Reconsidering Compensation for Your Expertise

Perceived Value is the Driver

Alan Weiss wrote a book titled Value-Based Fees, How to Charge – and Get – What You’re Worth. Even though the book was published more than fifteen years ago, it still offers pearls of wisdom for consultants today. One key takeaway involves recognizing the importance of perceived value, which should be the basis of the contractual relationship.

Alan Weiss wrote a book titled Value-Based Fees, How to Charge – and Get – What You’re Worth. Even though the book was published more than fifteen years ago, it still offers pearls of wisdom for consultants today.

It is worth noting that the following quote comes from the very first page of the text: “Clients truly believe that they get what they pay for.” Although we may be tempted to assume that every potential client is looking for the cheapest consultant, Weiss strongly disagrees. He believes that clients are driven in large part by their egos, and they do not want to think that they engaged the cheapest consultant available, who was sitting by the phone with nothing to do and took their project so they could afford to eat. He says clients revel in telling people that they snagged a consultant who is almost impossible to obtain and they had to pay dearly to get him or her. People pay handsomely for what they value. That is why some people will buy a very expensive automobile but also buy the cheapest gas available. Others will pay top dollar for a prestigious office address but order the cheapest copier paper they can find online. Value is in the eye of the beholder.

Weiss encourages consultants to reconsider the basic concept of fees. He points out that a fee is paid in return for perceived value. Therefore, prospects ask themselves two key questions: will there be enough perceived value from the services, and does the consultant intend to act ethically?

He points out mistakes that consultants often make with respect to the conceptual understanding of fees. First, he says consultants commonly fail to understand that perceived value is the basis of the fee, and consequently attempt to manage (lower) the fee rather, than manage (raise) the value. Second, many service provider professionals fail to translate the importance of their advice into long-term gains for the client in the client’s perception.

Fee setting, including explaining value, is an art. It takes practice, and a willingness to be flexible, confident, and diagnostic.

Weiss is not shy in stating that consultants often underprice their expertise due to low self-esteem, “That’s right, consultants, not clients, are the main cause of low consulting fees.” To explain long-term value to a potential client, the consultant must first understand and appreciate that value. This means being able to explain what the project will accomplish in terms of business goals and how there will be lasting benefit. For members of NACVA, this may involve looking beyond a business valuation. For example, it may be shortsighted to simply consider the value of a business valuation report. Perhaps the better point to address would be the value of helping someone get through their nasty divorce proceeding. A business valuation report may be perceived as having limited value but helping someone put a devastating divorce behind them may be viewed as enormously valuable. In other words, the business valuation report may be a short-term steppingstone to a long-term resolution. To get paid for the value of your expertise, you need to emphasize the long-term enrichment, and not simply charge for short-term services. Understanding your fee may be simple, but the tough part of the sale is to yourself and not the buyer.

Weiss adds, “The client, competition, economy, government, methodology, project, and timing do not control your fee. You control your fee. The good news is that there is only that single variable. The bad news is that there is only that single variable.”

Discussing your prior experience with a prospect may be relevant from the standpoint of helping them understand how you can potentially contribute to their future. However, discussions with a buyer should focus on the future results, not the consultant’s past or methodologies. The client’s desire for an improved future can provide strong self-interest for the buyer; the consultant’s past may not.

Weiss also recommends developing stronger relationships which result in less scrutiny of fees. Consulting is a relationship business. And trust is essential to relationships. Without trust, you may not even get the information you need most. Relationships must be mutually trusting, mutually beneficial, and mutually supportive. And remember that the client may need you much more than you need them.

Weiss is suspect of clients who ask about fees early in the initial conversation. His ironclad rule is, “If you’re in a discussion about fees and not value, then you have lost control of the discussion. Prospects often want to go immediately to a discussion of costs.” He recommends always avoiding that discussion early in the process. He believes that once you agree to talk about fees, you have enabled and empowered the prospect to focus on the cost side of the equation, not the outcome or value side. By refusing to estimate fees until the project has been discussed in detail, you can expect to negotiate a higher fee. He says, “the earlier a fee is quoted, the lower the ultimate fee will be.”

Although we need to be cognizant of the value of our own services and expertise, Weiss reminds us to also be aware of the value of others. Along those lines, he dedicated this book to “the heroic people in our police and fire departments, whose value will always exceed anything any of us could ever afford to pay.”

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Stephen D. Kirkland, CPA, CMC, CFF, is a compensation consultant for privately-owned companies and non-profit organizations. He serves as an expert witness in court cases involving potentially unreasonable compensation. View his website at www.ReasonableComp.biz.

Mr. Kirkland can be contacted at (803) 724-1414 or by e-mail to Stephen.Kirkland@AECG.biz.