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Q&A: Value Based Fees vs. Billable Hours

Value based feesScenario: I’ve been in professional services for 10 years and based on my experience I am becoming faster at outputting the work I am hired to do. I charge an hourly rate; I am now getting paid less by the hour because I’m faster at getting the work done.

Q: How do I set fees for my professional service, based on value provided instead of hours worked?

A: Setting value-based fees is both an art and a science. But, ultimately it boils down to this…

What fee range is likely to prompt your client to say, “That was a terrific return on my investment, and I’d like to work with that person again,” and you to say, “I was paid very well for my contribution, and the margin was excellent”?

You don’t get paid for the hour. You get paid for the value you bring to the hour. ~ Jim Rohn, Author and Speaker

Keep these three basic principles in mind when creating value-based fees:

  1. The idea is to create high margins, not merely high fees
  2. Value is in the eye of the beholder
  3. The only relevant facts are: Are you meeting the client’s objectives, improving the client’s condition and delighting the buyer?

If you’re in a relationship business, trust is essential. When a buyer trusts you and you trust the buyer, you’re in a position to acquire the three essential building blocks for a value-based project:

The business objectives to be met – Be clear on the business outcomes (ie. higher sales, better teamwork, faster time to market) essential for the project to deliver for the client.

The metrics or measures of success to assess progress – Understand the objective or anecdotal criteria that will indicate progress and eventually completion of project (ie. statistics, surveys, benchmarks, clarity & focus, plan development).

The value to the client of meeting those objectives – Determine the demonstrable organizational or personal benefit predetermined by the client as representing the actual improvement in the client’s condition (ie. cost of lost work, poor productivity, cost of re-work).

A major component of value is your uniqueness and personal contribution.

How are you uniquely valuable?

Here are some questions to ask yourself to establish value:

  • Do you bring some inherent, unique value or expertise that others can’t?
  • Do you have a unique reputation? Well known in the industry? Referred by a trusted source?
  • Are you at the right place at the right time? Available?
  • Is there a sense of urgency to the project?
  • Has the client tried it on their own and failed?
  • Has the client used external suppliers in the past, with what result?

At this point you have two excellent indicators of the contribution you are providing:

  1. The predetermined value that the successful completion of the project will deliver to the client
  2. The unique qualities that you, personally, bring to the equation to ensure that those results are met and exceeded

This is the basic framework for thinking about value-based fees gleaned from the book Value-Based Fees by Alan Weiss. I encourage you to pick up a copy of the book for more practical tips and tools for ‘How to charge – and Get – What You’re Worth.’ Happy reading!

About Michela Quilici

International Business Growth Coach, Award-winning Marketing Strategist, Best-Selling Author, Forbes Coaches Council, and Global Leader at Women Speakers Association. Known as a Business Navigator, Michela works with growth-minded business owners, service professionals and CEOs who want to accelerate growth and scale their business, while building a business aligned to who they are.

She is passionate about creating roadmaps that ignite leaders to take inspired action to navigate their growth on purpose using strategy, systems and self-leadership, so they can get noticed, get clients and get profitable.