Value-Based Fees, 3rd Edition

CHAPTER 4How to Establish Value-Based Fees: If You Read Only One Chapter …

Ever since I began promoting value-based pricing for consultants (and the variety of other occupations and professions that have sought to heed the call) nearly 30 years ago, I've been asked one question consistently by a minority of the acolytes: “What formula should I use?”

That, of course, is the million-dollar question. Fee setting is art and science, and mostly the former. Consequently, the engineers, architects, and other highly structured among us have had to be revived when told that there is no magic formula. However, that's not to say that there aren't excellent ways to create fees based on value, if you're willing to be flexible, confident, and diagnostic.

So if you haven't rushed to get your money back after the first two paragraphs, I can be of considerable help. In fact, I'm going to be very explicit in writing about the creation of value-based fees. But please keep these precepts in mind:

• The idea is to create high margins, not merely high fees. That way, you can afford to be less precise about fees, since the margins will allow for plenty of flexibility.
• Value is in the eye of the beholder. There is no law, nor any ethical imperative, that says that you must charge two clients the exact same amount for the same services. First, the services are rarely identical. Second, the value to those respective clients will always be different. You are not selling toasters.
• The fact that you ...