Charging the right fee for your service: Metrics versus value

In his excellent article (from 2008) about the fees you charge, Duct Tape Marketing’s John Jantsch says that you should avoid hourly rates and instead set your fees based on the value you deliver.

Jantsch is correct and as I was reading this article I kept agreeing with everything he said: Yes, charging per hour (or per-word or per page) does commoditize work. Yes, charging per hour (let’s call it “per-[metric]”) does sometimes cause disagreements with clients about how long things should take. Yes, charging value-based fees does place the emphasis on the value of your work rather than on how long you spent doing it.

As usual, Jantsch had good things to say on this topic (and what’s more, he quoted a consultant and author whose books I own and read — Alan Weiss).

HERE’S WHERE I DISAGREE WITH JANTSCH
Charging value-based fees is not as easy as Jantsch makes it sound. It’s not simply a matter of suddenly switching from one to the other and I think there is a case to be made for per-[metric] rates.

Per-[metric] fees are transparent: Frankly, it’s easier to set your prices on an easily identifiable metric that all parties can agree on. There’s transparency in a per-word rate or per-page rate or per-hour rate. Clients like seeing the common denominator that things “boil down” to.

Per-[metric] fees are expected: Like many other writers, I quote on all three rates (per-word, per-page, and per-hour, depending on the type of project) simply because that’s the “language” that my clients speak. They expect it and I find it convenient because I don’t have to explain the metric to them. Most of my work is achieved through proposals and the requests for proposal that I’m responding to will frequently outline the exact metric that they expect to use… and it’s never “business value”.

Per-[metric] fees take less time to quote: I don’t have to quote and quote and quote every time they need a new project. My clients know what I charge and if they see the value I offer, they will often find the budget to pay for additional work.

Per-[metric] fees rely less on past value added: In the highly competitive markets I work in, my clients aren’t exactly forthcoming about the successes they’ve had and the degree to which my work contributed (making measurable testimonials a little more challenging).

Per-[metric] fees are easier medicine to swallow, especially for small clients: Per-[metric] fees aren’t that different than unbundled fees you see in other selling scenarios. Clients — especially small businesses — will find an ongoing, seemingly more quantifiable rate much more affordable and “accessible” than a great big unexplained dollar amount from a value-based fee (even if that dollar amount is spread over several months).

Per-[metric] fees keep project scope manageable: Maybe it’s me (yes, it’s probably me) but when I see a value-based fee, I expect that to be for the finished service. And scope creep doesn’t seem to be accounted for because the value of the end state doesn’t change. So charging a value-based fee seems to be an invitation for scope creep. But a per-[metric] fee is a great way to help manage scope because you can point to the changing metric as a need to increase the budget or maintain the current scope.

IS JOHN JANTSCH WRONG?
I don’t think so. I agree with Jantsch in theory but I find his advice (on this matter) to be less helpful in practice. Jantsch is a respected guru and didn’t get where he is by being wrong.

Value based fees DO work and I would love to live in a world where my work could easily be quoted based on value. Certainly a degree of fame can help you charge whatever you want and the value perception will be there. But I’m not there (yet).

And, to some degree, I think Jantsch realizes this as well. After all, his books The Referral Engine and Duct Tape Marketing are priced under $20 and his Ultimate Small Business Marketing System costs up to $399… (even though the value of each product is arguably much more than that).

THE END OF THE STORY IS THE SAME
Regardless of whether you charge a value-based fee or a per-[metric] rate, the end of the story is the same: You’ll only be hired if people are willing to spend that amount. And one of the ways they will decide whether to hire you or not is by considering the value they will derive from your work. (Yes, they WILL make that consideration even with your per-[metric] rate).

So your job is to position yourself as being worth what you charge… no matter how you charge.

IT ALL COMES BACK TO POSITIONING
How you present yourself and your products or services is the factor that will determine whether or not people spend what you ask them to spend. So, if you want to make more money then don’t worry so much about whether you’re charging value-based fees or a per-[metric] rate… instead, market yourself even more than you have. Explore new marketing opportunities. Flood the web with content by you and about you. Collect testimonials. Network relentlessly.

Then you can charge whatever you want… and however you want.

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