Defining value-based pricing

- When I started out as a Big firm consultant, hmm, over 25 years ago, McKinsey, Booz Allen, Bain, and the rest charged hourly or by the day, and based on your title: associate, principle, partner. So someone with a deep knowledge of a particular process or industry might bill you in the same way as someone with the same years of experience but in some area of knowledge. And if it takes one of them a day to solve the problem, because they've seen it before and immediately know just what to do, should they get paid less than someone who takes months to reach the same conclusion? Should you really have to pay more to wait longer for results? When you think about it, it's kind of a crazy way to price, especially for more experienced subject matter experts. Instead of paying for inputs, like the amount of time spent or number of interviews conducted, shouldn't clients be paying for results: increased revenues, lower costs, happier employees? That's why, in the whirls of consulting, everyone is trying to figure out value-based fees. Value-based fees are prices based on the value created by the consultant. Instead of charging for time, like hours or days, or for deliverables, like speeches or reports, you charge for helping your client achieve their objectives. It takes longer to determine value-based fees because you have to really understand what the client is trying to achieve and how you can best help them get further faster and with less pain. Then you have to determine what portion you get of that value you've helped create and gain agreement from the prospective client that the amount you quote would be a small fraction of what you're proposing to do. Even though it takes longer and adds complexity, don't let it scare you. The best consultants love value-based fees, because they reward you for working smarter, not just harder. There are more consultants than ever before, and, to many organizations, consulting has become a commodity. Many companies have standard consultant agreements and procurement specialists whose entire job is to treat consulting units like any other widget purchased. But an hour of you is different than an hour of me, and an hour of me teaching you how to code is worth way less than an hour of me developing strategy. After all, I'm not an engineer. If you are courageous enough to move to value-based pricing and can figure out how to have conversations you need to determine the value of your client's objectives, you can make more money. You will also have a much better chance of making your client really happy, because you're solving their problem and helping them achieve their goals.