Value-Based Fees Don't Work For Most Consultants
They sound like an amazing idea - but they're not practical for most consultants when we consider the challenges in estimating value, risk imbalance, and competitors.
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One of my biggest bugbears is the concept of value-based fees.
Like many, I devoured Million-Dollar Consulting when I was getting started.
A significant lesson from the book was to use value-based fees vs. hourly rates.
The process is relatively simple.
You collaborate with the client to determine the value you will create for them, and then you charge a percentage of that value as your fee.
For example, imagine you’re a sales consultant who will help a client increase the conversion rate of prospects by 20% by bringing in best practices and improving the pipeline. You estimate this will result in an additional $15m in value over three years. Charging just 10% of that figure ($1.5m) sounds like a bargain to all involved.
The client captures 90% of the benefits, and you get a fee that reflects your value. Everyone’s happy!
Can you spot the problems with the above?
Before you read on, consider why this …
