Converting Clients From Time-Based To Value-Based Billing

Any professional or consultant who uses time-based billing is potentially losing thousands in revenue each year. While some consultants are slowly making the move to project fees, set fees, or value-based pricing, others are lagging behind and essentially limiting their income by charging by the hour.

Any method of time-based billing does not have the client's best interests at heart. Essentially, there is a conflict of interest, because the only way for a consultant to make more money, is to spend more hours on the project; while the client's best interests are to resolve the issue in as few hours as possible.

Value-pricing is a term that is widely misused or misunderstood. It is all about being rewarded for the contribution you make to improve your clients situation. It's not about contingency or success fees, or about fee gouging. It is not charging for what you think the project is worth after you have completed it. With time-based billing, you are really capping your value at a maximum of 40 hours, at your hourly rate each week, leaving no room for an increase in profits.

By implementing value pricing, you will be rewarded, according to your true value, and you'll be maximising the value of your intellectual property.

Here are some reasoning points to use to convince a customer or client that a value-based fee is always in their best interest:

1. There is a cap on their investment. They know exactly what is to be spent and there are no surprises.
   
   
2. There is never a "meter running". Clients do not have to worry each time your help is requested that you might be needed for an hour, a day, or a week.
   
   
3. It is unfair to place clients in the position of making an investment decision every time they require your services. Otherwise, they are left trying to determine the impossible: Is this an issue that justifies a $2,000 visit or a $500 phone call? No client should ever be in that position.
   
   
4. Clients should feel free to use your services and assistance and to ask for help, without feeling they have to go to someone for budgetary approval. This only makes them more resistant to sharing their views, and at best, delays the flow of important information.
   
   
5. If you find additional work that was unanticipated but must be performed, you can do it without having to go to the client for additional funds. In these instances, legitimate, additional work would otherwise be viewed as an attempt to generate additional hours or days.
   
   
6. If the client finds additional, related work that must be done, they can freely request it without worrying about increased costs. (As long as this work fits into the original scope.)
   
   
7. The overall, set fee, in relation to the project outcomes to be delivered, is inevitably less of a proportional investment for the client than hourly billing.
   
   
8. If conditions change in the client's organisation, they won't be in the difficult situation of having to request that the project be completed in less time. The quality approach is assured, since the fee is set and paid.
   
   
9. If you decide that additional resources are necessary, there is no cost to the client and you can employ additional help as you see fit.
   
   
10. This is the most uncomplicated way to work together. There will never be a debate about what is billable time (eg. travel, report writing) or what should be done on-site or off-site.
    
    

The important thing is to introduce the concept of value-based pricing early and use as many of these arguments, as early as possible, to convince the client. I do this in the relationship-building part of the sequence. In other words, although the prospect sees your fees for the first time in the proposal itself, they are educated to the point that they expect to see a single quoted fee per option, and not a per diem or per head fee assigned.

Tips for converting current clients

The key to achieving any kind of change is to convince the client that the change is in their best interest. For those businesses wanting to convert current clients from an hourly rate to a value-based billing system, here are some additional tips:

• Submit your proposal to the long-term client in the traditional manner, citing the hourly or time-based fees, but also explaining that, in view of your excellent relationship, you'd like to provide an alternative, whereby the client can agree to 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 usually pay $21,000 per quarter for two days' consultancy each month, for example, then make the retainer $30,000 for the quarter. At a slight increase of the original expenditure, the client can use as much of your talent as necessary.
  
  
• Before you press the panic-button - because you don't believe you can manage your time under this arrangement - let me advise you of a few conditions to guarantee success:
  
  
  1. Detail in the proposal that the time required for the quarter is on request, but subject to mutually-agreed upon dates. This allows you to continue to schedule your time accordingly.
     
     
  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 "into the crack".)
     
     
  3. Stop worrying. No client I've ever worked with abuses such a system, just as no executive is overwhelmed with visitors when they announce 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.) It helps, of course, to use fees high enough that the margins are so great that it doesn't matter if the client uses three days or twelve, wants 25 participants trained or 95, calls you twice a month or once a day.
     
     
• And finally, 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 is inside or outside of the current scope.

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