If you are in the consulting business, you’ve most likely come across the issue with finding the right price for your services. As a consultant, your services will consist very much on you doing the job during a given period of time. That means selling your time. But it doesn’t have to be like this.
How do you price yourself to your customers as a consultant? By basing your price on the value you create for your customer. Understanding that value and aligning your services to that value, might make you stand out from your competition.
If you struggle competing in your market, more than likely it has nothing to do with your customers not wanting to pay or not being able to pay, but everything to do with your customers not understanding what they are paying for. They do not understand the value you provide and how that will benefit their own business.
How does Value work for a Consultant?
If you go shopping and buy a pair of jeans, you’ll know you have to pay money for it. Branding and Image are most likely important. You buy the jeans, put them on and you know what you’ve paid for. Even in a month’s time, you can still see and touch the jeans; you can even sell the jeans to make money if you want to. They are yours, you bought them.
Now, let’s look at a different scenario.
Let’s say you need an accountant to do your books. You also know you have to pay for this. The real difference is that when the accountant did his job, there is nothing left. Nothing to look at. You will always try to get the cheapest price or best deal and branding or image is far less important (for most).
In general, it is easier to sell a product than a service. It seems that people like to touch things, see it and try it out. This is more difficult to do with services.
Understanding Wants and Needs
What is the difference between those two scenarios? In the first scenario, the customer wants to buy. In the second scenario, the customer has to buy.
Whenever you want something, the most likely reason you want it is because it resonates with you. You can see yourself with it and it feels good. This feeling is created through branding and image and in most cases is based on a product.
Whenever you need something, the most likely reason you need it, is because you are in trouble without it. You see yourself without it, and it does not feel right.
The first scenario is straight forward, but as a consultant, you work mainly in the second scenario. You work with people who have a problem and need a solution. We don’t want to deal with problems if we can avoid it. You might think that having a solution is the solution, and talking about their problems is going to make them want your solution, but in my experience, the opposite is the truth. Nobody wants to talk about problems if they can avoid it.
Working out the Positives and Negatives
If you look at it from a plus/minus scale, then everything that is minus is negative, zero is manageable, but plus is wanted. The same goes for pricing. We always try to find the zero. If you buy the product you want, after an initial period of adjustment, wherever you are or whatever you have then becomes your new zero.
Any change of that situation, like the loss of the product you’ve just bought, becomes a minus (a problem) and after some time, you adjust your zero to that situation. So your zero is continuously moving up and down, adapting to your current situation.
When I work with customers, I try to figure out what their current problems are, but not to talk to them about it, but to figure out if I can provide them with a solution that brings them at least to zero, but if possible to a plus. With my customers, I only talk about the plus. That is where the value is. Sometimes that might be difficult because they are so far in the minus and have not yet adjusted their zero to that point, and a solution that will bring them to plus is difficult to find.
With this in mind, your services or products must achieve two things: bring the customer back to their current zero and provide a path to a plus. Most money is spent in the plus section and the least money in the minus. Translate this to services, the services adjusting to zero are the least paid for, but whatever goes to plus is the most paid for. Create your services accordingly.
A Time Approach
Today, a lot of consulting is done in the IT sector. Those are often larger organizations with fixed price-sets for consultants. Prices vary depending on the area you work in, like Project Management, Analysis or Development. Within each area, you have different grades based on your years of experience and sometimes the training and certificates you’ve gathered over time.
In such a scenario it is very easy to calculate your price. You have a price list right in front of you. All you need to do to increase your price is adding the bits that pay more. This varies a bit between the private sector and the government sector. Usually, the private sector pays more but is also quicker in replacing you if needed.
In these organizations, consultants are paid by time. To create value, you need to build up your expertise and knowledge to move up into the higher price bracket. You and your time are the product and the price is based on the value you can create in the given time because of your expertise.
The Results Approach
Some consultants work on results instead of time. That means they are paid to deliver a specific product within a given time frame. Coming back to the IT sector, it could be an additional module or plugin a customer needs for their current software.
If you have the skills and expertise, they might hire you to deliver that module or plugin based on clear specifications. If you are really good at this, it might take you a week or two to complete the project. If not, it will take you much longer. The price rarely increases just because it takes you more time.
There are exceptions. We hear this often in the building sector, where the price increased substantially during the building period.
However, the Results Approach is where you can find other avenues to increase your rates or prices. By understanding the value of the product you suppose to deliver, you can play with this and adjust your price accordingly.
If you work with a time-based contract, you need to know the price list and add the components needed to increase your price. This might mean that you have to change contracts from time to time. Looking out for different contracts with price lists that suit your expertise provides the best option to increase your price.
If you work with a product-based contract, you need to understand the value your product delivers to your customer. By adjusting the product to be of higher value for your customer, you have the possibility to adjust your price to fit that value.
In whatever area I work in, one question I always ask my customers:
Where do you expect to be when I successfully finished my job?
Talk about this. This is often the plus area I mentioned earlier. By talking about the value of your products or services provided to them does two things:
- It tells you what your customer expects from you
- It creates a picture in your customer’s head of a solved problem and its advantages to be there.
It also shows your interest in solving their problems and bringing them into the plus. It changes everything. Try it out 🙂