Wednesday, August 25, 2010

Why Do You Charge So Much?

Randolph's Tough Question

Randolph is one of the sharpest technical consultants in my network. Until yesterday, I'd have bet a hundred bucks that no client could stump him with a question - but I'd have lost.

When Randolph called for a bit of meta-consulting, he was so nonplussed I had to spend three whole minutes in idle chitchat, which wasn't Randolph's usual no-nonsense style. Finally, I couldn't stand the suspense, and I asked, "What's the matter, Randolph?" (Nobody calls him "Randy" more than once. It's Randolph all the way.)

"Why do you charge so much?" He blurted so quickly I didn't believe I'd heard him.

"Say what?"

"Why do you charge so much? That's what he asked me!"

"Who asked you?"

"My client. The new one."

"So what did you tell him?"

Pause. Sigh. Longer Pause.

"Randolph? Are you still there?"

Pause. Finally a weak voice said, "I didn't know what to tell him. That's the problem."

I recognized the problem and tried to reassure him. "Randolph, you're not the first consultant who's been stumped by that question. And you won't be the last."

"But I've got to go back there tomorrow, and I don't have an answer. I need help."

Turning the Question Around

Well, yes, Randolph did need help, and perhaps you do, too. Do you hesitate and stammer when your client asks this dreaded question? Are you ashamed to explain to your employee friends who make one-third of your hourly rate? Do you feel guilty that you make so much more than your spouse, who works much harder than you? And how do you handle yourself when the IRS asks you the same question? Well, I'm your meta-consultant, and unlike your IRS agent, I'm really here to help you.

First of all, I'm going to advise you to meet this question head-on by turning it around. Instead of emphasizing how much you're getting, emphasize how much they're getting. Many clients are unclear as to just what they get in return for your fee. This is not surprising, as your fee covers a wide range of intangibles. That's why you need to break out the various components, which I've done in simple ABC format so you can remember next time you're put to the question:

A. Attention. I suspect my clients would be astonished to discover how much time I spend thinking about them and their problems when I'm not "at work." I might be hiking in the woods, or reading a magazine, or taking a shower, and a thought comes to me about something that will help my client. For example, I was driving back from Los Alamos last week and suddenly realized that I'd spent the whole distance from Jemez Springs to Corrales working out a transition plan for a client in Ohio. I could have been enjoying the enchanting scenery - and perhaps I was. But most of my conscious mind was in Cleveland, developing the plan. Supper had to wait until I had the details in my Mac.

And that's just conscious attention. I don't know about you, but I often dream about my clients' problems, often awakening in the middle of the night with solution ideas. This happens so frequently, I keep paper and pencil handy on my headboard, where I've mounted a high-intensity lamp that won't awaken Dani when I'm scribbling away at three in the morning.

B. Barring Competition. While working with one client, I won't work with a client who competes directly with them in the area I'm working. This exclusivity sometimes reduces my opportunities for paying work, but clients may take this service for granted if I don't point it out to them.

C. Celebrity. As my reputation has grown, I've noticed that my clients are quite willing to use it to sell their product or programs within or without the company. They may not be aware that this use of my reputation creates a risk for me. If they make a mess, some of the dirt rubs off on me.

Ah, I've now run through ABC, but there are more items in this alphabet.

D. Dexterity. My clients unconsciously expect me to be on call, not only for the planned activity, but also for unexpected emergency jobs, incidental questions, idle speculation, and all sorts of administrative work such as rescheduling at their convenience. Moreover, unlike their employees, I get neither sick days nor vacation days. When I say I'll be there- and sometimes when I haven't said - I'm there. Even when I'm not there, I've implicitly or explicitly restricted my other activities so I'll be able to respond to their needs in a reasonable time.

Moreover, although I don't get sick leave, and I don't participate in their health benefits, I'm often expected to work under pressure, at odd hours, in inaccessible locations - all the while operating at top efficiency.

E. Education. Speaking of top efficiency, my clients don't pay directly for all the education I bring to the job - not just my formal education, but, for example, the thousands of hours I spend reading in related fields. I figure that in a typical year, I read the equivalent of two books a week, perhaps more. Very few of their employees devote this kind of personal time to their own development. And, when they take a seminar or attend a conference, their employer pays for them - but not for me. (Well, sometimes they do, if it's directly related to their problem and nobody else's.)

F. Flexibility. My clients can release me in a minute if they no longer need my services. Even in these days of downsizing, they don't have this cheap kind of flexibility with their employees.

G. Gratuity. Although I may charge clients for out-of-pocket costs, such as transportation and hotel rooms, I don't charge for meals, supplies, reasonable phone calls, faxes, mailing, and so forth. All these gratuitous expenses save paperwork for my clients, and they're lumped in with my other overhead - my own office space, utility bills, computers, software, network services, professional services, and the like.

H. Honesty. The work I do for my clients can sometimes literally mean the life or death of a project or campaign. This is a grave responsibility, and I accept it fully and do whatever is necessary to give full value. And, unlike an employee, I offer my clients a money-back guarantee of satisfaction with my work.

I. In-house Labor. Nowadays, most consultants/contractors are paid by the hour, or sometimes the day or week. This method of payment tends to emphasize a single tangible component of what my client is getting - my face time toiling on their premises. If they look at me as simply another grunt, grinding away in their office, no wonder it's hard for my clients to understand why my apparent rate is larger than that of their typical employee. They're missing all the other letters of the alphabet.

ZZZZZ. Sleep. Of course, I do have to sleep once in a while - and, unlike some of their employees, I'm not charging them for this. Even when I dream about them.


So there you have it, my Abecedarian cheat sheet that will prevent both you and Randolph from ever again being stumped by a client's question.

7 comments:

sdelesie said...

Jerry,

Thank you so much for this post. It is rather timely as I became an independent consultant/trainer/coach this year, and am discussing engagements with potential clients. Your advice, as always, is warmly appreciated.

- Selena

ernie said...

I'm sorry but the answer is much simpler. You, the client, asked me a question because you did not have the answer and you hoped I did. If I provide the answer that alluded the client then no matter what the price it is worth it to the client if you give them the answer and you help them move on.

dmitry said...

The bottom line is that I'd want to cover my expenses. Anything on top of that is supply/demand. If I have more clients than I have the time for, I raise the price to repel some (unless I can expand); if I have fewer clients than I have the time for, I lower the price to attract new work. I think it's that simple.

ab said...

Dear Jerry,

I would like to thank you very much for such a great article.

I found myself in the same position in many occasions and those are pretty much the same points I follow when I have to discuss the amount of money involved with them.

If I may, I would like to add a point: emphasizing how much they get in return from the value that you have added to their business. That is another great way of letting them know that not only did they get an excellent job done, but also how much will that job represent in terms of savings, be those now or in the future, in time or money, etc.

Regards,
DarĂ­o

Brian said...

Jerry, all of your selling points are good and valid.

And I wonder how this conversation started.

"Why Do You Charge So Much?"

My comeback would be (to quote one G. M. Weinberg), "So much as compared with what?"

I see this question as implying "Others work cheaper, why are you 'worth' more?".

More than what, or who?

And it's an opening gambit in the game of "Cut your prices, because I need to get more for less". I. e., commoditizing your services, and hence, you. I ain't playin' that game.

Bottom line, I think it's vital to probe for the client's real concern, before overloading him/her with all that salesy stuff, which addresses every possible concern.

Gerald M. Weinberg said...

I like what commentators added about talking about why you're worth "so much." Any consultant should definitely be prepared with this answer, but it doesn't work as an answer to this direct question.

Why not? Because now you're giving what sounds like a sales pitch, not an answer to a prospect's question. It sounds as if you're evading the question--a question I'm never ashamed to answer. And, it's fact-based and not subject to much argument (of course, anyone can argue anything, but if the questioner argues with your facts about your own business, it promises a poor relationship for the future).

AFTER you let them know why your costs are what they are, then if they accept your facts, you can suggest that you'd be glad to work with them to help them figure out what your services would be worth. Not, notice, to "tell" them.

And, for me, the clincher is always my money-back guarantee: if it's not worth what I charge, then don't pay what I charge. With that guarantee, I seldom have to answer "Why will your fee be worth it to me?"

Brian said...

Ah yes, the money-back guarantee, another Weinberg gem!

"Why will your fee be worth it to me?"

Yes! Notice that this turns the focus from your "worth" to the value the client receives or perceives.