Justifying high rates

If you follow the media, you’ll sometimes see criticism of the "enormous" amounts spent on consulting fees. The media will gripe about people being paid $150 an hour, $1200 a day or even $30,000 for a month’s work. They act as though these fees are just some sort of patronage payback. Of course, they might be right about the patronage. Politicians do like to pay back their supporters. However, the media are really making a mountain out of a mole hill.

That’s because consulting fees are really about the value the client receives. It doesn’t matter if you’re paying $5,000 an hour as long as you’re receiving something worth that much. And if you don’t have the in-house resources to do it well, quickly or at all, then you’re better off hiring a consultant.

For example, I recently struggled with developing a brochure to promote some workshops I’m putting on. I must have spent 10 hours struggling with the thing. Sure, at some point in my career, when I was making $15 an hour, this would have made sense. But now I realize that I would have been better off to get a designer to do it for $150, so that I could avoid the headache and do other value-added stuff for my business…like developing the workshops, which I can’t really outsource. In the end, I asked a designer friend to come to my aid anyway. So I should have just spent the money in the beginning.

And that’s why it makes sense to pay megabucks for expert advice. It may save you money and help you do other value-added activities that make you money.

Andrea Coutu says:

Absolutely. I frequently turn down projects where I don’t see a fit and I encourage others to do the same.

Joe Smith says:

If I am a consultant worth my salt (which I am) it should not be difficult for me to calculate the cost or cash value I can bring to the client. Otherwise I am in the wrong profession. It may involve some data crunching and an understanding of the client’s business model, but that’s what consulting is about in the first place. And if there is no value for the client, and if I want to maintain my reputation, it is my responsibility to make note of that and be ready to walk away and recommend another solution for the client. Too many ‘consultants’ give consulting a bad name because they try to pull the wool over the clients’ eyes with vague promises and no real value.

admin says:

You know, Brian, I agree with you. There’s a well known consultant out there who trumpets the “value” pitch all the time. But no where will you find a way to calculate that value. And that’s why my page on setting fees is so popular. It’s a straight forward way of coming up with some numbers.

But that’s not the only way to calculate fees. You can also cost out the opportunity cost when the client struggles without your solution. You can refer to the cost of substitutions. You can look at the prices charged by competitors. You can look at how much you’d charge if you were charging an hourly rate.

I think I’ll look at doing a post on calculating value when setting your fees.

Brian says:

Most people really do understand the concept of paying for the value proposition. But what most explanations (including this post) do not include is REAL information on how this “value” is determined.

As long as people keep saying “pay for the value”, “pay for the value”, “pay for the value”, but never explaining HOW this “value” is determined, the sorts of criticism you mention will always be there.

So, please explain how the value is actually determined.