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Service Professionals’ Guide to Setting, Raising and Safeguarding Fees

“I do not prize the word cheap. It is not a badge of honor... it is a symbol of despair. Cheap prices make for cheap goods; cheap goods make for cheap men; and cheap men make for a cheap country!” ~ President William McKinley

By Tom “Bald Dog” Varjan, Organisational Provocateur

Dynamic Innovations Squad

www.di-squad.com

Dedicated to All Service Professionals Who Believe in

Their Worth and Want to Get Paid for It

Last updated: 09 May 2005 – As a legitimate purchaser of this booklet, you are entitled to free updates on this publication until one of us dies.

It’s All About Your Value: Service Professionals’ Guide to Setting, Raising and Safeguarding Their Fees

~ of 2 ~ Copyright 2005, Dynamic Innovations Squad www.di-squad.com

Table of Contents

INTRODUCTION .............................................................................................................................4

NOW I WANT YOU TO DO AN EXERCISE ...................................................................................4 JUST SOME FACTS FOR A START ................................................................................................5

SIX SELF-LIMITING BELIEFS ABOUT RAISING FEES ................................................................7

1. “MY CLIENTS CAN’T AFFORD HIGHER RATES”....................................................................7 2. “I WOULDN'T PAY MORE MYSELF IF I WERE THE CLIENT”..................................................7 3. “I HAVE NOTHING UNIQUE TO OFFER” .................................................................................7 4. “NO ONE IN MY INDUSTRY MAKES VERY MUCH MONEY” .................................................8 5. “I HAVE JUST STARTED MY BUSINESS”................................................................................8 6. “THE REAL EXCUSE WHICH NEVER GETS SAID: I DON’T DESERVE IT”..............................8

THE THREE ROLES SERVICE PROFESSIONALS CAN CHOOSE WITH CLIENTS .......................8

THE “EXPERT”............................................................................................................................9 THE “HIRED GUN”......................................................................................................................9 THE “COLLABORATOR” ...........................................................................................................10 UNHEALTHY CONSULTANT-CLIENT RELATIONSHIPS ..............................................................11 HEALTHY CONSULTANT-CLIENT RELATIONSHIPS...................................................................11 CONSULTANTS VS. CONTRACTORS ..........................................................................................12

NINE RETARDED, YET MAINSTREAM COMPENSATION TECHNIQUES ..................................12

1. FLAT NEGOTIATED FEE (PROJECT FEE) ...............................................................................13 2. MONTHLY RETAINER ...........................................................................................................14 3. FIXED FEE WITH “FURTHER EXPOSURE” OPPORTUNITIES..................................................15 4. COST-BASED FEES ...............................................................................................................15 5. CONTINGENCY FEES.............................................................................................................16 6. EQUITY OR STOCK POSITION................................................................................................17 7. COMMISSIONS.......................................................................................................................18 8. BARTER.................................................................................................................................19 9. HOURLY FEES.......................................................................................................................19

VALUE-BASED FEES ...................................................................................................................22

THREE WAYS TO RAISE FEES: OFTEN, BOLDLY AND SHAMELESSLY .................................23

DEFINING BUSINESS INPUTS AND OUTPUTS AND HOW THEY MATTER ................................24

SOME CONCEPTUAL MISTAKES CONSULTANTS MAKE ABOUT THEIR FEES ..........................25

CONDUCTING A VALUE-BASED INTERVIEW ............................................................................27

STEP 1. QUALIFYING THE PROSPECT........................................................................................27 STEP 2. IDENTIFYING THE ECONOMIC BUYER..........................................................................27 STEP 3. ASKING ABOUT THE PROBLEM ...................................................................................28 STEP 4. ASKING ABOUT LONG-TERM IMPLICATIONS..............................................................29 STEP 5. ASKING ABOUT OUTCOME BASED OBJECTIVES .........................................................30



STEP 6. ESTABLISHING METRICS FOR THE PROJECT ................................................................31 STEP 7. DISCUSSING PAINS OF CHANGE ..................................................................................34 STEP 8. ESTABLISHING VALUE.................................................................................................35 STEP 9. CHECKING CLIENT’S READINESS ................................................................................35 STEP 10. SOME PREVENTIVE MEASURES.................................................................................36 STEP 11. ESTABLISHING EMOTIONAL PRIORITIES....................................................................37 LINKING YOUR QUESTIONS......................................................................................................37

SOME EXAMPLES OF STIPULATING THE VALUE OF YOUR INTERVENTION..........................38

WEB DESIGN ASSIGNMENT......................................................................................................38 IT CONSULTING ENGAGEMENT................................................................................................39

IN SUMMARY...............................................................................................................................41



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I hope you have ordered this booklet to answer some questions on one of the most sensitive topics of running a professional service business: Setting your fees.

Some people may say it is easy to set fees. Just set it according to going hourly rates, depending on your experience. You will see…

But first of all…

In this book I use “consultant” and “service professional” interchangeably. The idea is that they both provide the same for their clients: Care, protection and guidance through collaborative relationships. So, never mind the name, just focus on the process.

1RZ�,�:DQW�<RX�WR�'R�DQ�([HUFLVH�Describe your dreams in great detail, including your dream home, your dream car, dream family, investment for the future, your dream vacation, dream vacation home, your dream university you would like to send your kids. Come on, dream big. You have only one life. Dream big dreams for small dreams have no value.

Now take your hourly rate, multiply it by 1,000 (the North American average is about 1,114 billable hours per year) and multiply it with the number of years you want to work. And remember, for 1,000 annual billable hours you have to work about 50-55 hours per week. What happens to your life then?

For a young professional it can be let’s say $100 per hour working for 40 years. And then you can make $4 million in a lifetime without one single vacation day.

Now take a second look at your dreams and put a price tag against each item.

Can you see that working your arse off 50-55 hours per week for the next 40 years, you cannot even make enough money to buy your dream home, let alone the rest?

All right. Stop crying now, wipe off your tears, and keep reading. The situation may seem to be crappy but definitely not hopeless.

Can you see why it may be a good idea to read this booklet? It may be free, but by the time you finish reading it, you will see its value, especially if you are one of the 3-5% of people who has the courage to implement it.

Do you know that...

♦ Average businesspeople spend 12 minutes per day conversing with their spouses

♦ Average businesspeople spend 40 minutes per week playing with their children

♦ Since 1973 average businesspeople work 20% more and have 32% less time

It is pretty easy to see that raising your fees is the easiest way of increasing your revenues virtually overnight.



-XVW�6RPH�)DFWV�IRU�D�6WDUW�In a survey on the consulting profession by the Professional Consultant, 76 consulting practices have been analysed in depth with the following results:

• Those working exclusively on a time-based fee basis had 87% lower profits than those who worked on a fixed-fee.

• When profits and salary were added together, the time-based fee group had profits

and salary that were 95% lower than their fixed fee colleagues.

• For those consultants using time-based fees, profits were 32% lower, and profits

and salaries 36% lower than the consultants using both time-based and fixed fees.

And these fixed fees are estimated on the amount of work to be performed. That is, you are higher paid than with time-based fees, but you are still getting compensated as an “outsourced labourer” for the manual work you do.

When you change this paradigm so that your compensation becomes a function of the qualitative and quantitative improvement your clients realise by leveraging upon skills, wisdom, insights, instincts, counsel, etc., both your profit margin and fulfilment level will increase beyond your wildest imagination.

Let me show you something. Some random numbers on annual revenues per person from the Business in Vancouver Book of Lists:

• Consulting engineering firm: $157,750 annual gross revenue per person

• Computer consulting firm: $344,571 annual gross revenue per person

• Software consulting firm: $190,000 annual gross revenue per person

• Internet consulting firm: $96,875 annual gross revenue per person

• Accounting firm: $247,000 annual gross revenue per person

• Interior design firm: $85,000 annual gross revenue per person

• Law firm: $278,000 annual gross revenue per person

Now take away salaries, the large corner offices, rent, operational overheads and other bits and pieces, and you will see that some of these “fastest growing” firms are not really growing at all. They are stagnating or shrinking.

How?

Let’s say you can make $100,000 per year on your own. Then – “to grow” your business - you

hire three people, and the four of you can make $300,000. That is $75,000 annual revenue per person. This is what most MBAs and business graduates call fast growth, and you can see these companies parading all over the title pages of various business magazines.

But let’s look at it from a different perspective: The perspective of a rabbit farmer that I used to be.



Let’s say I have one mama rabbit, and she bears 30 baby rabbits per year.

Then I buy three more mama rabbits, and the four of them bear me 90 baby rabbits per year,

which is an amazing 200% growth.

But realistically I have only 22.5 (?) baby bunnies from every mama rabbit, which is 25%

fewer than last year.

This is not growth but self-delusion. And nobody needs advanced degrees to read numbers.

So, going back to our previous example, all I can only see is that your livelihood is shrinking

by a whopping 25%. Since when do you call earning less business growth?

I may be just a country bumpkin, but at least I know numbers and what they mean. It is very interesting when this bumpkin shows the firm’s accountant how to read their own numbers.

However, according to conventional wisdom, based on the above numbers, your firm would be a “fastest growing firm,” while you are wearing yourself to the ground.

Adding more value, more quickly and with more certainty

Your clients hire you to add more value, add it more quickly and add it with more certainty. If that is the case, you deserve a part of that value too.

Look, Ford sells cars. That is, they sell a few pounds of steel, a few hours of welding, a few square feet of upholstery, a radio, five tyres and an engine for about $20,000. Ferrari sells prestige, sense of success, accomplishment and freedom for $400,000 plus. Does it cost 20 times more to produce a Ferrari? No. It only presents a different perceived value.

I have met great many people whose dreams are driving their own Ferrari, but I am yet to meet someone whose dream is to drive a Ford. If you offer Ferrari-calibre service, then charge Ferrari -calibre fees. That is all. So let’s rock ‘n’ roll into the meat of this stuff.

Here is the basic problem with time-based fees: You are penalising yourself by using your years of experience and thousands of dollars worth of education to solve your clients’ problems quickly and efficiently. Time-based fees actually mean that the slower you can work and the longer you can prolong your clients’ suffering, the more you can earn. It is just plain dishonest, although at today’s standards it is perfectly normal. Or is it really?

There are some financial and ethical flaws in time-based fees honest service professionals need to understand and carefully consider:

• Time-based fees are unethical and work both against you and your clients

• Time-based fees put a cap on your income, while asking clients to give you blank cheques

• Time-based fees ruin client relationships for you and your clients work against each other

• Time-based fees are most often perceived as expenses by clients, which are to be cut or at least to be reduced

• Time-based fees position you as a “circus monkey”, who merely performs tasks for some reward

But before digging deeper, we have to look at the soft side of fees. This whole fee-setting stuff



revolves around some deep-seated human issues, so let’s look at them…

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Here are some typical reasons why service professionals fail to raise their fees.

As you can see, it has nothing to do with being a start-up business, or not having a triple MBA, but has everything to do with self-worth, self-esteem and self-image. We are talking about value exchange. Let’s see these problems.

��´0\�&OLHQWV�&DQ·W�$IIRUG�+LJKHU�5DWHVµ�Are you certain of that? How do you know? It is not so much about affording it but rather justifying it.

Have you ever seen what kind of lifestyle these same people have? A few years ago a woman wanted to hire me for personal training. As a hobby, I do a bit of fitness coaching for businesswomen. She needed help for she was almost 400 lbs, but she couldn’t justify more than $15 per hour. As she told me, “You are just a fitness freak not a real professional. For the kind of money you want to charge me I can even hire a lawyer.” Guess what? She is still some 400 lbs.

Once her extra weight becomes emotionally and physically painful enough for her, she will be able to justify the money to hire a personal trainer, because she will see the value of that kind of support.

Just heed this: When there is a perceived need and value, there is enough money. In the worst case, the client can get a loan to hire you, knowing that your help can earn that money back several folds.

When you raise your fees, you will lose some of your clients, but the way to grow a nice garden is by pruning your plants regularly.

��´,�:RXOGQW�3D\�0RUH�0\VHOI�LI�,�:HUH�WKH�&OLHQWµ�Who cares? It is not you who puts value on your services but your prospects. Let them decide what they are willing to pay. Your perception and their perception are two completely different things, with your perception’s being totally and utterly irrelevant.

Chances are, some of your clients feel that your current fees are more than they want to pay, some feel you’re charging just about right and others feel you’re a price pussycat, purring away your expertise.

��´,�+DYH�1RWKLQJ�8QLTXH�WR�2IIHUµ�Well, if you have no value to offer, then how can you expect others to value it? Value starts at home, that is, that at least you believe in yourself and your services. And just because it is not special to you, it can be special to your marketplace.



��´1R�2QH�LQ�0\�,QGXVWU\�0DNHV�9HU\�0XFK�0RQH\µ�I dare to bet some vital parts of my anatomy that someone makes a great and rewarding living in your field. If there is even one person who earns more in your field than you do, then the restriction is in you, and you can overcome it only by working on your values and beliefs. Many people earn better than average income doing seemingly undervalued work by believing that their work is valuable and taking pride in it.

Charging more -and getting it- is mainly a function of confidence and positioning in your market (how you present your work).

To separate yourself from the competition, you can emphasize selectivity (you accept only a certain level or kind of client), uniqueness, the results you create and benefits of your work (results that your colleagues also produce but never explicitly point to).

��´,�+DYH�-XVW�6WDUWHG�0\�%XVLQHVVµ�So what! Your fee is a function of the value you provide. If I need brain surgery I’m better off with a newcomer brain surgeon than with an experienced dentist. Although both are doctors, and one is really experienced, but she is useless for my problem. Never accept the bullshit that you have to start at the bottom and slowly work your way up. Prosper right from the beginning. If I want to brush my teeth, I prefer a 10$ toothbrush to a $1 toilet brush.

��´7KH�5HDO�([FXVH�:KLFK�1HYHU�*HWV�6DLG��,�'RQ·W�'HVHUYH�,Wµ�This reason never gets said, but this is the driver for the other five. Many people harbour negative thoughts about money based on the old puritan ethics “A fair day’s wage for a fair day’s work”. The problem is that this approach rewards effort and expended time. While it is suitable for manual workers, is a complete nonsense for knowledge workers like you, selling your brainpower. Re-examine your beliefs! Where do you fall short?

Professionals who provide top-tier services deserve to be compensated on the best and most lucrative basis, while they are also inspired to provide exceptional and exhilarating experiences for their clients. That one lucrative basis to be compensated on is perceived value through your clients’ eyes. This method frees you from the financial limitations and unethical attributes of time-based fees. It also offers unique emotional benefits, like higher levels of self-worth, appreciation and better self-image.

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Unfortunately two lead to slavery and depression, one leads to growth and exhilaration.

Originally the idea behind being in a professional service business is providing care, protection and guidance for clients, so they can solve their own problems better, quicker and at higher certainty. It is about giving clients tools, techniques, systems and processes, and helping them to use those tools, so by hiring consultants once, they can both solve their existing problems and learn from the consultants how to do it the next time without consultants.

Interestingly enough, it has nothing to do with doing manual labour for clients. Then how



have so many clients got so grossly miseducated about the nature of consulting that hourly rates, commissions and contingency fees have become so fashionable? So, let’s discover what has happened over the years of the history of consulting and make sure history does not repeat itself. Let’s make certain that we are hired as real advisors not as outsourced labourers.

There are three distinct roles consultants choose to position themselves in, and depending on their roles they are perceived and compensated differently.

The three roles are the role of “The Expert”, the role of “The Hired Gun” and the role of

“The Collaborator”. They have different levels of “catching you a fish” and “teaching you hoe to fish” components.

So, let’s dissect each role with their advantages and disadvantages.

7KH�´([SHUWµ�This is actually what buyers say to experts: “I have this big, hairy, ugly problem, but I have neither the time to find the problem nor the inclination to solve it for myself. You say you are an expert in this field, so just come in and do it for me. Do whatever it takes, but make sure you don’t interrupt my people or me too much. We are extremely busy.”

So, let’s see where the relationship falls flat on its face. Buyers remain passive throughout the engagements, and dump all responsibility on consultants, while retaining authority and decision-making. Consultants accept the role and do the work. Every now and then they ask

for some assistance from buyers, but basically they do projects for their clients.

The control of implementation is in the consultant’s hands. The buyer is barely involved. The consultant does all the relevant donkeywork. There is no collaboration, for the expert is supposed to solve the problem without “bothering” the buyer with the details. There is no transition of skills taking place, for the emphasis is on quick fix. The buyer’s role in this kind of “relationship” is to judge the consultant after the event.

The problem with the expert role is that it overlooks the human element of problems, that is the commitment of people at the client’s organisation. People say: “If it were important enough for us to get involved, the boss would be involved too.” In this role consultants become independent.

Typical expert roles are that of many lawyers, accountants and engineers. They basically say: “My trade is so complex that no ordinary mortal would understand it anyway, so I’d better just shut up and do it for you.”

7KH�´+LUHG�*XQµ�If the role of the expert is not bad enough, the role of the hired gun is even worse. This is actually what buyers say to hired guns: “I have this big, hairy, ugly problem, but I have neither the time nor the inclination to solve it for myself. I have determined what to do to solve the problem and how to do it, so as long as you are cheap enough, just come in, follow my instructions and do it for me.” This is the situation in which consultants end up as wage slaves, outsourced labourers or situational elbow grease.



In this “relationship” buyers retain total control and expect hired guns to passively react to buyers’ demands. Every decision is made by buyers and every step of the project is defined by buyers. Buyers take full control of the project, but dump full responsibility in the lap of the hired gun.

The problem here is deeper than most people think. Taking control while relinquishing responsibility is an oxymoron just like a virgin prostitute. And anyone who wants to treat advisors that way must be a moron. If we consider that most morons live on oxygen, we have just found the roots of the word oxymoron. Anyone with an English major in the crowd?

The control lies with the buyer, but the advisor has all the responsibility. If the buyer made the wrong diagnosis, and something misfire as a result, the consultant gets blamed for all the adverse effects. Mind you, when the project pans out nicely, the buyer is likely to take credit for everything, since s/he was the mastermind behind the whole gig, whereas the consultant was just a workhorse to do the brawn work.

In these situations consultants hardly ever recommend anything, for they reactively follow the buyers instructions. There is no collaboration but a very rigid master-slave relationship. Now you know who is who.

While in the “Expert” situation the buyer inspects and judges the consultant’s work at the end of the assignment, in the “hired gun” role the buyers are breathing down on their consultants’ necks and very closely supervise and evaluate them. Questions like: “Can you do it faster?”, “Can you save money on this and that?”, “Can you work on it over the weekend?”, “Can you take care of your expenses and not to invoice us?” and “Can you leave me and my people alone to do our work and not bug us with your problems?” are pretty common. In this role consultants become totally dependent on buyers. Buyers’ commitment is fairly low, and they expect consultants to produce the “miracles”. Buyers know all they have to do is to bark orders, and their well-trained consultants - just like well-trained dogs - will sit, lie or even fetch small logs if needed.

Typical hired gun roles are that of many IT consultants, web designers, graphics artists. They basically say: “I don’t care about your objectives and goals. I have performed certain tasks (fixing computer, developing a website or designing a logo, etc. ) give me my money and get lost.

7KH�´&ROODERUDWRUµ�This kind of relationship is based on mutual trust, respect and the notion that clients’ issues can be solved by synergistically joining clients’ - mainly content (what we do) - skills with consultants’ - mainly process (how we do it) - skills. BMW doesn’t hire experts on how to build better fuel pumps, but does hire consultants to assist them to put together better teams to effectively manufacture those fuel pumps, efficient quality control systems to check those pumps and distribution systems to profitably take those pumps to consumers.

Clients in collaborative relationships fully understand the “you get what you pay for” adage. Consultants do not solve buyers’ problems. They empower and enable buyers and their people to solve their own problems leveraging on consultants’ skills, resources and connections. Buyers’ people are actively involved in projects at every single stage. Buyers and consultants



become interdependent. They share both accountability and risks, however, responsibility lies with buyers, for they make the final decision.

The need for control disappears and gets replaced by joint decision-making and comparing notes. Both parties have the right to suggest, recommend, object and argue.

This is the only relationship that has the vision for long-term, that is, to solve problems in such a way they stay solved and never surface again. The other issue is raising the bar. This is the only relationship that can also focus on raising the bar, instead of merely restoring the status quo.

The problem here is that many buyers need urgent help and dismiss the value of true collaboration. They just say, “We can collaborate next time, but right now fix this quickly and leave me alone. I’m too busy for this right now”. For example, the buyer may say this to a marketing consultant: “Look, I hate marketing, so just bring me prospects who are ready to buy my stuff and I will pay you a commission on sales.” At this point consultants have the right to accept the gig or turn it down.

8QKHDOWK\�&RQVXOWDQW�&OLHQW�5HODWLRQVKLSV�In these unhealthy relationships consultants work as outsourced labourers for their clients. The buyer says: “We must reduce sales talent attrition.” And the consultant says: “All right, I get started right away.”

What is the problem here?

The buyer simply barks an order and the consultant tries to implement it. The consultant is the only person in the equation who has made a commitment to reducing attrition, and the consultant alone becomes responsible for reducing attrition. People at the buyer’s company may not even have been informed about the new initiative, thus have no inspiration to implement changes.

So the consultant works with these lower-lever implementing people who are not even engaged in the desired outcomes of the project, because the buyer demanded results from the consultant but not from his/her own people. At this point consultants can choose from three bad options: Kicking up a fuss to the buyer, ignoring implementation or becoming martyrs by doing it all alone.

+HDOWK\�&RQVXOWDQW�&OLHQW�5HODWLRQVKLSV�In these healthy relationships consultants work as collaborators with their clients and their people. The buyer says to his/her people: “We must reduce sales talent attrition.” And the implementing manager says: “All right, I get started right away. I need help, so let’s hire a consultant and with his/her assistance we can reduce attrition now and also learn how to do it in the future for ourselves.” In this engagement buyers puts their demands to their own people, and if necessary they hire consultants.

Now everyone has made a commitment to improvements, all the people involved have the same objective in mind.

On the final analysis, it is the client’s responsibility not birthright to see the desired



results.

&RQVXOWDQWV�YV��&RQWUDFWRUV�Here you may be surprised, but there is a huge difference between the two.�As a contractor, you work for customers on issues they have neither time nor inclination to do. The problem is clearly defined, and the customer is not involved in the work itself, only in the evaluation of the work. This type of work is a mere commodity, these contractors are dime a dozen, thus compensated accordingly. This is most often a subordinate-superior relationship. You are basically an outsourced labourer. Contractors get hired and do high-volume, low-margin commodity-type work.

The approach is solution centred – “Catch me a fish” approach

• Clients has already defined the problem

• Clients are not involved in the diagnosis and solution development

• Clients are not involved in implementation

• Client hire contractors for their special expertise

As a consultant, you collaborate with clients on solving their problems that are unclear. Jointly with clients you diagnose the problem, and together you develop a solution. Clients are involved in the whole process, and they do some of the work with your guidance. This is a relationship between equals. According to the - Canadian Oxford - dictionary, the verb “consult” means to seek information or advice from a person and refer to a person for advice

and opinion. It mentions nothing about performing manual labour for clients. Consultants are collaborated with and do low-volume, high-margin unique work with additional value-added that represents something clients did not have before.

The approach is problem centred – “Teach us how to fish” approach

• Clients knows the symptom but hires consultant to define the exact problem (low sales, high talent attrition, etc.)�

• Clients are deeply involved in every step of the project. Solutions are developed collaboratively�

• Clients are involved in the implementation process�• Client hire consultants as catalysts for positive change�

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There are many service professionals out there who offer a broad range of compensation strategies for their work, hoping that prospects will find one of them more attractive than others and then they are more willing to engage these professionals.

While some of these fee-setting methods are good for certain situations, some of them are plain insane and can land you in really nasty situations.



So, let us review here some fee-setting methods service professionals commonly use, and we look at both the pros and the cons of each method. Some methods are great but the problem lies with their interpretation.

Let’s start with a common belief. Many professionals guarantee results and try to use this guarantee to entice clients from competitors. This is the same as guaranteeing to your spouse that your marriage is for life and nothing can end it except death.

Well, that is nice, but here is the other side of the coin. In a former life I used to work in jobs where my “clients” were dead (grave digger, embalmer and crematorium attendant). It was good because I didn’t have client complaints, but was bad because they didn’t give me testimonials and references.

Many of them had divorced several times by the time they kicked the bucket. That indicates that in spite of the fact that they once had promised “together forever” to their spouses, at one point the shit hit the fan and divorce raised its ugly head.

So, the essence is that we cannot promise definite outcomes, unless we control every aspect of the client relationship. And there are just a very few professionals who can do that. They are gravediggers, embalmers, autopsy doctors, and other professionals whose clients are fairly cold and fairly horizontal.

Personally I believe it is unethical to guarantee outcomes when you work collaboratively with clients. No pilot can guarantee safe arrival. No surgeon can guarantee vibrant health after surgery. No general can guarantee victory. So, how could you guarantee results? That's retarded.

It may work a bit better when you work as an outsourced labourer and are expected to produce

results for your client.

So, let’s see these incorrect fee-setting methods, so you can stay away from them.

��)ODW�1HJRWLDWHG�)HH��3URMHFW�)HH��In this method professionals usually calculate how many hours it will take to do the job and how much they have to fork out on materials, and quote a price accordingly.

These people try to justify their fees for time and effort they invest in creating deliverables, as though clients cared about them. In a way this is a lumped hourly fee structure.

From the client’s standpoint the “I run you a team building workshop for you” is just as useful as a fart in a windstorm. Clients want to reduce talent attrition, boost sales (strategy) and the way (tactic) to achieve it is improving team performance. But how you improve team performance is absolutely irrelevant. If it is a workshop, that is fine. If it is removing some team members, that is fine too.

If you can say that that let’s work together to reduce annual talent attrition by 25%, that is a valuable proposition. Can you see the difference? If it takes 10 minutes to remove some prima donnas from the team and improve performance, why the cricket would you bother to run several workshops? The real performance improvement takes place right after removing the troublemakers.



Look, the Allied Forces ended six years of misery by shoving a bomb up Hitler’s arse and blowing him and his thugs to some of the more pestilential pits of hell. Again, improvement takes place when you get rid of the troublemakers.

You can’t improve the overall performance of the fire brigade by running workshops on fluid dynamics.

The problem is that with this approach you take the client’s focus away from the improvement to the tasks: “I deserve my fees because I have been working like a dog for two weeks non-stop”.

It is like an excavator operator said, “I want to be paid because I worked all weekend”. Yes, but what he did was digging up the runway at the airport, so now it has to be re-built at an extra expense.

You can’t pay a pro Marathon runner 416 times more than a pro 100-meter sprinter just because the Marathoner clocks in higher mileage.

Since this approach is about working hours, there is a tendency to include heavy reports and tonnes of unnecessary memos in the agreement.

��0RQWKO\�5HWDLQHU�While this is a great concept, there is a huge misunderstanding here. For many service professionals, retainers mean a certain number of hours of pre-paid manual labour. However, I believe that buyers use service professionals for what they know – brain power, and not for what they can do in the form of manual labour (brawn power).

Just imagine a financial advisor. She takes care of your assets for a certain annual fee, but if you try to convince her that “Hey, I’m too busy, here is some money, go to the bank, stand in the queue and pay off my VISA card, since I pay you anyway”, she may recommend you a check-up from the neck up in the local mental hospital.

You must feel at ease with the fact that your value to your clients lies in access to your smarts. If you mismanage this part, clients end up demanding your being physically on site whenever they need you, and you will end up living the rest of your life on-call.

This can lead to scope creep, like “Since you are here and get paid anyway, why don’t you clean the toilets and make me some coffee?

Make sure you get paid in advance and provide unlimited access to you. Also, make sure you document in your agreement who exactly has access to you. There is no point in charging one single fee and allowing the whole department to call you whenever they feel stuff on something.

Again, your retainer fee is a compensation paid to your for access to your smarts and talents for a pre-specified period of time. The retainer is not a pre-paid hourly rate that is drawn against as billable time is dispensed. You are not a human vending machine.

There is no project in retainer agreements. There are no specific objectives. The emphasis is on having access to your smarts and counsel. The value of the retainer agreement is not a function of your physical presence either. It is the client’s responsibility to contact you



whenever your advice is sought.

For more on retainers see “Creating Lucrative Retainer Gigs” at http://www.di-squad.com/resources/mastering_retainers.html

��)L[HG�)HH�:LWK�´)XUWKHU�([SRVXUHµ�2SSRUWXQLWLHV�This is when clients say “Although we pay you only $XX but you will also get $XX worth of media exposure.” This is retarded.

It is the same as the boss' saying to an employee: “Although we pay you only minimum wage, but you use our heating, hot water and toilet paper.”

Exposure is just a by-product of the project. When a builder builds your home, if he has some brain he displays his sign prominently on your lawn: “This home is being built by Leaky Condo Brick Piling Inc. For our FREE home planning guide: “Seven Most Common Home Planning Nightmares and How to Avoid Them” visit www.thebrickpilingbunch.com. This is part of the package and he won’t give you a discount for this advertising “opportunity”.

Imagine going to Safeway (Grocery store chain in North America, the UK and maybe elsewhere too) and refusing to pay full price, arguing that “I offer you exposure by carrying my groceries in your shopping bags”. What do you think would happen? The cashier would call the nearest lunatic asylum to book me a place.

Push back to buyers and tell them that unless they only want “exposure to value” not the value itself, they had better cough up the dough. Imagine, you go to a restaurant starving, order teriyaki elephant tail, and the waiter does a nice PowerPoint presentation on how teriyaki elephant tail is cooked. Then he happily brings you a discounted receipt. You have just been exposed to value but did not get it. How would you feel? Still starving? Then watch the presentation again and pay the discount rate again.

It is interesting how many idiots keep paying the discounted rate and keep starving.

You offer real value, so you must only expect and accept real dough. Wherever in the world you live, I find it hard to believe that the reining currency is called “exposure”. But check it with your financial planner. I may be wrong.

��&RVW�%DVHG�)HHV��There is a problem here. In this braindead setup you are supposed to be paid based on your costs. As a service professional, you can offer advice worth of thousands of dollars in ten minutes over the phone sitting in your bathtub playing with your favourite rubber duck.1

So, why should you be penalised just because your overhead costs are so low? It has nothing to do with the value of your services. You provide brainpower, which is expensive to acquire but can be dispensed at a very low overhead cost.

When you were in the phase of collecting your knowledge, you paid both for your schooling

1 As the Captain of the load of useless bloody loonies from Golgafrincham said sitting in his bathtub said: “One is never alone with a rubber duck” Picked from The Hitchhiker’s Guide to the Galaxy by Douglas Adams



and your education. Nobody came to you saying, “Let me help you to pay your tuition because a few years later I want to hire you and need you to be as knowledgeable as possible”.

This is payback time. You have knowledge others want. Charge good money for it. $13,000 for a five-hour gig (a real story of one of my clients) to sort out a constantly crashing computer network (lost productivity, increased stress, deteriorated client responsiveness, lost value proposition, jeopardised corporate image, risk of losing top-tier talents and good clients, etc.) is perfectly all right even if your cost is nothing. You pay your cost by keeping yourself on the top of your industry.

She didn’t just fix the computers. She helped the company to improve productivity, reduce stress, reduce employee absenteeism, improve client responsiveness, enhance value proposition, elevate corporate image, eliminate the risk of losing top-tier talents and good clients, etc.

Can you see that value is more complex than simply fixing computers? It is just a matter of asking clients, which you learn a touch later.

��&RQWLQJHQF\�)HHV�The mistaken idea behind this payment method is that every dollar your expertise brings to your clients’ businesses, they pay you a percentage. But expertise alone doesn’t bring money. Someone has to act on that expertise. And only the client can act. Besides the contingency structure is unethical from the objectivity standpoint.

Once I had a woman who wanted to hire me to help her with weight loss. (I am a certified personal trainer and work exclusively with businesswomen on a broad range of health, fitness and lifestyle issues. You can call it a paid hobby.) But instead of paying my normal fees, she wanted to pay me proportionally to the lost weight. I told her that it was up to her how well she would adhere to our jointly designed programme, and she would start shaping up accordingly. She insisted on the pay for lost pounds. So I had no option but to tell her that I could push her to the brink of certain death just to achieve maximum weight loss, but that would not achieve what she was seeking. Although she saw the point and was willing to accept my normal fees, I decided to get rid of her. A troublesome prospect most often becomes a bat out of hell (homage to the great rock singer, Meat Loaf) client.

How stupid do you think a mother would be if she paid a babysitter for the poundage of flesh she has to babysit? Just a thought. Although the world is full of moms who pay more for their dog walkers than the babysitters.

Business owners all over the world are pounding their chests that they have no money to waste and they only pay for performance. This statement is also bullshit. They have already wasted a boatload of money on their own stupidity and underperformance, called “figuring it out”, instead of hiring some help. How come they have been paying themselves – well, pretty handsomely?

Imagine a business owner whose business has been underperforming for years as a result of his own incompetence and stupidity, but now – often in desperation – he hires a consultant and demands instant results. This reminds me of my discussion with the president of a Vancouver-based high-tech firm in 2002. The president wanted to retain me provided I could



guarantee new money in their bank account within three days. He also emphasised that I would have to work all by myself because the guys were extremely busy (doing what?) and didn’t want to be interrupted by minutiae like client acquisition. Shortly after the company went tits up.

Far too many business owners call in external advisors too late. Just imagine. What is the point in hiring the best ship consultants to save your sinking ship after she hit an iceberg and is already 9/10 under water?

My view on contingency payment is that I don’t want to take 100% risk and then be rewarded with a 10% of the rewards, while the business owner is having a great time, knowing that she abdicated all the responsibility to an external helper.

This method doesn’t work in consulting, which is all about collaboration. It is about we create

something amazing here, not you do this and I do that. The synergy lies in “we” not in “you” and “I”.

But for example if you do lead generation for a client and you are in 100% control of the whole lead generation process, then contingency may work out. Nevertheless, you still have to demand a certain “set-up” fee payable in advance. Also note that you don’t get paid for the sales, but you get paid for the sales leads. Converting those leads into clients and customers is not your problem.

The other place when contingency compensation works is joint ventures (JV). However, if

you JV with a company, you are a partner. But an advisor is an advisor, a collaborator but not a partner. The owner of the company must give you a non-executive director position, so you have a say in company matters. Insist that you must be involved in every single decision and you have unlimited rights to inspect the books. Remember, you are not a fully-fledged decision maker but not a passive observer either.

��(TXLW\�RU�6WRFN�3RVLWLRQ�I would avoid this method like the plague. Let’s face it. Some 98% of all businesses fail before their tenth year in business. So, if you enter a stock option agreement, you have only 2% chance of emerging as a winner for being rewarded for your expertise. You don’t need to be a mathematical genius to see that if you have only 2% chance of reaping the rewards, you had better not take 100% risk. It is just not a sexy ratio.

Also, when business owners offer you something in the future, they try to abdicate the risk onto you. At the same time, just take a quick look at the cars they drive and the homes they live in. They don’t want to sell their cars in order to inject some money into their own businesses. They ask you to inject your own money as a “partner”. They are having a great time, while you are hoping and praying that you see some money for your work.

But then you could start the same business as a competitor, push that idiot out of the market and then you keep 100% of the profits. It is a lot better deal.

Especially high-tech leeches have been famous for this before the dot com blast, but even now. They know they can have a great life using some venture money. We must just make sure we don’t descend to the stupidity level of some “investors”, and don’t invest our hard-



earned money and talents in these lunatics’ adventures.

��&RPPLVVLRQV�This is a fixed percentage of profits on specific sales and it sucks.

Imagine that your efforts result in $1 million in monthly sales. Great. You estimate a great commission cheque.

Then comes the business owner and announces that using this $1 million he has bought a new house and a new Ferrari. All in all, after all that hard work the $1 million is gone and you are there with pennies in your pocket because your commission is payable on profits.

And since you have no say in company matters, all you can do is to grit your teeth, tighten your belt ready to face some starvation and look forward to the next month, being terrified of the boss’ next whimsical decision.

Besides all that, this compensation method is highly unethical. It forces you simply to sell more not to improve the client’s condition. It promotes short-sightedness.

Being an advisor means being unbiased and objective. If your compensation is tied to something which you have no control over, then how can you be objective.

Imagine that you go to the store to buy a simple computer for word processing, but the sales clerk is trying to sell you a top-of-the-range all-bells-and-whistles computer. He doesn’t care about what you want or need. He cares about what he needs: More sales to be able to pay the mortgage.

Would you go to a dentist who also a major shareholder in a large mercury mine?

Some people may say they don’t do this. If the road is clear and there are no cops around, we all exceed the speed limit. Do you know how many of your friends have radar detectors in their car to beat the law? Look, we are humans. All in all, when the temptation is there, we can easily fall for it. So, the best bet is to remove the temptation itself.

Do you remember - from the movie The Exorcist - when the young priest, Father Karras was preparing to meet the possessed girl, and Father Merrin, an experienced exorcist, warned him, “Do not listen to anything the demon says. He will mix lies with the truth to confuse you.”

The commission structure is the same. It mixes so many lies into the equation that the good intentions just vanish. Just keep away from commissions.

A mentor of mine used to work for a very large computer company as a salesman. Well, it

bears mentioning that as he exceeded his quota in the first year, this very large computer company cut his territory in half, giving him the worse half, increased his quota and reduced his commission percentage. That is, the company made certain that regardless of how hard this guy worked and how much money he made for the company, he could never earn beyond a certain upper limit.

So, rest assured that as your solution works out better and better, most clients will have a hard time to pay you more and more. Hey, greed is a natural human attribute. And this is not only happening at this very large computer company.



Oh, one more little thing. As a service professional you are supposed and expected to be unbiased. When your compensation is directly attached to the outcome, you will be everything except unbiased, thus you automatically become useless.

It reminds me of the police force in the old communist Hungary, where the cops were paid bonuses based on the fines they collected. Guess what. They ruthlessly fined every warm body with a pulse. And the sad thing was that they made up rules on the fly as they found it most beneficial to themselves. And when the poor victims tried to argue their sides of the story, the cops often just beat the crap out of them. It happened to me a few times too. Then they forced me to sign a document that I had fallen down the stairs. Then they dumped me in a dark alley and that was it. Sweet. I guess Gestapo-style law enforcement didn’t end after the fall of the Nazis. So, just steer clear of commissions.

��%DUWHU�In this set-up you are supposed to exchange services, but there is a problem here.

Let’s say that you are a private tutor and your client is a car mechanic. So you teach his kid and he fixes your car. Is that fair? On the surface it is. But let’s dig a bit deeper.

The mechanic fixes your car, which is a rapidly depreciating liability anyway.

However you are tutoring the mechanic’s daughter, so she can get better grade, she can go to a better university, she can get better recognition as a professional, so she doesn’t have to slog her way through all the drudgery her parents went through. All in all, you offer the mechanic’s greatest asset (her daughter) an opportunity to become all she can be and achieve more then her parents have ever achieved.

Is this barter equal? Not exactly. Who is offering more value in this equation? I vote for the tutor in spite of the fact that teachers earn a tiny fraction of what car mechanics earn. It is partly because more car mechanics are con artists than teachers.

I know people who barter their professional services for computer parts, groceries and other tangible bits and bobs. That is, they commoditise their own services by bringing them down to the level of a bag of potatoes or a computer hard drive.

Can you imagine the lawyer saying, “Replace my computer’s hard drive and in return I review your document for the joint venture that can earn you millions of dollars down the road.” Something is seriously wrong with this picture.

��+RXUO\�)HHV�This is concentrated stupidity of the highest degree. It is basically giving your life away piecemeal. And I don’t care how high your hourly rate is, it is just plain negligent to tie your income to such a finite entity as time. If your value is simply the function of the time you spend in your client’s company, you may just turn into a lapdog, and at least you will be better fed and appreciated.

Since this is the most common fee-setting mistake, we will spend some time on analysing Per Diem problems.



Ten Common Problems of Per Diem Fees

Average North American service professionals invoice about 22 billable hours per week. In a year it is 1,144 hours. Research also shows that in order to invoice 22 hours, service professionals work about 55-65 hours per week. Now multiply 1,144 by your hourly rate, and what you are staring at is the absolute maximum income you can earn. Yes, you can put in more hours, but to do that you have to give up your personal life and just work like a dog day in day out. For some that is a good option. For others, these 13 distinctions between time-based Per Diem fees and value-based fees will be very useful. So, here are some inherent problems with time-based fees:

1. Per Diem fees inflict an artificial upper limit on your earning potential. There are only so many hours you can invoice and only so many hours you can work.

2. Per Diem fees make your income subject to “going” or “competitive” rates. You cannot exceed them, unless if you pump in more time. However, making more money by working harder is not an evidence of high level of creativity, but some kind of donkey strategy: Achieving more by pulling a heavier load. You may want to have a life outside the office too.

3. Charging Per Diem rates present your services as an expense, an impediment and executives want to reduce or even eliminate expenses. When you charge Per Diem rates, you emphasise what you do at a price.

4. Per Diem fees damage your market positioning and create a space for price objections.

5. Per Diem fees encourage simple problem solving, the restoration of the status quo. There is no incentive for innovation and raising the bar, only selling more hours of labour. Problem solvers are a dime a dozen. Innovators are rare and better paid.

6. Per Diem fees put you on the opposite side of the table. Clients want solutions to the problems in a short time, but you want to sell more time to make more money. You have an incentive to be ineffective, unproductive and incompetent. Your client wants to see results, but you want to sell more time units. There is a clear conflict of interest.

7. Per Diem fees force clients to make too many budgetary decisions, and create too many yes/no situations. It is financial Russian roulette. There are always more “No”s in the chamber than “Yes”es.

8. As a Per Diem-paid vendor, you work for clients in superior-subordinate relationships. You perform tasks at a cost in a dictated timeframe. You become an overhead, and smart buyers want to cut overheads. In a way you work like a circus monkey. You complete one

9. Per Diem fees don’t require clients to fully commit to the project, because they know they can cut you off anytime. Also, the majority of Per Diem fees - apart from a small downpayment - are usually paid after completion.

10. If conditions change in the client’s company, it is Per Diem-based hour-peddlers are the first to be kicked out.

11. Per Diem fees lock you into a “commodity trap”. You are just one of the crowd. You can be compared to hundreds of others performing the same tasks. You are just one of the



many sales trainers, team workshop facilitators or webdesigners. What’s the big deal in that?

12. Per Diem rates limit you to “going” or “competitive(ly low)” rates. There are “going

rates” in each industry, and it is hard to increase your fees beyond those rates, even when you become well established.

13. In a Per Diem engagement the client may drag you into “strategic corner-cutting” to finish the project in fewer hours in order to save money on you, but it can also jeopardise your reputation when the project fails due to the client’s stupidity. Remember, whatever happens, you are associated with that project. The old Pepsi ad didn’t fail because of Michael Jackson. It failed because of Pepsi, but Michael will always be associated with that failure.

14. Per Diem fees take your focus away from creating value because you try to calculate whether or not you can sell enough hours to cover your expenses and make a little profit too.

At the time of this writing less than 10% of firms charge for their worth. They also

happen to have surpassed the magic $1 million revenue per employee with amazing client relationships.

So, what are the myths and realities of setting your fees?

What you will learn from this booklet is radically different from what most Professional Service Businesses are doing regarding their fees.

One of Stephen Covey's seven habits is: “Begin with the end in mind”. This is the very motto of this fee-setting concept.

You will learn a step-by-step process of presenting the value of your solution to your buyer, so by the time you either present your fees or let the client put a value on your contribution, it is significantly higher than it was before with per diem or other types of fees.

More service professionals charge time-based fees for their services. This actually works against both professionals and their clients. It places clients and consultants on the opposing sides of the table and their negotiations start off towards different objectives. Consultants try to maximise their prices, whereas clients try to maximise the value they receive. Soon the negotiating parties end up arguing over number of hours, items of deliverables and - very often - how to cut corners. Excellence and value received go down the drain, and the subject is about performing certain tasks at the lowest possible price.

Know the difference between price and value:

Price examples: I charge $125 per hour for my work

Adding up my time, I charge $10,000 for this project

Now let’s look at value: According to what you’ve told me, this computer network problem has been going on for one full week, costing you $12,000 in lost production every day, so thus



far you’ve lost $84,000. What is it worth to you to put an end to this loss?

As the saying goes: Beauty is in the eye of the beholder. Well, so is value. So, on the next few pages we learn how to build up the value of our contribution. So, with this we have arrived to the exhilarating world of…

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The best way of charging for professional services is when your fees are based on perceived value their clients receive. That is not what you deliver, but what they receive. There is a huge difference. You can render value but your clients must interpret, integrate and internalise that value in order to benefit from it.

Also, that rendered value becomes real value when your process knowledge (marketing, sales, teamwork, etc.) is applied in the context of the clients business (grocery shop, car mechanic, law firm, medical clinic, etc.).

As the saying goes, beauty is in the eye of the beholder. Well, so is value. You can’t stipulate value, but you can certainly reveal it better.

And that value is the expected return on investment. Both quantitative, qualitative and personal return on investment as you will see a bit later.

With this arrangement clients can put value on your contribution based on what they want to achieve. Also, this is an investment in clients’ futures: The more clients put in the more they get out, so clients decide what they want to get out and invest accordingly. The problem is that amazingly few clients have the courage to invest in their own businesses.

Business owners have nice cars (invested in the car company’s future), homes (invested in the builder’s future), etc. But when a consultant says: “I can help you to eliminate the $1,000 per day that is, $365,000 per year production loss in your manufacturing process, and it will take about a month and your investment will be $100,000,” responses differ. Smart clients calculate that this problem costs them $365,000 per year, and it is smart to invest a mere $100,000 once and save $365,000 every single year. However, most clients gasp: “You’re crazy. You want $100,000 for only one month of work?”

So, who is really crazy in this picture? The consultant who offers to initiate a $365,000 annual saving for one single $100,000 payment, or the client who continues losing $365,000 every year rather than investing a mere $100,000 in his/her own business to end this loss?

Once I was invited for a project with a high-end social club in Vancouver. The 500-person membership roster was running on 200 members with 300 empty places. The objective was to fill the missing 300 slots with a conservative annual value of $1,000 per slot, thus a total of $300,000. The buyer offered maximum $500 to solve the problem. Yes, I know that some 1.3 million Canadians are clinically speaking “mentally retarded”, and some 19% of the population is mentally deranged (Statistics Canada data), but this $500 offer to resolve a $300,000 per year recurring problem was a bit more than surprising.

The old saying that “I am a professional and this is my price” is long gone. Smart buyers make professionals think about the value they bring to the table. Many buyers have grown sick and



tired of paying for tasks that have no value for them. They know that many Professional Service Firms are grossly mismanaged and accountability is unknown. As long as firms can comfortably hide their internal inefficiencies behind the “This is my price” tactic, they are not going to improve their own operations, thus continuing failing to provide excellent value for clients’ money. They simply demand a price for reports, surveys, analyses and diagnoses. Have you seen the cartoon sketch in which the obese, chain smoker doctor tells his patient to lose weight and stop smoking? That is what many professional service firms do. They so often recommend actions they themselves would never take.

During our business studies, when we reached the fee-setting section of our business “bibles”, we were taught something like this: “Figure out how much you are worth, so you can calculate how much you want to make annually. Divide this amount by 1,000 (there are approximately 1,000 billable hours per year), and that's your hourly rate.”

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As a true solution provider, you spend a lot of time learning new concepts, so you can give more and memorable value to your clients. Therefore you must be compensated for providing this added value. Depending on how fast you can add new value to improve your clients' situations, you should raise your fees accordingly: Often and boldly.

As a service professional, you get hired to deliver one or more of three types of added value:

1. You enable your clients to add more profits than they would be able to add without your support.

2. You enable your clients to add profits sooner than they would be able to add without your support.

3. You enable your clients to add profits with greater certainty than they would be able to add without your support.

You get hired to enable your clients to add more profits, sooner and with more certainty than they would be able to add without your support.

This extra value sets the standards of performance. Professionals get evaluated on their

abilities to team up with buyers to answer the buyer's three basic questions:

1. How much value do you propose to add?

2. How soon do you propose to add it?

3. How certain can I be of all that?

So, the buyer’s basic question is how much value, how soon and how certainly do you propose to add?

With this in mind can you see that it is incorrect that you get compensated only for the elapsed

time? The value of true expertise is measured by its impact on the client, NOT by the time it takes to dispense it.



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You have to make certain that throughout the negotiation process you are talking about outputs or outcomes, not inputs or tasks. What is the difference? Outcomes (Strategy - what to achieve?) focus on the value, the very factor that will determine your fees. Tasks (Tactics – how to achieve the strategy?) are the details, and at the negotiation stage nobody is interested in the details. When you go to the details too early, you risk being perceived as a vendor, someone who can be traded solely on price.

The details are for you and your client to figure out after having started the project, not for the client to worry about during the sales process. Lots of people lose lots of business because they focus on how they get around to doing things (tasks) not what the client gets (results). Inputs are the seller’s terms and outputs are the buyer’s terms. Guess what buyers want to hear? So, speak the same language.

Examples:

Inputs

9�Conducting surveys

Outputs

9�Improving employee morale, thus reducing talent attrition. It also reduces employee stress level, improves productivity, reduces employee absenteeism and improves the corporate image that will attract more great clients.

9�Installing new computer system 9�Improving rate of accessing vital data. That will also increase productivity, client responsiveness, repeat and referral business, which will result in increase in your bottom line.

9�Doing your tax returns 9�Keeping you out of prison, while maximising your cash flow and savings.

9�Servicing salespeople’s cars 9�Enhancing field sales staff’s reliability, thus improving client retention. It means each sales person annually retains more of his/her

clients with a $13,000 lifetime value each.

9�Creating sales education programs 9�Putting new client accounts on the books. Your sales program is projected to improve sales by

$20,000 per salesperson per year. For

50 salespeople this is a projected total

increase of $1,000,000 in the first

5%



year. Growing by a conservative 5%

annually, that is a projected $12.5

million in new sales by year 10.

Note: Every percentage value can be translated into a real dollar figure. If your prospect cannot give you either percentage or concrete dollar figures, s/he is hopeless, that is, something is fundamentally wrong with that company, and you had better run very very fast and very very far.

When you go to the doctor, you must know what hurts: Your nose or your toes.

In the same way, business owners know exactly what hurts them.

So, watch out for deliverables. They are mere inputs. Also, when clients try to push you the number of reports they expect you to write, move on to business results, and leave the report for clients to write. You have been retained to improve clients’ performance NOT writing reports. What clients need is not one more report, but a sense of increased sales, better marketing, shorter buying cycles, better collaboration between teams, etc. And nobody can achieve those results by writing one more report.

Now take a project you have done before, and quantify the impact your contribution made on the client’s bottom line. And look again at the dollar value you were paid. Are you happy with your compensation now that you see what you brought to your client’s table, that is, how much money you have put into his/her piggybank? It is highly unlikely.

This is the reason why it is a good idea to change from time-unit-based billing to value-based billing.

Your fee is supposed to be compensation or reward provided to you in return for perceived value clients receive.

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• Not understanding that perceived value is the basis of all fees, and end up managing their fees downwards instead of managing their perceived value upwards.

• Not understanding how to translate the importance of their advice into long-term - both qualitative and quantitative - improvement in their clients’ condition by meeting/exceeding mutually established project outcomes. As a result, they base their fees on deliverables (number of meetings, and reports), time, materials and other low value commodities.

• Not understanding the importance of creating relationships with economic buyers, rather than with low-level managers, purchasing agents or human resources managers.

• Not having the courage to believe in themselves, so they reduce their fees to the level that is

equal to their self-esteem. On the final analysis, consultants are single-handedly

responsible for charging competitive(ly low) fees for their services.



Time-based billing is seriously limiting your earning potential, and creates a chain of overworked and underpaid professionals.

As time goes by, you get better and better at your profession. That means you can perform pretty complex tasks more and more effectively, that is, faster. Using this time-based paradigm, ten years from now you will earn less than you are earning now. Yes, you can raise your fees a little bit every year that will keep pace with inflation but that is not much.

You can’t charge a certain rate because you have 20 years of experience and 6.5 Masters Degrees and 3.14 Ph.D.s. Clients do not care. Just look at this example: Walk into any bookstore in America, head for the psychology section, and you see the books of the two gurus on marriage and relationships: John Gottman, Ph.D. (University of Illinois, Licensed Psychologist), and John Gray, Ph.D. (by correspondence, Columbia Pacific University, an unaccredited institution)

Gottman, a professor of psychology at the University of Washington, virtually invented the science of observing how people behave within relationships. From groans and grimaces we scarcely notice, Gottman can predict the likelihood of marital bliss with almost frightening accuracy. He is a prolific writer, but most of his work appears in scholarly journals. A few years ago he wrote a book for non-professionals, entitled Why Marriages Succeed or Fail (55,000 copies sold). It sells respectably.

But Gottman’s royalty checks pale compared to those of John Gray, who at last count had sold 10 million copies of Men Are from Mars, Women Are from Venus and its four sequels. Of course, we have not even talked about Gray’s audio tapes and videos. Or his one-man show on Broadway earlier this year. Or the Celebrity Line cruises. Or the CD-ROMs. Or the Seminars. Or a recent prime-time television special. Not to mention the first franchise deal to hit psychotherapy: For a few thousand dollars, plus a yearly renewal fee, you too can buy the right to call your therapy practice a “Mars & Venus Counseling Center.” Lack the appropriate professional credentials? So does Gray, who is not licensed to practice psychology, who never written and/or presented a paper and never had a traditional counselling client, but is allowed to work as a “spiritual counsellor” in California because of his nine-year stint as a monk.

What is the difference here?

Gottman offers psychology in an academic fashion.

Gray uses his real-life experience to improve his readers’ lives. People can make investments in their own futures by using Gray’s practical concepts.

Both Johns use different approaches. But Gray may make a larger impact on people’s lives, simply because he can touch more lives.

Clients only care if you can bring value to their lives, that is, you can solve their problems and assist them to create bigger and better futures. And that goes well beyond credentials. The humble and degreeless Mother Teresa made more impact on humanity than any highly skilled doctors with truckloads of degrees, diplomas and fiendish board certifications.

Here you learn a simple process to establish your fees based on the dollar value your intervention adds your client’s bottom line. The essence of the process is that you are the only unqualified person who cannot put a value on your services. You can present a price but that is



all. Just as beauty is in the eye of the beholder, value is in the eye of the prospect. However, you can learn to present the value you bring to your client’s table. And presentation starts at the first discussion with potential clients. So, let’s see at this vital process…

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6WHS��4XDOLI\LQJ�WKH�3URVSHFW�What: This step establishes if the person you are talking to is really seeking improvement, or just tyre-kicking around.

Why: You want to make certain that this person, even if not an economic buyer, can have influence on an economic buyer, which can result in a project. In this section you also determine if this project is right for your growth in terms of size, industry, type of intervention, magnitude of compensation.

How: Ask the kind of questions that include lots of hints about collaboration, outcomes and current issues.

Sample questions:

1. What made you decide to contact me?

2. What lead you to the thought that I may be a good candidate for your project?

3. Have you tried to solve this issue before?

4. How do you decide to select help?

5. What sort of resources do you have for this project?

6. What kind of time frame do you have in mind?

7. Who is driving this initiative?

8. At what stage are you with the decision? Ready to move or still shopping around?

9. On a scale of 1-10, how mission-critical is this project for your company?

10. Is there a formal proposal process in place for this project?

The nub: These questions help you to define how important the project is and whether or not you have to shuffle your schedule to accommodate the follow-up work for this opportunity.

6WHS��,GHQWLI\LQJ�WKH�(FRQRPLF�%X\HU�What: This step establishes whether or not you talk to the right person. Far too many professionals waste far too much time meeting people who cannot make decisions and end up in a situations like “send me a proposal and I’ll show it to my boss.” Be very careful with overimportant managers whose budgetary authority is limited to purchasing one stale muffin that is on sale from the previous day. Titles can also be misleading. Many senior executives cannot sign a $100 cheque without another signature.

Why: You want to make sure that you are talking to the right person, that is, the person who



has the authority to start projects and sign cheques.

How: Be upfront and place some provocative questions about budgets and investments for this project. Make sure that your prospects understand that there is going to be some investments here. Real buyers understand this. The problem is with middle managers.

Sample questions

1. Whose idea was this change initiative?

2. Who has the power to accept and commence the project?

3. Who will claim responsibility for the results?

4. Whose provides the budget for this change initiative?

5. Whose support will people need?

6. Who has control over the relevant human and material resources for this project?

7. Under whose sponsorship will this project be managed?

8. Who else has to approve commencement?

9. Who selects proposals?

10. Can we shake hands and sort out the downpayment today, and begin tomorrow? (This is crucial)

The nub: For each project there is one economic buyer. And make sure you avoid committees. They just argue, but almost never make decisions.

6WHS��$VNLQJ�$ERXW�WKH�3UREOHP�What: Discover what kind of problems and difficulties your prospect faces. If you have the right questions, they will be more than happy to tell you what is bothering them and keeping them awake at night.

Why: You can only provide a solution if you know the problem. Make sure you ask enough questions in this area, so you can build the rest of your presentation on it. The more familiar you are with the problem, the more customised the solution can be.

How: Check everything your expertise covers. In this complex world everything interacts with everything, that is, your solution must be supported by many pillars.

When you discover buyers’ problems, it means you have discovered their Indirect Needs. Indirect needs are just complaints, but do not mean that buyers are ready to take action on it. Buyers, however, take action on Direct Needs. They are direct because they come directly from the buyer. Indirect needs are assumptions of Sellers upon responding to their Buyers complaints.

Indirect Needs:

9�It's hard to...

Direct Needs:

9�I want...



9�I'm dissatisfied with ...

9�I've got difficulties ...

9�I need...

9�I must have...

Sample questions

1. Which part of the system breaks down most often?

2. What does it cost you (money and time) to live with this problem?

3. How many people stand idle, and how long when the network crashes?

4. How much time are you losing annually by personally dealing with such minor issues? What does that cost you?

5. How does this problem affect your personal life (family, friends, and social life) right now?

The nub: The key is to uncover direct needs. “It’s hard to enter new data into our accounting system” and “We must have a new accounting system installed up and running within 45 days” are tow different problems.

6WHS��$VNLQJ�$ERXW�/RQJ�7HUP�,PSOLFDWLRQV�What: Discovering the problem itself is not enough. For example: I can live with a mild discomfort in my shoulder. But if you tell me that the long-term implication of that mild pain is that my arm falls out of its socket and at the age of 40 I lose my $170,000 per year job as a flying instructor for commercial pilots, then I can lose my home and everything I have worked for, I will take you more seriously. This is not about creating fear. This is about creating reality.

Why: You can repeat the problem forever, but unless you can make prospects see what happens to them 3-5-10 years down the road unless they get the problem solved, no action will be taken. Also, without clear answers to long-term implications many buyers wouldn’t see the real value of your solution.

How: Take the problems they give you to the future.

Sample questions

1. If this high customer attrition continues, how can it undermine your competitive edge?

2. How can skyrocketing staff turnover impact your training costs?

3. How does an out-of-date computer system influence your customer service people’s responsiveness?

The nub: The problem is just one thing. It is now. And there is no money now. There is money only in the future, so we have to look into the future and see if the investment can be justified based on the magnitude of the long-term implication.



6WHS��$VNLQJ�DERXW�2XWFRPH�%DVHG�2EMHFWLYHV�What: This section establishes the strategies of the project, that is, what exactly to achieve as a result of the project. This section outlines the specific business outcomes.

Why: The key sponsors of the project must have a clear picture of what exactly they want to achieve. Re-read. What to achieve. Increasing sales by 20% in six months and running some sales workshops or hiring a motivational speaker are totally different. Discuss outcomes not action steps.

How: Objectives must be fairly limited, otherwise they become pie in the sky wishes. Ask around two-three objectives. Make sure that the improvement you define is more directional and less quantitative. Clients may not be able to achieve 20% improvement in sales in six months, but if you help them to move in the right direction, then the numbers follow. Most companies have directional problems, that is, they try to scratch their left ears with their right hands, which is, while being doable, is inefficient.

Tree Types of Objectives to Consider

This is an important point. Service professionals only focus on solving the client’s immediate problem, while ignoring the real valuable aspects the opportunity offers. Let’s see what they are. However, when you solve the immediate need, it serves the client at a higher level anyway, so you had better include them in your proposal as added value.

1) Business objectives: This is about solving an existing problem clients know about.

Client: ³2XU�VDOHV�DUH�GRZQ´�You at the client interview: ³6R��ZKDW�NLQG�RI�LPSURYHPHQW�DUH�\RX�VHHNLQJ�DQG�LQ�ZKDW�DUHDV"´�You: ³2XU�ILUVW�REMHFWLYH�LV�WR�LQFUHDVH�VDOHV�E\��ZLWKLQ�VL[�PRQWKV�´�

Clients know that sales are low, so they want to solve it by increasing sales in the next six months. But this is really only the tip of the iceberg. Sales are low for a reason and what clients think the problem is, is merely a symptom. When you buy the most beautiful goldfish at the pet store, take it home and leave it on the kitchen counter overnight, that fish won’t be as beautiful as before. Besides, you stink up the whole house pretty badly.

2) Skill building objectives: This is about teaching clients’ people how to keep the problem solved and how to solve it the next time without hiring a consultant. Yes, it is easier to give the client a ready-made off-the-shelf solution, but it is more valuable to share the skills with them too.

You at the client interview: ³6R��ZKDW�GR�\RX�ZDQW�WR�OHDUQ��VR�QH[W�WLPH�\RXU�SHRSOH�FDQ�VROYH�WKH�SUREOHP�IRU�WKHPVHOYHV�ZLWKRXW�D�FRQVXOWDQW"´ You: ³2XU�VHFRQG�REMHFWLYH�LV�WR�WHDFK�\RXU�SHRSOH�KRZ�WR�GR�WKLV�ZLWKRXW�XV�´�

So, remaining with the goldfish example, I have to teach you how to take care of the fish in your home without constantly relying on the local pet expert.

3) Organisation development objectives: This is a biggie, but so often missed completely.



What is the impact of your intervention on clients’ “big picture”?

You at the client interview: ³6R��ZKDW�NLQG�RI�LPSURYHPHQW�DUH�\RX�VHHNLQJ�LQ�WKH�ZD\�\RXU�SHRSOH�DUH�ZRUNLQJ�WRJHWKHU�DQG�KRZ�ZRXOG�WKH\�EHFRPH�PRUH�SURGXFWLYH�DV�D�UHVXOW�RI�WKLV�SURMHFW"´�You: ³2XU�WKLUG�REMHFWLYH�LV�WR�LPSURYH�WKH�UHWHQWLRQ�RI�WRS�WLHU�VDOHV�WDOHQW�ZKLFK�ZLOO�UHGXFH�FXVWRPHU�DWWULWLRQ��LQFUHDVHV�WKH�FRPSDQ\¶V�LPDJH�DQG�UHSXWDWLRQ��,W�DOVR�LQFUHDVHV�UHIHUUDO�DQG�UHSHDW�EXVLQHVV��GUDVWLFDOO\�UHGXFLQJ�PDUNHWLQJ�DQG�DGYHUWLVLQJ�FRVWV��,W�FUHDWHV�ORZHU�VWUHVV�DPRQJ�DOO�VWDII�DQG�LQFUHDVH�RYHUDOO�SURGXFWLYLW\�´�

So, remaining with the goldfish example again, having a nice fish tank in your home, you create a more peaceful environment (yes, the water does that), in which your family can operate in a more harmonious manner and better supporting each other. As result your kids’ grades go up and your and your spouse’s overall business performance in your home-based business will increase.

Sample questions

1. Ideally, what kind of change do you want to achieve?

2. What results are you trying to accomplish?

3. How would the overall situation at your company improve?

4. Why is this change initiative important to you?

5. How would the success of this project change operations?

6. What kind of return are you looking for?

7. How would this change initiative impact reputation, image, credibility and morale?

8. What do you expect this project eliminate?

9. How mush competitive advantage successful completion would give your company?

10. How would this project improve your value proposition to your target market?

The nub: The problem is that most service professionals talk about tasks and activities. That is a mistake. Keep talking about the outcomes.

6WHS��(VWDEOLVKLQJ�0HWULFV�IRU�WKH�3URMHFW�What: These are the progress indicators. They are both quantitative, qualitative benefits and personal wins.

Why: This is an objective way of defining whether or not the intervention is achieving the desired results and what you have to do with it.

How: Ask about both quantitative and qualitative improvement and personal wins.

Quantitative Improvement

• Increased profits

• Increased sales

Qualitative Improvement

• Improved corporate image

• Better teamwork



• Reduced client attrition

• Reduced talent turnover

• Higher response rate to advertising

• Clients better served

• Reduced stress and frustration

• Better sense of job satisfaction

Sample questions

1. How do you plan to measure progress?

2. What indicators will you use to assess our progress?

3. Do you have some progress indicators in place?

4. How do we know we are making progress?

5. How will you be able to demonstrate progress?

The nub: Again, keep the measures directional if you can. Also include qualitative indicators, like reduced stress, better teamwork, improved sense of corporate direction.

I have no doubt many business experts have told you over the years that unless you can measure it, just ignore it. I say, ignore it at your own peril.

Why did you marry your spouse? Why are you in a certain relationship? Why do you have children?

Is it for quantitative reasons? I doubt it.

Can you imagine saying: One day my kid will be a successful lawyer, a great doctor or even a prime minister, and they can repay me for what I have done for them.

Quantitative improvements talk to the head. Qualitative improvements talk to the heart. And if you have even the tiniest shred of sales skills, you undoubtedly know that heads do not make decisions. Hearts do.

If we were in the military, and I were to teach you how to shoot, I would tell you to go for the head. But this is not a shooting lesson, so go for the heart.

There is one more reason for that. Every business problem is a personal problem first. Quantitative issues are usually the symptoms caused by qualitative issues. Thus external (quantitative) changes are driven by internal (qualitative) changes, which are driven by perspectives, thinking patterns, attitudes, values, beliefs, emotional competence and behaviour

If you have a sales department with low self-esteem people who have family issues, there is no sales training and sales specialist in the whole bloody universe that will help them to sell better. First you must eliminate the personal issues, so people can start actually believing in themselves.

Every quantitative improvement is an effect caused by some qualitative improvement.

Benefits vs. Wins

Here we must distinguish between results and wins. Companies get results but people win. Without personal wins benefits are useless. This is where one of the many futilities of traditional selling lies.



People win when they perceive a personal self-interest in what they invest in, and it is a significant psychological part of the successful sales process. Winning makes people feel enrichment and exhilaration, and is directly related to their personal lives.

Linking the two will give you Win-Results.

Result is the impact your intervention makes on your client’s business processes. Results can be both objective (higher ROI, lower overheads, etc) and subjective (better corporate image, better teamwork, etc.), tangible or intangible, but they serve the client’s organisation’s needs and wants. They may also affect some people within the organisation, but not necessarily, for the main purpose is the company’s improvements at a corporate level.

Win is the impact on the client’s personal through your intervention. Wins can be both objective (more family time, more vacation days, etc) and subjective (better appetite, better sense of purpose, being regarded as a leader, etc.) but they are highly personal. Wins have noting to do with the client’s company.

Win-Result is an - objective and/or subjective – business result, which also brings specific personal wins to your client. From the standpoint of successfully selling professional services, this is the only outcome worth delivering.

As you are discussing objectives with your buyer, you will get all the desired results but do not stop there. Move on and discover the wins the client will get upon delivering specific business results. Results are the preconditions for wins, but wins are the end products.

Why is this whole win and result thing so important?

Your clients do not choose to buy your services per se. They choose you as a long-term partner they can trust. They also take a risk by choosing you. And for this trust it is mandatory to reveal all the touchy-feely – woo-woo – stuff. Have you ever met people whose life purposes are to create double-digit growth for their companies? More likely they want to create better lives for their children, to ensure enjoyable retirement for their parents, etc. The big dreams are always personal and highly emotional.

Discuss wins with the client only privately, never in front of others.

Some typical wins

• Gaining control over others (nasty but true)

• Increasing self-esteem

• Becoming more productive

• Gaining more admiration

• Gaining people’s respect

• Improving skill development

• Gaining more responsibility

• Remaining in power

• Gaining recognition

• Making more contribution in society

• Gaining credibility

• Improving social status

• Becoming better parents

• Becoming instrumental to positive change

• Being perceived as a problem solver

• Being perceived as a top performer

• Being recognised as an innovator



• Gaining more freedom, personal and family time

• Being fun to be around

6WHS��'LVFXVVLQJ�3DLQV�RI�&KDQJH�What: Every decision-maker knows that before any kind of improvement happens, there is pain. Any change process involves pain.

Why: Without discussing the pains of change, most buyers expect (smart ones don’t) plain sailing through the project. The problem is if you don’t clarify this, when the shit hits the fan for various reason, you can get blamed for everything, and that is a miserable way of ending the day.

How: Ask questions relating to pains you have seen in past projects and draw out your clients to tell you about their past experiences. Remember, inherently people don’t like change. They are scared of the ambiguity between the current condition and the new condition.

Sample questions

1. How do you expect your people to handle setbacks?

2. What if the whole project bombs?

3. How would you deal with people who resist or sabotage change?

4. What if technology fails to handle this change initiative?

5. What if you have to hire new people during the project?

6. What if you have to deal with underperformers?

The nub: Just imagine a person who is training for a 10km run for the first time. Nobody says, that “Gee, I’ve always run only 1km, let’s do 10km now”. It takes preparation, and before the person completes her first 10km run, she goes through an awful lot of pain of change. And make sure you are honest here.

This is how one of my heroes, General Patton handled the pain of change. First he gave the honest truth: “You are not all going to die. Only two percent of you right here today would die in a major battle.”

And then he gave them some comforting: “Death must not be feared. Death, in time, comes to all men. Yes, every man is scared in his first battle. If he says he’s not, he’s a liar. Some men are cowards but they fight the same as the brave men or they get the hell slammed out of them watching men fight who are just as scared as they are. The real hero is the man who fights even though he is scared. Some men get over their fright in a minute under fire. For some, it takes an hour. For some, it takes days. But a real man will never let his fear of death overpower his honor, his sense of duty to his country, and his innate manhood. Battle is the most magnificent competition in which a human being can indulge. It brings out all that is best and it removes all that is base.”

For the rest of the speech visit http://www.di-squad.com/toolshed/patton_speech.html



6WHS��(VWDEOLVKLQJ�9DOXH�What: This section establishes the exact expected value your intervention brings to the table. Many people have told me, that it is impossible to predict the value of the outcome. Is it? I disagree. You do it every time you do financial projections for your business. This is the same thing, except that you, the professional will assist your clients to achieve the projected results sooner and with more certainty than they would be able to achieve without your support.

Why: Without this section you have no monetary basis of comparison for your fees, except retarded measuring sticks like number of hours worked. But again, you are not a manual labourer shovelling concrete on a construction site.

How: Stipulate each piece of value in bulletin points. Put a dollar value against everything you can. This section contains both tangible and intangible values. Intangible values too, such as lower stress, better posture, etc., better life balance contribute to the bottom line.

Sample questions

7. What does this sky-high customer attrition is costing you on an annual basis?

8. How big of a financial dent does it make on your competitive edge?

9. What is the staff turnover costing you?

10. What will this change initiative mean for your company?

11. How will these results impact the bottom line?

12. What magnitude of are the annualised savings are we looking at?

The nub: Ignore the first year’s improvement. That is when the momentum is being accumulated for further improvement. Improvement continues after you are gone. Again, your work is more directional then numerical. For instance, if my accountant tells me I have to call my business meals “promotion” to make them 100% tax deductible, I save for the rest of my life. He doesn’t have to tell me every year.

6WHS��&KHFNLQJ�&OLHQW·V�5HDGLQHVV�What: To establish whether or not your client is ready for the change you propose.

Why: Because the client’s readiness nothing can happen. Clients’ organisations may be ready for the project, but clients may not be. You have to make sure that the client is willing to make a commitment to putting in time, effort and money to realise the above-mentioned improvements. Without this section the whole project can turn into a horror story. Your client loves you and your solution, but for various reasons s/he is not ready to move forward. Find out why.

How: Through some pointed questions.

Sample questions

1. Do you fully understand the benefits to be gained from this initiative?

2. Do you know what impact will be made on your business area as a result of this project?



3. Do you understand how your job is impacted as a result of the project?

4. Do you understand how the success of this project will affect your clients?

5. Do you know where you stand as this change initiative is implemented?

6. Are you truly committed to seeing this project to succeed?

7. How will this change impact your job satisfaction?

8. Can you see other opportunities grow out of this initiative?

The nub: As an advisor you assist your clients to develop innovative solutions to their problems, replace less effective processes with more effective ones, accelerate the pace of progress at their organisations, but there is one snag: The implementation and ongoing usage of your solution is out of your control. It depends on the client’s readiness. But readiness is something most advisors never fully check in their clients. They go through the problem and needs analysis and take it for granted that the client if fully committed to the projected outcomes. They provide the solution but since many clients don’t use them, the desired results just don’t occur. Then some clients get pissed off and blame their advisors.

This problem comes from the fact that most advisors present tasks and processes that can be followed intellectually; not end results and experiences, which can be emotionally engaged in. And we all know that emotions make commitments and buying decisions. In this section we go through a short readiness assessment. You can actually embed this process in your client interviewing process.

6WHS��6RPH�3UHYHQWLYH�0HDVXUHV�What: This section deals with some unplanned, unexpected issues that may come up during your discussions.

Why: Even the best-laid plans have flaws. So, here we deal with them.

How: Ask questions that flash out even the last shreds of misunderstanding.

Sample questions

1. What have we missed that could get in the way?

2. Let’s not repeat history. What has kidnapped your past projects similar to this one?

3. Anything else I should have asked but I didn’t?

4. What else do you need from me?

5. What changes do you foresee in your company in the near future?

6. Are you working on other change initiatives that require your attention or decisions?

The nub: Among other things you have to make sure and communicate to your buyers that you get paid for playing and nothing can come between events and your receiving your cheque. Make it clear that your payment is not contingent on percentage of improvements and you are not working as an outsourced labourer, but as a strategic advisor.



6WHS��(VWDEOLVKLQJ�(PRWLRQDO�3ULRULWLHV�What: Here you tap into emotions that help with the decision making process. It is not about manipulating decisions. Just having emotions to make a go/no go decision. Remember, “No” is fine. That is a clear answer. The problem is with “maybe”, “let me think about it”, etc.

Why: People make decisions on emotions and justify the decision with logic.

How: Ask questions that flash out even the last shreds of misunderstanding.

Sample questions

1. What this change initiative mean to you personally?

2. How were you selected to lead this change process?

3. How will the success of this project reflect on you and your team?

4. How will your clients regard you after succeeding in this project?

5. How will you be evaluated on this project?

6. How can this change effort impact your reputation?

7. How can this project impact your career?

8. On a scale of 1 to 10, how important is the successful completion of this project to you in the context of professional fulfilment?

The nub: By this time you must have built enough confidence in prospects that they are willing to open up emotionally to. So, here are some questions that will assist you to emotionally connect the buyer with the project, so decisions can be made.

/LQNLQJ�<RXU�4XHVWLRQV�When you learn how to link your questions, you can eliminate the “interrogation” aspect of your meeting.

1. Link your questions to the Buyer’s previous answer.

2. Link your questions to personal observations.

3. Link your questions to stories, testimonials

What you have just done is written a proposal in front of the prospect. So now you can ask again: "If you and I agree with what you have just seen, can we shake hands today, sort out

the downpayment now and commence the project tomorrow?” Almost every serious buyer will say “yes”.

Now all you have to do and write it all up.

For more on writing a value-based proposal see “How to Master the Proposal Process” at http://www.di-squad.com/resources/proposal_writing_process.html



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Now you have all the quantitative, qualitative and personal impact your help and support is expected to bring to the table. You can add it all up and then you can ask buyers what they are willing to invest to achieve those outcomes. You see, they don’t pay you per se. They invest in their own futures. Big difference.

In this section let us compare traditional time-based Per Diem fees with value-based fees, and see which one you like better.

And make sure stipulate all three types of value, although here we focus on financial value.

• Qualitative benefits (Higher sales, lower cost of acquiring clients, etc.)

• Qualitative benefits (Better teamwork, less stress, higher morale, etc.)

• Personal wins - Impact of the buyer’s personal life (better sense of purpose, living out the dream, etc.)

:HE�'HVLJQ�$VVLJQPHQW�Your firm is hired to design an e-commerce ready web site.

Time-based scenario

You have done this many time before, so you know how many hours it will take, give or take a few hours here and there.

Your estimate and your proposal to your client looks something like this:

Client interviewing time to get all pertinent information: 5 hours @ $100* = $500

Putting the site together: 50 hours @ $100 = $5000

Testing e-commerce back-end: 30 hours @ $100 = $3000

Administrative support: 30 hours @ $30 = $900

Total: $9,100

* Only very few people can charge $100 per hour for a lukewarm commodity like web design.

Value-based scenario

1. As a result of not having an e-commerce ready web site, the client has to maintain a massive 10-person sales force in furiously active prospecting and selling mode. After activating the web site, the client plans to phase out the live sales force and do all selling and prospecting on-

line. Right now, including salaries and bonuses, it costs $800,000 per year to maintain the existing sales force.

2. Reduced sales force will reduce management’s time spent on sales staff appraisals and taking care of sales people’s problems and conflicts with the sales manager. This wasted

management time is estimated in a conservative performance loss of $85,000 per year.

3. The ten salespeople’s annual ongoing training and expenses are about $93,000 per year.



With the web site, this expense will be drastically reduced or even saved altogether.

4. Further reducing the cost of acquiring new clients is by saving the “schmoozing expenses”

of the sales people, which is right now about $47,000 per year.

5. Creating exposure to the international marketplace, which would be virtually impossible and cost-prohibitive with life sales people only.

6. International exposure will improve brand awareness and recognition, contributing to the building of the international side of the company.

This is a problem you address with a total value of $1,025,000 plus morale, reputation, image and brand factors.

So, your basic option for this project is about 5% of the value, that is, $51,200, offering about

1,900% return on investment.

Other Values

• Global exposure

• Reduced cost of acquiring clients

• Reduced cost of promoting services

• Gaining broader reputation

,7�&RQVXOWLQJ�(QJDJHPHQW�Your firm is called to upgrade the computer network.

Time-Based Scenario

You have obtained all the relevant information from the buyer, so now you can calculate your time commitment for the project.

Your estimate and proposal to the clients looks something like this:

Client interviewing time to get all pertinent information: 5 hours @ $150* = $750

Purchasing new system with 10% mark-up** = $10,000

Building new system: 50 hours @ $150 = $7,500

Testing new system: 30 hours @ $150 = $4,500

Administrative support: 30 hours @ $30 = $900

Total: $23,650

* Only very few people can charge $150 per hour for a IT consulting.

** The system costs $90,000. You mark it up and resell it for $100,000, and keep $10,000.

Value-Based Scenario

1. Due to reboots and freeze-ups, all computer users lose about 30 minutes, that is, 1/16th of a



work day, of computer use time every day. On an annual basis, this is about 125 hours per

user, and 15,625 hours for all 125 computer users. The average hourly pay of these computer

users is about $22 per hour, totalling to an annual loss of $343,750.

2. The new system will improve client responsiveness reducing current level of client attrition,

which is estimated to costs $117,000 in lost opportunity money, plus $57,600 annual cost to replace lost clients.

3. Computer users are frustrated and stressed out using inadequate equipment, causing higher level of absenteeism, increased cases of medical leave and much higher than industry average talent attrition and new staff training. The estimated total cost of these three factors is around

$134,400 per year.

4. Some $173,000 worth of senior management’s time is wasted on micromanaging and calming down frustrated employees and mid-level managers.

5. Inadequate responsiveness causes high level of client attrition at an estimated annual loss of

23 clients per year. The combined lifetime value of the 23 clients is estimated to be some

$391,000.

6. Damage to reputation, morale and corporate image, leading to loss of market leadership.

This is a problem you address with a total value of $1,307,750 plus morale, reputation, image and brand factors.

So, your basic option for this project is about 5% of the stipulated value, that is, $65,300,

offering a projected 1,900% return on investment.

Besides the dough you receive, there are other important differences between the two fee-setting methods.

In the value-based scenario buyers learn that their return is proportional to their investments. Just like in a pension plan. What you put in is what you get out.

In the time-based scenario if you work quickly and efficiently, you are penalising yourself, which is dumb. If you work slowly and inefficiently, you are penalising your client, which is unethical. Which one sounds like a good business philosophy to you? Being dumb or being unethical?

Also, in the time-based scenario you sell tasks, activities and deliverables for a – usually competitive(ly low) – price.

In the value-based scenario you provide value at a fair investment. The value is the function of the client’s investment.

Sadly, this second group is drastically larger than the former, value-based group. I hope, upon reading this booklet, you will do something about moving into the first group.

There are some important points here

So, why should you have this type of conversation with your prospects? Well, to start, here are four key points about purchasing professional services that you can leverage, once your prospects understand the value of your intervention:



1. Most decision makers authorise projects if they can perceive a great return on the investment, and if the return can be sustained after the consultant is gone.

2. Very few decision makers will plunk down their hard-earned money without checking the return on investment. Remember, economic buyers (people with authority to sign cheques that clear the bank)

3. Economic buyers cannot perform this ROI analysis without your help because most often what they believe the problem is, is simply a symptom, and, as an objective outsider, you are needed to pull their noses off the grindstone and question them to find the real causes.

4. When meeting with economic buyers, most of your competitors are focused on their own needs – “How can I close this deal?” or “How much shall I charge to cover my arse?” They are busy pontificating about their credentials and the history of their companies. But you just keep asking questions, and make them talk more. So, you forget about your own needs and laser-focus on the prospect’s issues. If you focus on the scoreboard (your fees), then how can you focus on catching the ball (understanding the prospect’s issues and challenges)?

So, as a top professional, you must focus on your prospect’s primary goal, which is to determine:

• Can we achieve the projected improvements? – Outcomes, not tasks or deliverables

• How can we measure the progress? – Both quantitative and qualitative improvement

• What is the magnitude of improvement of meeting this objective? – You put a dollar value against the whole project

• Is this improvement is sustainable and repeatable, and how long can the prospect sustain it after your disengagement?

Walk your prospect through this analysis, and expand the dollar value of the increase (money and/or time earned) or decrease (money and/or time saved) over a 12-month period. Then in your proposal, you can have three or four different options to achieve these projected objectives.

Warning: If you notice that your fee for option two is less than the fee for option one, you should not be working for the prospect anyway, because you are not adding enough value, so there is no point in hiring you anyway.

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Some people may be sceptical about this method of setting fees. It is certainly a bit more complex than spitting out a price, like “my rate is $100 per hour.” You may be one of them, saying: “Hey Tom, if this were so good, everyone would be doing it, so I reckon it is useless.

Earl Nightingale once said, “The majority is always wrong.”

Creativity expert Alan Ashley Pitt put it this way, “The man who follows the crowd will usually get no further than the crowd. The man who walks alone is likely to find himself in places no one has ever been before.”



I would also add that if you run with the herd, sooner or later you get trampled down and then shit on. So, for your health’s, wealth’s and smell’s sake you’d better run in the opposite direction.

When measured on profits and cashflow, the professional service firm is the least lucrative business structure. One reason for that is the hourly rates and other retarded fee-setting methods. When you master value-based fees you can overcome many of the inherent flaws of running a professional service business.

Last but not least, I would like to express my gratitude to the people I have learnt many aspects of consulting from.

Alan Weiss of Summit Consulting Group

Gill E. Wagner of Honest Selling

Robert Middleton of Action Plan Marketing

The splendiferous dudes and dudettes on the Infoguru Marketing Discussion Forum

Enjoy and go MAD! (Make A Difference)

Tom “Bald Dog” Varjan, Organisational Provocateur – Dynamic Innovations Squad

PS: I frequently update my publications, and you are entitled to free updates. Just save the Thank You page you were directed after payment and from there you can always reach the most up-to-date version of this booklet.

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