"C2B" Consulting-to-Business
Dwayne D. Jakes & Associates Management Systems, LLC
P.O. Box 12361-2361
Columbus, GA. 31917-2361
Phone (706) 561-5346 Fax (706) 561-8644
E-mail C2B@ddjakes.com
Website http://www.ddjakes.com
Value Based Billing
“C2B” is in three
sections this month:
1.
Client’s Perception in Determining Fair Market
Value
2.
Distinguishing Between Cost & Value
3.
Relationship Between Value & Price
Many organizations
are generally familiar with the standard
market prices for the services you provide.
Chances are
that they may have used the services of other consultants before you happened
upon them, or they took the time to survey other consulting firms before they
contacted you. The higher your price, the less demand there will be for your
services. Though charging a high fee
for your services may be exciting and profitable, if your price is too high,
you may not get enough business to support yourself. When you price your services, keep an eye on the rates that other
consultants in your field charge. If
your prices are significantly higher than average, you must be able to
demonstrate the advantages that your clients will receive as a result. The only way that you can price your
services above the market is to convince your clients that you are the best
person for the job period!
It is
essential to understand the difference between cost and value. Value
is not a mere reflection of cost. It
is, above all, the client’s perception of what have been added to the business
thanks to the consultant’ s intervention.
This perception can be very subjective.
To one client, a retainer may have high value since he can call on the
consultant whenever he needs to. To
another client, such easy availability has no value and she would not be
prepared to pay for it.
Competition
tends to ensure that a relationship between value
and cost is maintained, and
re-established when necessary. In a
free and open market, consultants could not afford for long to sell service of
low value for a high price, claiming that this is justified by their cost. If the consultant believes that the price
must be high, and the client fails to see a reasonable relationship between the
value-added to the business and the price paid, something is wrong.
There are
reasons behind the current efforts to apply what is now commonly called value billing, or value-added billing. In value-billing the price paid by the
client is a proportion to the value added by the consultant. This approach does not preclude the use of
any form of fee setting and billing. A per diem fee may be perfectly correct and
the daily rate may even be tripled if the issue at stake is important and the value
to the client will be high.
The time when
a consultant could say, “I am a
professional and this is the price for my time” is gone. Increasingly, management and business
consultants have to think of the value of the service rendered and of the
degree of client satisfaction, aiming to judge them from the client’ s
perspective, and discuss them frankly with the client. This will help to reduce misunderstandings
and conflicts over the relationship
between value and price.
“C2B” Consulting-to-Business is a free, monthly, electronic
newsletter written and published by Dwayne D. Jakes, D.B.A., Founder &
Managing Director of Dwayne D. Jakes & Associates Management Systems,
L.L.C. Past Columns are archived at
Copyright June 2003, Dwayne D. Jakes & Associates
Management Systems, LLC. All rights reserved. Reproduction is prohibited. We
encourage sharing “C2B” Consulting-to-Business in whole or in part
if copyright and attribution are always included. Distribution and Reproduction
without attribution prohibited.
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