Thursday, April 13, 2006

Money Questions 1.

Q: What’s the most common question you’re asked since the publication of your two books on consulting?

A: It’s no single question, but a collection of questions around a common theme: money and the consulting contract. In The Secrets of Consulting, I’ve written about how to figure out how much to charge, but not about other issues like the messy business of collecting what you charge, or how to deal with price negotiations. So, for a while, I'll provide “extra chapters” to answer address some of these untidy questions.

Q: A prospective client wants me to lower my rates. He says he can hire other consultants for 30% less than I’ve asked for. What should I do?

A: Don't ever let yourself be a commodity. I learned this lesson early from my grandmother, Ethel, who owned a grocery store. “Don't be a commodity,” she always said. “Everyone can buy the same groceries, and the supermarkets can buy them cheaper than I ever can. So I have to offer something different.”

Ethel did things in the store to differentiate her from other stores in the neighborhood. She was nicer to her customers. She knew everyone one of them by name, and gave each one of them personal attention. She loved to take special orders from them, and went to a great deal of trouble to find exactly what they wanted. In those items, like meat and other perishables, she offered better quality than the supermarkets.

She offered many “extra” services, some of which have finally been taken over by today’s supermarkets. She offered credit, which was rare in grocery stores in those days, and absolutely taboo in supermarkets. She cashed checks, put things away for her customers who called, and provided a delivery service (which was often me, when I was in town).

In general, she was aware of her customers' requirements, and responded with inventory that matched their individual tastes. (examples)

So, offer something extra, but don’t lower your price.

Q: Should I pretend I have more qualifications than I really do, to keep my price up?

A: Don't pretend you're what you aren't just to get a job. If you do, you'll soon be complaining that the job doesn't fit the real you.

Q: My client just won't budge. Aren't there some circumstances in which it's okay to lower my price?

A: If they give you something extra, you can lower your price accordingly. For instance, if they're willing to pay you a non-refundable retainer up front, you can offer a discount. Or perhaps they'll pay certain expenses that you were prepared to pay yourself. Over the years, clients have given my the use of cars and computers as extra compensation—compensation that didn't really cost them anything because the cars and computers were just sitting around not being used.

Perhaps the biggest break I give is when the client does not require I come to their offices to consult or teach. If they come to me, the get a discount. Some young consultants think of the travel itself as a form of compensation, as I did long ago. Now, travel is a definitely negative for me, so I reward those clients who don't require it.


Matisse Enzer said...

I have a standard rate that I quote clients and I will discount that for a contract that offers a couple of months or more of steady work.

Rob said...

If the prospective client won't pay the rate, I usually walk away.

But if the realistic long term rewards make up for any immediate shortfall in my rate, then I will consider the bigger picture.