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Monthly tips to improve the business and practice of members of The Society for the Advancement of Consulting, LLC - Issue #153:June 2016

Converting from Time-Based to Value-Based Fees

A great many people ask me how to make the transition from an hourly or per diem fee arrangement to a project/value-based basis for long-time, high potential clients. There is no easy way, once you've educated the buyer about the wrong way to do business with you. But there is a technique I've recommended that people in my communities are telling me has worked well for them.

Submit your proposal to the long-time client in the traditional manner, citing whatever your billing practice has been (i.e., $3,500 per seminar, $2,500 per day, $250 per person trained, etc.). Then suggest an option to your client. Explain that, in view of your excellent relationship, you'd like to provide an alternative whereby the client does not have to make an investment decision every time your assistance is considered. Therefore, you're suggesting a monthly (or quarterly or semi-annual or yearly) retainer, which provides unlimited access to you for that period, irrespective of number of days, number of hours, number of participants, etc.

Make it an attractive option. If the client would reasonably be considering using you for a minimum of two days a month for at least a quarter at a per diem rate of $3,500, for example, then make the retainer $30,000 for the quarter. At a slight increase of the original expenditure ($21,000) the client can use as much of your talent as necessary.

Don't Panic

Before you press the panic (or the e-mail) button and tell me that you can't control use of your time this way, let me advise you of a few conditions to guarantee success with this arrangement:

  1. Detail in the proposal that the time required for the quarter is on request but subject to mutually-agreed upon dates. That allows you to continue to schedule your time proactively.

  2. Stipulate that the retainer is monthly but payable for 90 days at a time at the beginning of the quarter (the minimum period). This allows you to collect your money and use it, and prevents the engagement from being cancelled. Allow an option for the client to continue the arrangement through the next quarter if it is requested by the beginning of the final month in the current quarter. (In other words, you want to create seamless continuation, not renegotiation with the danger of a month or so falling “between the cracks.”)

  3. Finally—and listen to me on this one—stop worrying. No client I've ever worked with abuses such as system, just as no executive is overwhelmed with visitors when he or she announces an “open door policy.” Your clients will use discretion. (In most cases, I actually have to remind them about their access because they're not using me enough, which also adds value to our relationship.)

    The Client's Best Interests

    It helps, of course, to use fees high enough that the margins are so great that it doesn't matter at all if a client uses three days or twelve, wants 25 participants trained or 95, calls you twice a month or once a day. Don't be timid. You can always revert to your old, commodity, fee structure. But you'll never create wealth that way.

    If the buyer says, “Why are you offering an alternative fee basis? We've worked on a comfortable basis for quite a while now,” respond, “I felt I wasn't taking your best interests into mind sufficiently. There should never be a meter running in our relationship, and I don't want you to make an investment decision every time I can be of help. Conversely, I don't want to force one on you when I see areas which require further study.”

    Make sure your objectives are crystal-clear for the project. That way your time won't be abused by “scope creep,” meaning that you're asked to contribute to everything from marketing to window washing as long as you're on retainer. Clear objectives provide a template that you can use to demonstrate that a request in inside or outside the current project scope.

 
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