The biggest question everyone always wants answered:
How much?
“How much should we charge for the IMPACTs we create?”
Risk Alert!
Before I answer the question “How Much?” I have to clearly and emphatically warn you that there are risks that could derail you before you even start.
- You could think I’m describing charging for time. You’ve been conditioned by everyone everywhere that time is money. No, it’s not. But that is so embedded that I fear it happens without conscious choice. That’s the risk. What I am about to describe to you is NOT about time being money. If you don’t believe me, you will fail to do this properly.
- You could get hung up on the numbers which causes you to procrastinate and dither until you throw your hands up in despair and give it up altogether. The number is guide, a starting point, and that’s it. No one will be auditing the number you settle on.
- You could let your fear of what clients will say stop you in your tracks. Yes, this may cause a bit of discomfort. The response is to work on your own confidence with IMPACT Based Pricing.
Calculate The Starting Number
Add up all the firm’s expenses.
Don’t obsess over this. A round number that represents all the money that goes out of the firm for all the reasons a firm spends money is what you want.
Divide the total expenses number by the number of hours your firm is open for business. Let’s use the typical US practice for professional services firms of 40 hours per week. That’s 2080 per 52 weeks. Your firm can use a smaller number if you prefer, but please do not use a larger number!
Let’s use, for example, a total of $1 million in expenses. Divide that by 2080 and you get $480.
What does the $480 represent?
It represents the resources needed per hour to operate the company 40 hours per week for a year.
Remember, professional services firms have little to no cost of goods sold (inventory) or other variable expenses that fluctuate as revenue fluctuates. This number represents the costs of the firm being open for business whether there’s one client or hundreds.
Using the Resources Needed Number in your Options
Once you’ve completed a discovery call with a client or prospect, the client may want to receive an offer letter from you. The offer letter includes 3 customized options with fees proportional to the IMPACTs created. (This is the Choice Framework.)
This is when you use the resources needed figure.
For each option (IMPACT PLUS, IMPACT, and IMPACT Light) you will estimate the portion of your resources that will be used to create the impacts you offer.
Here’s where the first risk, falling back into thinking into time is money, can sabotage you.
When I say consider the portion of your resources the option requires I mean to do that loosely. You may think, “this will take one quarter of my available resources each month for three months.”
If you’re faithful to the concept of IBP, you choose ¼ of resources available each month for three months. That’s 40 hours per month times 3, or 120 hours over three months. Multiply 120x$480.
That’s $57,600 for a customized option that runs for three months.
This number should be the starting point for your fees.
IMPACT Opion First
I always design the IMPACT option first.
This is the one that is most clearly designed to create the impacts the client explicitly asked for. You’ll adjust it according to the significance of the IMPACTs you’ll create for the client with that option.
That’s the answer to “How much?”
It’s impossible for me to convey all nuances of answering the question in this short article. This question gets a lot of attention when I work directly with firms like yours. You will never have to figure it out on the back of napkin!
One thing I know from years of clients is that the answer to “How Much?” is always higher than it ever was before they adopted IMPACT Based Pricing.
Not only that, but the work is more interesting and engaging, the clients are very appreciative, and fees continue to rise and they gain confidence in this system.
If you want those IMPACTs yourself, schedule a meeting with me.
