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The reason so many have such a hard time...

The reason so many have such a hard time accepting value-based fees is because it's really about value-based positioning. That's all about being strategic. It's not just about providing fixed fee proposals nor about inflating fixed fee arrangements to all hell to cover every possible contingency.

Remember, most IT consultants lack any particular strategy or positioning. They lack any concept of targeting specific types of clients (who are more likely to value what they do better) and building compelling prospect-focused messages.

But getting strategic is a delicate subject. Not only does it take work and consist of part science and part art but it also means facing sore spots like how most independent IT professionals (and small business owners alike for that matter) live in constant fear. They do not know where their next sale is going to come from because they have no coherent marketing systems. This makes it hard to say "no" to _any_ business that comes along and concern that each prospect must be worked as hard as possible to say "yes".

Which brings things often around to price. After all, if you've no strategy or positioning it's sort of hard to charge anything but middle-of-the-road fees because you have, inherently, accepted the default positioning of the marketplace: an inter-changeable commodity. (And don't give me all that hoopla about have more technical competence, experience or intelligence than your competition; your marketplace has no way of knowing that for sure unless you've got to tremendous strategic lengths to position yourself well in that regard). This leads to setting rates too low, promising too much without compensation, painful discounting, etc.

Look, there are worse things in the world than not getting a gig because you are perceived as too expensive. It also doesn't always mean it wasn't a great proposal. Perhaps we did a poor job communicating our unique value. Perhaps the client wasn't serious. Maybe we weren't actually talking to an economic buyer but a gatekeeper or middle manager who can't actually sign checks. Etc.

But maybe, just maybe, the project did not make sense in the context of the business objectives of the client. If we'd done things better at the start (making sure we were talking to an economic buyer and that we were talking about the engagement objectives, measures of success, and value strictly in business terms) we be better off.

But that takes us back to facing underlying issues that many of us are afraid (or perceive ourselves as being too busy) too address. Well, there's only so much complaining one can do. You either settle for what you've got (and quit complaining) or not.

Back to value-based fees specifically...

Value may be in the eye of the beholder but the only beholder that matters, when it comes to making the buying decision, is the client. Now there is another one that matters too but it has to live with whatever the clients view of the value is: yours. What are your time, risk, opportunity cost, expertise, and unique experiences worth?

If you spend a bit of effort determining how your particular engagement fits into the business objectives of your buyer you will get an idea of the value of the _outcome_. With that in mind you can come up with a proposal outlining a series of options (of varying levels of involvement on your part, risk, time lines, etc.) for the prospect to consider.

You must make sure that the options fall within acceptable ranges for _you_ as well. Is it worthwhile to you to even do the project in the parameters defined? Not every project or client is for you. Or sometimes the real problem is that the project isn't worthwhile for _anyone_ (the client or you) to begin with. Good upfront discussions that center about client-perceived business value are the key to recognizing this early...as well as recognizing situations where your unique background brings a lot of added value to the table (which should be reflected in your fee).

Of course if you're unable to come up with any reasonable options that fall within the range of value you understand the prospect to place on the outcome than there are only several paths: defer on accepting the engagement, get creative about other options (that might change the value), or tell the prospect what you are willing to do actually do it for along with your reasoning. Ultimately though the clients perception of value is reality. That doesn't mean you both have to agree on it. But it does mean you have just as much of a decision to make as your client: does this project make sense at this price?


-jr
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Posted: 07/08/2009 @ 02:30 PM (PDT)

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Read original item: Is billing by the hour unethical?

In the pollSterling "Chip" Camden | 07/06/2009 @ 03:05 PM (PDT)

BillingOz_Media | 07/07/2009 @ 09:33 AM (PDT)

Combination approachGSG | 07/07/2009 @ 11:22 AM (PDT)

Time & Materials -OR- Cost PlusSilverBullet | 07/08/2009 @ 08:21 AM (PDT)

Out of scope issues, use a "Change Order"SilverBullet | 07/08/2009 @ 08:25 AM (PDT)

The reason so many have such a hard time...josh.t.richards@... | 07/08/2009 @ 02:30 PM (PDT)

Well ...PMP'sicle | 07/08/2009 @ 09:07 PM (PDT)

In addition santeewelding | 07/08/2009 @ 09:28 PM (PDT)

I just heard the dingSterling "Chip" Camden | 07/09/2009 @ 03:12 PM (PDT)

Nah ...PMP'sicle | 07/13/2009 @ 08:42 AM (PDT)

Really depends on the job doesn't itShellbot | 07/08/2009 @ 02:49 PM (PDT)

My contracts are annual, tooSterling "Chip" Camden | 07/09/2009 @ 03:13 PM (PDT)

I go exclusiveShellbot | 07/12/2009 @ 11:27 AM (PDT)

That's an interesting variationSterling "Chip" Camden | 07/13/2009 @ 09:12 AM (PDT)

It works for meShellbot | 07/13/2009 @ 12:02 PM (PDT)

one client = too uch riskherlizness@... | 07/15/2009 @ 07:06 PM (PDT)

RiskSterling "Chip" Camden | 07/16/2009 @ 10:21 AM (PDT)

I can appreciate thatShellbot | 07/16/2009 @ 11:57 AM (PDT)

Same here but ...PMP'sicle | 07/11/2009 @ 10:04 PM (PDT)

Time and attentionsanteewelding | 07/11/2009 @ 10:12 PM (PDT)

You're rightSterling "Chip" Camden | 07/12/2009 @ 09:47 AM (PDT)

Get more creative on contractsherlizness@... | 07/16/2009 @ 08:41 AM (PDT)

Hybridsanteewelding | 07/16/2009 @ 08:52 AM (PDT)

Hybrid Clarifiedherlizness@... | 07/16/2009 @ 10:54 AM (PDT)

Thank yousanteewelding | 07/16/2009 @ 11:05 AM (PDT)

That's a fairly simple idea...Sterling "Chip" Camden | 07/17/2009 @ 09:07 AM (PDT)

Re Simple Idea (Chip)herlizness@... | 07/17/2009 @ 12:02 PM (PDT)

wrong questionDesD | 07/13/2009 @ 03:12 PM (PDT)

Darwanian Hourlythomas_w_bowman@... | 07/14/2009 @ 04:32 AM (PDT)

Read This First: The Apparent ConsensusLukas Kasha | 07/14/2009 @ 08:39 AM (PDT)

Good summarySterling "Chip" Camden | 07/14/2009 @ 09:20 AM (PDT)

Just try to sell that to a customerjdclyde | 07/06/2009 @ 04:34 PM (PDT)

"if there were any unforeseen issues"Sterling "Chip" Camden | 07/07/2009 @ 08:39 AM (PDT)

Not if it's a polar beartmalo627@... | 07/07/2009 @ 08:53 AM (PDT)

ROFLSterling "Chip" Camden | 07/07/2009 @ 01:38 PM (PDT)

yeahjdclyde | 07/07/2009 @ 01:59 PM (PDT)

What about Pizzlies?charles.bundy@... | 07/09/2009 @ 04:40 AM (PDT)

Where does a polar bear do it?PMP'sicle | 07/11/2009 @ 10:06 PM (PDT)

Polar bears aren't trouble as they're usuallyDeadly Ernest | 07/12/2009 @ 12:10 AM (PDT)

Sensai sayssanteewelding | 07/12/2009 @ 12:17 AM (PDT)

My sensei say no comma needed as sentence is one thought, not oneDeadly Ernest | 07/12/2009 @ 12:15 PM (PDT)

Oh that's bad .... PMP'sicle | 07/13/2009 @ 07:41 AM (PDT)

Not to mentionjdclyde | 07/07/2009 @ 09:43 AM (PDT)

and Koala bears do it in gum trees in the scrub, not the woodsDeadly Ernest | 07/07/2009 @ 02:43 PM (PDT)

But they aren't really bears, now are they? NTSterling "Chip" Camden | 07/09/2009 @ 03:14 PM (PDT)

they's called bears and they have a lot of similarities, but smallDeadly Ernest | 07/09/2009 @ 06:31 PM (PDT)

They're marsupialsSterling "Chip" Camden | 07/10/2009 @ 11:03 AM (PDT)

It's only unethical if you bill like a lawyer...Lamune | 07/13/2009 @ 08:29 AM (PDT)

Well saidSterling "Chip" Camden | 07/13/2009 @ 09:10 AM (PDT)

Wow, really?Lukas Kasha | 07/14/2009 @ 07:09 AM (PDT)

Unfortunately - Most employers, are willing to pay for "busy work" Beoweolf | 07/13/2009 @ 09:48 AM (PDT)

That's precisely whySterling "Chip" Camden | 07/14/2009 @ 09:16 AM (PDT)

RE: Is billing by the hour unethical?Alan Weiss | 07/06/2009 @ 05:01 PM (PDT)

OKSterling "Chip" Camden | 07/07/2009 @ 08:44 AM (PDT)

In the perfect world, we could, should, and would bill this way.JohnMcGrew@... | 07/06/2009 @ 07:47 PM (PDT)

I think that's the root of the problemSterling "Chip" Camden | 07/07/2009 @ 08:49 AM (PDT)

Nosanteewelding | 07/07/2009 @ 02:05 PM (PDT)

Good pointSterling "Chip" Camden | 07/07/2009 @ 02:09 PM (PDT)

Nosanteewelding | 07/07/2009 @ 02:20 PM (PDT)

yesminstrelmike@... | 07/08/2009 @ 08:47 AM (PDT)

You, thensanteewelding | 07/08/2009 @ 08:57 AM (PDT)

The interesting thing is .... PMP'sicle | 07/08/2009 @ 09:25 PM (PDT)

How To Address Different Hourly Rate Expectations & Value Unknownsjosh.t.richards@... | 07/09/2009 @ 09:19 AM (PDT)

Joshsanteewelding | 07/09/2009 @ 09:51 AM (PDT)

Theory vs RealityPMP'sicle | 07/11/2009 @ 11:12 PM (PDT)

Glensanteewelding | 07/11/2009 @ 11:33 PM (PDT)

Well said, GlenSterling "Chip" Camden | 07/12/2009 @ 09:54 AM (PDT)

RichardPMP'sicle | 07/13/2009 @ 07:51 AM (PDT)

A common problem I see on "hourly" is that...JohnMcGrew@... | 07/15/2009 @ 02:05 PM (PDT)

The 1/3 rule that I've seen....Sterling "Chip" Camden | 07/15/2009 @ 03:39 PM (PDT)

It has to be both ways.jck | 07/07/2009 @ 07:24 AM (PDT)

Of the fixed-price work that I've doneSterling "Chip" Camden | 07/07/2009 @ 08:53 AM (PDT)

A lot of timesjck | 07/07/2009 @ 10:44 AM (PDT)

In that casesanteewelding | 07/07/2009 @ 10:49 AM (PDT)

nahjck | 07/07/2009 @ 11:10 AM (PDT)

Nothing worse?Sterling "Chip" Camden | 07/07/2009 @ 01:41 PM (PDT)

knowing when to hand out freebiesjck | 07/08/2009 @ 09:24 AM (PDT)

The trouble I've had...Sterling "Chip" Camden | 07/09/2009 @ 03:24 PM (PDT)

Does sound like troublejck | 07/10/2009 @ 11:16 AM (PDT)

I actually once had someone here on the island...Sterling "Chip" Camden | 07/11/2009 @ 02:40 PM (PDT)

Opportunities and outsourcing ....PMP'sicle | 07/13/2009 @ 07:57 AM (PDT)

That could have worked, GlenSterling "Chip" Camden | 07/13/2009 @ 09:14 AM (PDT)

Dear God!jck | 07/13/2009 @ 12:15 PM (PDT)

That rate...Sterling "Chip" Camden | 07/14/2009 @ 09:23 AM (PDT)

I see a commercial hereizzy_again | 07/14/2009 @ 02:55 PM (PDT)

Paying the ratejck | 07/15/2009 @ 05:20 AM (PDT)

supply and demandizzy_again | 07/15/2009 @ 02:32 PM (PDT)

Chip, I've a client who has a couple of computers and when one goesDeadly Ernest | 07/15/2009 @ 02:57 PM (PDT)

Sounds likesanteewelding | 07/07/2009 @ 08:59 AM (PDT)

I've got to agreePMP'sicle | 07/07/2009 @ 12:17 PM (PDT)

InterestingSterling "Chip" Camden | 07/07/2009 @ 01:46 PM (PDT)

Determining valuejosh.t.richards@... | 07/09/2009 @ 09:29 AM (PDT)

What outcome?Sterling "Chip" Camden | 07/09/2009 @ 03:26 PM (PDT)

Interesting, tell me more.Lukas Kasha | 07/14/2009 @ 07:36 AM (PDT)

The book with no final chapterSterling "Chip" Camden | 07/07/2009 @ 01:42 PM (PDT)

Just yesterdayjdclyde | 07/07/2009 @ 09:47 AM (PDT)

Some people always push the limitSterling "Chip" Camden | 07/07/2009 @ 01:47 PM (PDT)

I prefer to call it task based billingDeadly Ernest | 07/07/2009 @ 10:37 AM (PDT)

Funny how people just don't realize something so simplejdclyde | 07/07/2009 @ 10:42 AM (PDT)

Yes, people need to be remindedSterling "Chip" Camden | 07/07/2009 @ 02:07 PM (PDT)

A reasonable thinking audiance will see the logicSilverBullet | 07/08/2009 @ 09:31 AM (PDT)

and it will attack regardless of what you do, so it's best toDeadly Ernest | 07/08/2009 @ 10:27 PM (PDT)

Gotta lov e the honest approachSterling "Chip" Camden | 07/07/2009 @ 02:05 PM (PDT)

Bingo. You've nailed the problem, and the clock wins.JohnMcGrew@... | 07/08/2009 @ 06:04 AM (PDT)

Time is valuableSterling "Chip" Camden | 07/09/2009 @ 03:29 PM (PDT)

Perhaps we need taxicab style pricing.a.barry@... | 07/13/2009 @ 01:09 PM (PDT)

MeetingsSterling "Chip" Camden | 07/14/2009 @ 09:25 AM (PDT)

Why?ssharkins@... | 07/15/2009 @ 07:57 AM (PDT)

Meetings are workizzy_again | 07/15/2009 @ 02:47 PM (PDT)

Flat Rate for MeetingsTX_Techie | 07/14/2009 @ 08:45 AM (PDT)

Personally, I don't care enough to go to that kind of troubleJohnMcGrew@... | 07/15/2009 @ 02:09 PM (PDT)

Other BillingEdg@... | 07/07/2009 @ 04:48 PM (PDT)

Billing based on Valuekumvinod@... | 07/07/2009 @ 06:53 PM (PDT)

RE: Is billing by the hour unethical?minstrelmike@... | 07/08/2009 @ 08:32 AM (PDT)

Low bid mentality.charles.bundy@... | 07/09/2009 @ 04:55 AM (PDT)

Dishonesty or stupiditySterling "Chip" Camden | 07/09/2009 @ 03:32 PM (PDT)

Depends on culture ...PMP'sicle | 07/13/2009 @ 08:09 AM (PDT)

Yes, that's trueSterling "Chip" Camden | 07/13/2009 @ 09:16 AM (PDT)

Which is the whole problem in a nut shell... best to stick to your moralsBeoweolf | 07/13/2009 @ 10:00 AM (PDT)

Even worse...Sterling "Chip" Camden | 07/14/2009 @ 09:29 AM (PDT)

Combining both rates successfullystephanisat_z | 07/09/2009 @ 06:58 AM (PDT)

It's all situational ... PMP'sicle | 07/13/2009 @ 08:37 AM (PDT)

No, and here's why...mikifinaz1@... | 07/09/2009 @ 05:44 PM (PDT)

I feel your painSterling "Chip" Camden | 07/10/2009 @ 11:06 AM (PDT)

RE: Is billing by the hour unethical?tcole@... | 07/13/2009 @ 07:15 AM (PDT)

Isn't billing by "value" unethical?pwoodctfl@... | 07/13/2009 @ 07:18 AM (PDT)

How about billing by the minute?Marty R. Milette | 07/13/2009 @ 07:28 AM (PDT)

That would be pretty hard to account forSterling "Chip" Camden | 07/13/2009 @ 09:19 AM (PDT)

Project timerMarty R. Milette | 07/14/2009 @ 06:05 AM (PDT)

Sounds like a winnerSterling "Chip" Camden | 07/14/2009 @ 09:34 AM (PDT)

RE: Is billing by the hour unethical?Randy Hagan | 07/13/2009 @ 07:38 AM (PDT)

From what I understandSterling "Chip" Camden | 07/13/2009 @ 09:22 AM (PDT)

Nude pics of techies ... oh no.....PMP'sicle | 07/13/2009 @ 12:32 PM (PDT)

:) I didn't mean nude pictures OF USSterling "Chip" Camden | 07/14/2009 @ 09:32 AM (PDT)

Speak for yourself.santeewelding | 07/14/2009 @ 09:44 AM (PDT)

RE: Is billing by the hour unethical?sysdev@... | 07/13/2009 @ 07:44 AM (PDT)

Variables Galorereisen55@... | 07/13/2009 @ 07:47 AM (PDT)

No. Billing by the hour is not unethical. wsargent@... | 07/13/2009 @ 08:44 AM (PDT)

Fixed profit contractsSterling "Chip" Camden | 07/13/2009 @ 09:35 AM (PDT)

Fixed profit contracts - explanationwsargent@... | 07/15/2009 @ 03:58 AM (PDT)

As you said...Sterling "Chip" Camden | 07/15/2009 @ 03:43 PM (PDT)

Price is a function of worth not costgary@... | 07/13/2009 @ 11:23 AM (PDT)

AgreedSterling "Chip" Camden | 07/14/2009 @ 09:36 AM (PDT)

Value - Henry Ford meets Charles Steinmetzjohn@... | 07/13/2009 @ 03:15 PM (PDT)

That's an interesting pointSterling "Chip" Camden | 07/14/2009 @ 09:39 AM (PDT)

Totally Preposterous ..herlizness@... | 07/13/2009 @ 07:29 PM (PDT)

Nosanteewelding | 07/13/2009 @ 07:46 PM (PDT)

"No" what?herlizness@... | 07/13/2009 @ 08:36 PM (PDT)

M'ladysanteewelding | 07/13/2009 @ 08:44 PM (PDT)

Thanks for clarifying...Sterling "Chip" Camden | 07/14/2009 @ 09:45 AM (PDT)

RE: Is billing by the hour unethical?greene.data.recovery@... | 07/13/2009 @ 11:35 PM (PDT)

RE: Is billing by the hour unethical?stuffinator@... | 07/13/2009 @ 11:54 PM (PDT)

My Project BillingTX_Techie | 07/14/2009 @ 08:46 AM (PDT)

RE: Is billing by the hour unethical?ssharkins@... | 07/14/2009 @ 02:42 PM (PDT)

Well said, SusanSterling "Chip" Camden | 07/15/2009 @ 03:37 PM (PDT)

Customer Perceptions...Marty R. Milette | 07/16/2009 @ 06:01 AM (PDT)

You're right about thatSterling "Chip" Camden | 07/16/2009 @ 10:27 AM (PDT)

Guess I'm one of the few...Marty R. Milette | 07/17/2009 @ 05:25 AM (PDT)

Premiumssanteewelding | 07/17/2009 @ 09:28 AM (PDT)

Choices ...herlizness@... | 07/18/2009 @ 08:36 AM (PDT)

I don't think billing per hour is unethical...urcomputerconsultant@... | 12/28/2009 @ 09:08 AM (PST)

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