Quote Fees Based on the Value you Provide

When quoting a fee, don’t let your anticipated costs cloud your judgment. What it costs you to provide a service has no bearing on the value your client receives from that service. None. Neither does the amount that other firms charge for similar services. And forget about fee guidelines and surveys on your bookshelf, and about what your financial advisor tells you about overhead and profit. These guidelines and pieces of advice tell you one thing only: the minimum you should be charging. They tell you nothing about your worth.

With professional services, value is solely in the eyes of the beholder (i.e., your clients). So, no matter how widely- used, easily defendable or comfortable the practice, don’t resort to quoting fees based on your projected costs or based on what other professionals charge. You will leave a lot of money on the table. Instead, follow these steps and negotiate fees commensurate with the value you provide:

Change Your Perspective

Stop thinking about your fees in terms of selling time. If professionals were in the business of selling their time, the least efficient and least experienced of us would make the most money. Look at your fees in terms of your talents and the experience, judgment and skills you obtained over years (or decades) of practice. Whether it takes you 100 or 1,000 hours to complete a project is far less important to a client than the amount of knowledge, innovation, judgment, and leadership you bring, and the level of service and responsiveness you provide.

Take Lessons from Other Industries

Instead of selling their time, M&A specialists charge hefty commissions, realtors’ charge based on sale prices, and physicians charge based on the complexity of the procedures they undertake. Even outside the service professions, one is hard pressed to see price tags based on a provider’s costs. Imagine a sticker on a new car comprised of the manufacturer’s costs:  

  • Carburetor – $295
  • Gas Tank – $145
  • Carburetor – $225
  • Front and Rear Axles – $225 each
  • Steering Wheel – $162.

Instead, car dealers highlight features, such as cruise control and navigation systems, and focus on benefits, such as 0 – 60 acceleration in 4.1 seconds, more cargo space and greater fuel economy. Nobody questions what the eight-speaker surround sound stereo system cost to manufacture when they decide whether it’s worth an additional $275.

Downplay What Other Professionals Charge

Most clients already know what other professionals generally charge for their services. Prudent clients might solicit proposals from your competitors or talk to clients that recently hired them, compare your fees against fees they paid other firms, or scrutinize industry surveys. These clients simply want to know that your fees are reasonable vis-à-vis what others charge.  

Keep in mind that no matter how your fees compare, clients that choose to work with you do so because they believe that you will bring them better results.

If your client starts comparing your fees, respond by first acknowledging that your fees might, in fact, be more expensive. Don’t apologize or defend. Then guide the discussion back to your approach, the level of service

you provide, your specialized experience and the results that you helped other clients achieve.

Focus on Benefits

Tell your clients what types of results they can expect after hiring you. For example, an interior designer might say, “Here’s what you can expect from us: an image that captures your distinct identity; a palette of colors and finishes that creates a buzz every time a customer enters your store; and a level of service and responsiveness that makes you feel that you are our only client.” This statement is far more compelling than “Our fees are based on spending 80 hours developing design alternatives, 12 hours selecting finishes and colors, and 6 meetings with you.”

Portray Your Fees as an Investment

With owners whose financial benefits are inextricably linked to the outcome of your services, link the marginal costs of paying higher fees to the added results they can expect. Here’s what one interior designer recently told a prospective client:

“We just completed a study of the last 15 retail stores we designed and which have been open for at least one year. One of the most interesting findings was the correlation between store revenues and our fees. The owners that paid us the highest fees ended up with the highest sales per square foot. When we talked to these owners, the consensus was that the last 20% or so of fees they paid—their marginal costs—yielded the highest return on their investments.”

Align Incentives

Identify with your client the outcomes of your services that will provide the most value to them. For example, when hiring an architect, a hotel developer might place an extraordinarily high value for services that accelerate the occupancy date. And when hiring a business advisor, an upstart company might place an exceptionally high value on someone who can show them how to achieve profitability without making large capital expenditures. Most clients that understand how inextricably linked your performance is to their success will agree to compensate you accordingly.

Michael Strogoff, AIA, is a strategic advisor to design professionals, based in Mill Valley. Reach him via email or phone, 415.383.7011.  Strogoff is a featured speaker at the AIA Wisconsin 2017 Fall Workshop on October 6.

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