A consultant in my network asked what rates he should charge as he was looking for additional work. I guess he was thinking about a day rate, which is a really old-fashioned way of thinking. Our friend also has a serious disadvantage in having no on-line brochure or marketing material in the form of a website, but that’s another story.
My reply in part was as follows:
“You need to think about value rather than rates. How much value can you bring to the party, how much will you improve the client’s business, how much comfort will the client pay for to have you by his / her side? The old idea of £500 per day or whatever is outdated.
In my business I either quote a fixed fee for my assignment based on value to the client, or I assess the client as to how much he or she will pay for the comfort of having me, but still with an eye to what I can deliver in terms of value. You have to be adaptable.
A couple of days work might be worth £250 or it might be worth £2,250. It is for you to judge and sell on value.”
Bank on value
Of course a couple of day’s work might be worth a lot more than £2,250. It really depends how much value in terms of either profit or comfort or both the consultant is delivering.
Don’t think I am leaping to the defence of the bankers, but there is a row about Barclays Bank paying their chief executive, Bob Diamond, a bonus of quite a few million but the bank has just posted profits of over £6 billion. We may not like the bank’s charges and think they have let us down (although the bank was not bailed out by the Government). However, the bank, board and shareholders may credit Mr Diamond with being responsible for quite a slice of the profit, and that’s a big profit. Hence he has a value to them of a greater amount than most of us will ever see.
Consultants and indeed anyone offering a service should think in terms of what value they can deliver to the client when making a proposal. How much better off will the client be at the end of the assignment or how much value going forward will the client benefit from?
If a client will be £500K better off, a system to achieve this could be billed at £50K even if the setting up of a system or the work involved is comparatively little. If the client is £50K better off, he or she will be happy to pay £5K. It is not the work involved (and if you are selling a system you put in a lot of work at least once), it is always the value to the client which should be billed. If it is a one-off job it may deserve to be billed a lot more than the cost or a now obsolete normal day rate.
The fixed day rate idea always was a bit absurd. If a consultant needs the money and is not busy, it would be sensible to take work at £150 a day or less (if that is all the value was to the client) rather than turn down a job and get nothing. Start-up consultants may turn down work because they think they are “worth more” but it is better to keep their hand in for when the big money saving or profit increase for the client brings the matching big money.
Of course to get the fee on a value basis it has to be sold to the client, but that will be a lot easier if the client understands what the value is. It is better to sell on that basis of “my fee will be £10,000 and will save you at least £50,000 this year, and next year and the year after”.
The day-rate basis (“my fee will be £1,000 per day”) will result in your being shown the door.
Value-billing is the way to go. What to you think?