Consulting Fees: Value Based Pricing

You’ve heard the term “Value Based Pricing” before, right? It’s been thrown around like a hot potato for a while, yet it’s still often understood.

The power of this pricing strategy can be offered by pretty much anyone in the service business, and it’s perfectly suited for consultants.

The Wrong Way, And The Right Way
Setting your consulting fees based on what you think your time is worth is the wrong way to go about this.

Charging based on the perceived value and results you’ll deliver to your client, now that’s the right way to go about it.

I’ll explain this in more detail…

How to Charge 5 Times More
Not too long ago I talked about the general lawyer that charges around $150/hr. That’s nothing to laugh at. But the international tax lawyer is getting $500 plus an hour.

Now, these two lawyers are both smart, kind and friendly. There’s nothing about “them” that sets one apart from the other.

What does set them apart is their positioning. One is perceived to be at a higher level, they are a specialist. Not necessarily because they’ve gone to school for longer or worked at a larger firm in the past, but because they provide solutions to more focused and perceptively more detailed problems.

Filling A More Serious Need
The other factor at play here is that the client that requires international tax help is likely in a more serious situation. Their needs, being international in nature, give the image of greater cost.

If you really want to make value based pricing work for your consulting business, find a niche need you can fill. You’ll be seen as a specialist and will as such have an easier time setting your fees at levels that are 2, 3 even 5 times greater than the generalist.

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  • Michael,

    Great article! Concise and full of insight.

    I wish we all had been exposed to this simple yet powerful knowledge early on in our careers.

    Best regards,

    Luis Gaviria

  • Luis – thanks for the kind words. Glad you enjoyed the article.

  • More to the point Value Pricing is about explaining value to the client and setting fees up front. Fees charged by the hour encourage you to be inefficient – the longer it takes the more you earn. The quicker you solve a problem the more valuable it is to the client.

    • Margaret – it’s a very good point and one that we have an article coming on soon.

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  • Bruno

    nice idea, well the proble is how to measure the value added to the clients, usually, it’s not as immediate and easy to be nociced as we imagined, and no one will be happpy to wait for 3 years to get paid when the value takes its form in the company.

  • David Winch

    Margaret and Bruno may have got hold of the wrong end of the stick here.

    You don’t need to explain value to a client, nor do you have to measure it!

    Why? Because you need to help the client understand and measure value for themselves and that involves asking them questions they should have been asking themselves. Once the client understands value they can explain it to themselves, then they can explain it to you, and then you can understand it.

    This is the most crucial, first stage of the sales conversation. Only when you understand the client’s perception of value can you proceed to making proposals, putting price tags on them, and then be given the work.

    David Winch

    UK Value-Based Pricing Expert