A prospect told one of our clients why they don’t trust hourly billing.
“Prospective client asks: How much will you charge for my project?
Owner: It depends.
Client: Depends on what?
Owner: On how much work we need to do. The more hours, the higher the cost. Also, it depends on which associate does the work. We charge different rates for different associates.
Client: Well, I want the lowest hourly rate.
Owner: We can’t promise that. We assign client work according to the needed experience and complexity. Not everyone can do every kind of work.
Client: How can I trust that you’ll assign the right person, not the highest billing person?
Owner: We are known for our integrity. You can trust that we give your work to the right person, regardless of their rate.
Client: So, you can’t tell me how much my total cost will be, and you can’t assure me that you won’t assign the highest rate person to do my work?
I think I will look somewhere else for this project.”
How Could They Have Signed this Prospect?
This Owner was frustrated and dismayed. “The prospect would have been a great fit,” he said. “Our designers are renowned for excelling in this kind of project. How could I have avoided losing the prospect?”
IMPACT Based Pricing
The simple answer is that he should have talked with the prospect about the life changing IMPACT the firm would deliver and that the cost for that impact would be $XXXX.xx
Since the Owner had never introduced the promise of delivering life changing impact early in the conversation, it was inevitable that they’d get to these questions about fees that made the prospect go elsewhere.
Resistance is Waning
The Owner and I had talked about IMPACT based pricing several times and he had resisted.
Maybe now he would be open to phasing it in.
“You mean, we should adopt value based pricing, right?”
“Yes,” I said. “IMPACT (Value) based pricing gives the client the total fee beforehand. But more importantly, you don’t get into the internal decisions about how you assign associates which prompts suspicion about hourly rates, efficiency, and quality.
Why Many Hourly Rates?
Many companies believe they have to charge different rates for different associates to be “fair.”
1) Not everyone has the same experience, so they shouldn’t cost the client the same.
2) Different types of skills have different levels of value.
Also, firms can build their reputation by charging more for their associates with the most to offer.
These Reasons are Distractions!
Clients want to know that your firm will deliver a valuable outcome to them, and they want to know, beforehand, what the price or fee is for that value.
They do not care about your internal financial calculations, personnel decisions, cost structure, reputation building, and profit goals.
The design firm Owner agreed to work through our Crack the Pricing Code process for identifying the fee-to-value ratio that would apply to his firm’s work. We spent three weeks working through the four steps. At the end of that time, he was ready to begin the phase-in process. He started with some long-time, very committed clients.
The response was enthusiastic because they would now know the full fee in advance for the specific life changing value they needed.
When You’re Ready
- What’s the conversation like when a client or prospect asks for the final fee or price, and you have to tell them you don’t know?
- What do you say when they ask for the “lowest rate”?
- How do you answer when they ask why you didn’t assign their work to your lowest cost associate?
- Can you recover when they decide to look elsewhere for a firm that articulates the life changing IMPACT they will deliver and tells them the final fee before they begin?
Please schedule a STARTER call with me before you have another one of those conversations. Book here or text STARTER to 703-801-0345. Why? Because by the end of our STARTER call you will have 1 ,2, or 3 action steps you can start immediately to reduce the losses from hourly rates.