing Yourself Into the Market
There are two fools in every market; one asks too little, one asks too much.
If there's one point every IP can agree on, it's this: putting a price on your talented head sucks swamp water. I mean, it's bad enough that you and a herd of hungry competitors are playing on the exact same competitive turf, so you're constantly buffing up your technical skills to stay out in front. You sprout new specialties with the mondo enthusiasm of a tomato plant in August. But here's the thing -- the really ugly thing -- you have to figure out what you're worth in cold, hard cash, and man, that hurts. No wonder that when it's time to talk about fees, even your worst nightmare of a project looks easy compared to those money-grubbing conversations that always come first. Next time your endorphins are zapped and you're singing the IP Fee-Setting Blues, here's an antidote.
Obsess About Value, not Fees
Lots of IPs share a clandestine but deep-rooted bias about the relationship between prices and market share. To get work in a crowded market and avoid a bad case of sticker shock, they're convinced they have to slash their fees, or else. Not so fast, warns Alan Weiss, Ph.D., president of Summit Consulting Group in East Greenwich, R.I., and author of no less than thirteen books, including Million Dollar Consulting. "You shouldn't be discussing fees," Weiss says. "You have to talk value. If you're not talking value, you've lost control. Prospects might pressure you to lower fees, but they never want to eliminate value; the first time they see anything about fees should be in your formal proposal."
Weiss, an old pro if ever there was one, is utterly convincing as he reels off the three interlocking paths to Value Nirvana. One: Together with your prospect, agree on objectives. Express them as outcome-based, hard-nosed business results, not robotic chores you'll perform or (heaven forbid!) fractions of time you'll devote to this or that. Maybe you'll design an annual report, create and install a new employee recognition system, or develop a company-wide profit sharing scheme. Make sure, incidentally, that your prospect is fully aware of the range of your services; you might be able to offer a new twist or an oven-fresh insight they hadn't even considered. Whatever you do, "never, never use time as the basis for your value," Weiss urges, because you don't want to put your prospect in the yucky position of having to make an investment decision every time they have a questionette. If it turns out more work has to be done later on, they can just say so without freaking over increased costs, and you don't have to keep defending your honor. Besides, it's really the simplest, most elegant way to work together, since there are no overheated squabbles about what is billable and what should be done on site and what you can do in your fur-trimmed jammies at home.
The second step is to agree on how you'll track progress toward those goals. Map out how you'll keep tabs on project milestones. Both sides should be clear (crystal) on what these are and when they occur. Third, express the specific value to their organization when the objectives you've agreed upon are met: Beefed-up sales? A hipper image? Less turnover? What? You and your prospect have to toss this around, but it's a critical phase because it refocuses attention on outcomes and impact, and steers you clear of dull-as-dishwater commodity concerns like how much time, how much money, how many people. Outcomes! Never forget about outcomes. If you want to gild this lily, you can always invoke a satisfaction guarantee, where you pledge to refund a certain part of your hard-won fee if they're unhappy with the way things ended up, despite your best efforts.
Yes, but . . .
Suppose your prospect pitches a fit about what all this mind-blowingly cool stuff is going to cost: "Can't we do this thing for less?" No sweat, you jauntily reply. Now here's the part that takes, um, chutzpah. Uber-authority Weiss recommends you inquire politely about which results the client would like to jettison: Should we focus on the field but not the home office? Should we forget about getting customer responses? Or should we perhaps do without the management training and coaching sessions? "Prospects always want to reduce fees, but they never want to eliminate value," Weiss points out. "You control that dynamic by managing the conversation in a given direction. Never surrender your expertise to a committee." So you might say: Let's answer a few questions about what we're trying to accomplish here. Weiss suggests that you put a proposal together and promise your prospect will have "all the investment options on his desk in 24 hours." I wholeheartedly concur. But a word to the wise: before you take this idea out for a spin, test-drive it in your bathroom mirror or even on videotape. You've got to be able to put forth this kind of counter-argument without a trace of a smirk or a giggle.
Add Something Unexpected
You're almost there. You can smell it. That contract's as good as signed. This is the moment to trump your rivals waiting in the wings by adding something extra. Who cares if you're not coloring within the lines? Once a would-be client of mine asked for copies of the slides I'd be using in a big, glitzy keynote address. Even though I made it a practice never to part with my slides (and certainly not as a condition of future employment), I thought about it, and in the end I went ahead and sent the hard copies of the proprietary slides they wanted to review. But then I did one more thing -- I threw in half a dozen slides that weren't part of their original request. In my cover letter I called attention to my "bonus slides," tangibles they never expected and would never have thought to demand. I added that, while I could kowtow to their specs if I absolutely had to, considering the project at stake, I felt the additional content was warranted. Guess who got that gig? Yes, I admit: it was cheeky of me. But sometimes you have to break the rules and make it up as you go along.
Know When to Charge a Premium
At last, something you really crave to hear! Yes, sports fans, there is a time and place when premium pricing makes perfect sense. If the engagement involves grotty, long-distance travel, or hideously long stints on the client's premises, or particularly hostile troops that can't wait to get their huge hands around your pencil neck, then muscle-build your fee accordingly. For example, as a general rule, if an engagement will take me out of the country, I add another 30 to 50 percent to cover wear and tear as well as the opportunity cost of giving up a local assignment. If the offer comes from someone whose business I object to on moral or ethical grounds (assuming I know it's shaky ahead of time -- you don't always), I either turn it down flat, no explanation necessary, or -- rare, but it happens -- I might accept, but only for beaucoup bucks. In those cases, if my price isn't met, I walk and never look back. If I didn't structure it that way, I'd always be accepting work I loathe for a fee I hate even more.
When I did some work for a client whose rank and file were out on a long-standing, vicious strike, I took the job, but added a 20 percent premium because the working conditions were -- how to put this -- treacherous. Just shoving my way to the front door was iffy, let alone meeting with a bunch of menacing, locked-out guys who questioned my motives. The more experience I racked up, the easier it became to say no to unsavory circumstances. Usually, though, it's hard to tell the bad guys from the good, especially at the margin. More than once, I've quoted an astronomical fee that I knew would knock a prospect for a loop, because it was the quickest, nicest way to avoid getting work that would have made me (and them) miserable. We were simply a bad fit, and it would have come back to haunt me. It's up to you to be aware of a mismatch and to act accordingly, because some compromises even an hallucinatory fee can't redeem.
Do Your Homework
Figuring out what you're worth is tricky business. You have to be brave enough to break into a cloistered world that would just as soon keep private things private. One of the best portals comes courtesy of Kennedy Information, which publishes a series of newsletters and books and research for professionals on subjects ranging from best practices to pricing. Their What's Working in Consulting newsletter is a hands-on kind of report, aimed at soloists and small businesspeople who are always combing every source they can think of for advice about improving their skills and managing their practice. And when Kennedy does one of their pricey, proprietary research studies (like one they just released about setting fees), they'll print highlights in the newsletter.
The thing about fees is that nobody likes to talk about them, which explains why this subject is so infernally intimidating. Ultimately, the best stalwart strategy is to work your Rolodex for all it's worth. Call your friends, colleagues, and acquaintances and ask them straight out what the market will bear. If they've worked on a fee basis for a client you're courting, ask how they arrived at a structure that made sense. (This is no time to be bashful.) Head over to your local Chamber of Commerce and see what you can find out. Trundle to a trade association meeting and commiserate with your comrades about the cold, cruel, fee-driven world IPs must inhabit. The idea, you know, is to join up, which requires trust and cooperation and spreads know-how around. Or you could compete, butt heads, and hoard secrets. But then, that's why there's a market for those pricey, proprietary surveys, isn't it?
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