Have you ever shopped for a new car by asking what it cost to make? What about how much that flight to Hawaii costs the airline to make? Yep, neither have I; I’m more interested in whether the price is worth it to me. Yet this is far too common when clients seek to purchase professional services.
Hourly rates steal attention from what truly matters
By and large, clients ask for our rates because we have conditioned them to over the past several decades. This has caused an untold number of relationship issues during that time. Unfortunately, the hourly rate implies it is directly related to our effort and thus our costs, which opens the door for many unhealthy and unnecessary conversations that steal focus away from the client’s desired outcome — what they really value.
The perception of cost baked into an hourly rate leads clients to calculate your profit margin and attempt to whittle it down to something they feel is “acceptable” and comparable to other firms they are evaluating. No one wins when this happens - not the client and certainly not your firm.
Price is what clients pay, value is what they receive
When done correctly, price is what dictates cost. And price is determined by first understanding the value of the client’s desired outcome. So many firms start from the other direction, effectively determining cost and then adding a desired margin on top of it. Yet that has no bearing on what the client values the outcome at so firms inadvertently put a ceiling on their income potential.
Shift the conversation back towards value
There is a remedy. It requires real interaction with clients upfront to understand what they want to achieve and focusing on that outcome. It requires confidence in the value you represent - the experience and expertise you have amassed over countless hours and years. It requires formulating a fixed price that captures the value at hand and helping your client recognize that it’s in their best interest to go that route. And, it requires that you guarantee your price and service - taking on some of the risk that the client had to carry in the old model.