In the March 19, 2018 issue of The Revenue Driver, I wrote that the practice of charging by the hour kills revenue growth. A few readers said that the concept of value-based fees fails when the work is complex.
I promised I’d respond this week. The question is:
“Is it possible to use value-based fees for complex work—and not lose your shirt?”
The answer is “Yes.”
Complexity is actually the very best reason for value-based fees. When your work is complex and your clients value your expertise in that complexity, your value proposition is simple: we provide our expertise to generate a high value outcome for you and our fee is commensurate with that outcome.
The point is that as an expert you can predict with a high degree of accuracy what work will be required to achieve the outcome and value. If you can’t do that—or you’re afraid to do that—then you’re not really an expert.
Each new client project is not new work. Use your history to project the future.
One of the biggest objections from people who see their work as complex—read that as unpredictable—is that they won’t cover their expenses and make a profit from a project they do for a value based fee. They fear the work will go awry and they’ll be stuck delivering for a too-low fee. This is called risk. And you are entitled to get compensated for taking this risk, which becomes a component in your value based fee.
The problem is not that value based fees don’t work for complex work. The problem is that providers have the habit of looking at what they do as a series of tasks and inputs. We’ll do Task A for X number of minutes and charge Y dollars for each minute. Instead of objecting and digging your heels in, ask “How can I offer my work for a value based fee?” That question will lead you to the answer.
Value based fees are the only ethical approach to offering your expertise. They are ethical for two reasons: 1) they eliminate the conflict between the client’s need for speedy results and your need for revenue; and 2) you assume the risk that, as an expert, only you have the knowledge to assume.
Value based fees are appropriate for every kind of work. From plumbers to lawyers, from designers to landscapers, from CPAs to consultants, experts of every kind should be able to build client engagements with clear outcomes and value and offer that value for a fixed, or value based, fee.