I hope my two suggestions for boosting practice revenues in last week’s conversation inspires you to try something different. Use Ron Everett’s BVFLS service matrix to evolve into a higher valued service. Or generate new sources of revenue by creating valuable resources that your audience of clients, prospects, and referral sources feel like they must purchase. Or do both.
On to this week. You get what you pay for. We hear this cliché most often intoned in a pejorative sense, but is it true? How do we know? Take your practice … how do you determine the fees you set for your professional services? Only one answer makes sense, which you will undoubtedly agree with yet likely dismiss: see In Real Life at the end.
And if you’re new here, welcome aboard. This is what we do!
In response to our prior discussions of BizEquity.com, one of my good friends sent me this Small Business Trends link to 10 Business Valuation Calculators To Gauge Value of A Business for Sale. I had no idea there were so many alternatives. Forewarned is forearmed.
This post is inspired by a LinkedIn conversation with a BVFLS colleague. Here is the original posting:
I recently got a call from a lawyer. She described a case and wanted to know what it would cost, as frequently happens. I gave her my standard disclaimer about litigation engagements being unpredictable and, because of that, I won’t do the work on a fixed fee. But I estimated that the fee would be X. She said she had somebody else who’d offered to do it for half that. I told that if she felt comfortable with the other forensic accountant, she should go with it, but in light of the work involved, I couldn’t do it for that, nor could anybody I know. Good luck to her.
I am sure this phone call sounds familiar to all of us. The sad part is that we never know if there really is another person in the wings who quoted one-half of our fee or whether the attorney is bluffing advocating for her client to see if we will drop our price.
But my friend’s post got me thinking about our fees. Let’s go down the rabbit hole.
There are many markets
Question: Who decides your hourly rate … your fee?
Answer: Only you do.
Oh sure, we can argue that “the market” decides. But which market, exactly, are we subject to?
- The market for our years of experience?
- The market for the type of service rendered?
- The market for where we practice?
- The market for where the work will be performed?
There are two other important factors in play as well.
Self-worth. What makes one appraiser decide s/he is worth $300 per hour and another appraiser decide s/he is worth $400 per hour? The relevant market is the same (whichever one that is), but maybe the first appraiser has an understated feeling of self-worth and the second appraiser an inflated sense. It doesn’t mean the $300 per hour work will be worse or the $400 per hour work will be better.
Overhead. My Practicing Solo interviewees often state they charge a lower freight because they have less overhead. Overhead is relevant to an appraiser for his/her profitability; it may create value for the client. For example, a research library creates value while high-rise rent does not (though it may give the illusion of creating value). But is the work of an office-in-the-home appraiser worth less than the work of a fancy-digs appraiser, all other things being equal?
In real life
How do you feel when you pay for professional services? You feel good when you believe you received the value of what you paid. Now put yourself in your client’s shoes.
Our fees should be based on the value our client receives (the pain relieved). And note that the same service could have different values to different clients. That’s why one of the mantras of value pricing experts is to price the client, not the service.
To view this through a lens we can all identify with, let’s stop setting fees according to fair market value (the value to any hypothetical willing prospect) and start setting them according to investment value (the value to the specific prospect who is in front of us right now).
We have little or no reality check for our fees – just anecdotal evidence we’ve gathered about what someone else charges or what “the market” will bear (and distorted by confirmation bias).
To survive in our ever-more competitive industry, we need flexible pricing – not standard hourly rates – that reflects the value each client receives.
It’s the only market that matters.
Reading that can help
I have recommended this book before: Implementing Value Pricing: A Radical Business Model for Professional Firms by Ron Baker.
Not that I am advocating value pricing here … just that this book provides an insightful framework for what we should consider in our pricing.
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