March, 27 2009
Value Method: Another Strategy for Bill Rate Calculation
Posted by Liz GreeneWhat are you worth? It’s a very important question for independent consultants, and one that we’ve been answering throughout our blog series on bill rate strategies.
But what if we ask it a different way…
“What’s your value?”
Does rephrasing the question cast your “worth” in a new light? When bill rates are calculated using the "value method", the value you bring to the client, rather than just what your costs and competition dictate, you define yourself as more than a commodity. You become a strategic partner for the duration of your contract – one that will help catapult them to new heights as an organization, position them to win the next big contract or project, or fix a problem that will lead them to become more profitable industry leaders. Or at least that’s how to sell it.
The value based bill rate strategy is definitely the most nuanced of the three we’ve discussed in this series (the other two being cost based and market based). It is a strategy appropriate only for consultants, and will be specific to each, individual engagement. While your consulting business may focus on your expertise and experience in a particular subject area or skill, what you bring to the table for each client and each project you complete for that client will vary greatly. You calculate your “price” based on the value you bring and the client’s ROI.
So if there isn’t a set rubric by which you calculate your bill rate using the value based strategy, where should you get started? We’ll discuss this at length and help you understand pricing approaches like contingency fees, retainers, hybrid or blended rates, and fixed price bidding during our upcoming webinar, so make sure you sign up to join us March 31st.
Here’s the bottom line: This might not be an easy sell, but it will be worthwhile. Your value is what sets you apart in the marketplace and what can guarantee you a seat at the table in future projects and contracts.
Remember, in calculating your bill rate, consider your costs, the market, and the value you bring and come up with a rate range. Then be ready to recalculate annually based on inflation, shifts in market, and the current economic landscape.
Don’t miss out on a dynamic, interactive presentation by Gene Zaino, President and CEO of MBO Partners on the subject on bill rate strategies entitled, “Independent Consulting Bill Rates: Figuring Out What To Charge.” This free presentation is a reprise of our bill rate webinar last month, and because of its popularity, we’re bringing it back on March 31! Registration is required. Sign up now.
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Liz Greene at 11/06/2009 15:43:04
David, thanks for your comments and participation. Your point is taken about the use of the word billing versus pricing. I think there is a lot of variety in the way people use these terms in real life. I agree that billing begins after the services have begun -- except in cases where you bill a deposit up front.
Consultants often ask us, "How much should I bill for my services?"
The intention of this blog is to get helpful independent consulting content out to people who are looking for it. Terminology about value based pricing could apply to almost anything, goods as well as services. Speaking in terms of billing rates rather than pricing brings us somewhat more specifically into the world of people asking the question, "How should I charge for my consulting services?" or "How should I calculate my consulting bill rate?" We strive to make the blog appear in relevant google search queries, so we use more specific terms sometimes even when, from a purist point of view, one might have arguably used a more accurate but vague term.
This series presents three approaches for thinking about pricing strategies, and while we touch on it, it isn't specifically about winning deals and contract negotiation. That can and should be another series.
The intro to the series suggests that both new and experienced independent consultants try thinking about how they can structure their bill rate strategy in each of these ways (cost, value, and market benchmarks) and what the rate would look like in each of these worlds before making a decision about how to proceed.It can help them identify the top and bottom of the range, and think about how to bid and structure deals. It is only a starting point for a process that is surely an art.
There are surprising number of consultants and independent contractors out there that will google up some bill rates for their skill set and pitch themselves with an hourly rate, running the risk of commoditizing their services and rendering them susceptible to global rate pressures, and perhaps undervaluing the skills and experience they bring to a project.
Our sincere hope is to volunteer some perspectives when we can spare the time to do so, perspectives that with enrich their understand of how to think about pricing. You might enjoy our most recent webcast, archived on our Vimeo Channel, where we interviewed three seasoned consultants and asked them to discuss their recession pricing strategies.
http://vimeo.com/6685781
The MBO Partners Vimeo channel also has the video of our Bill Rate Strategies webinar, which presents Gene Zaino's perspectives on pricing strategies for consulting, freelancing, and independent contracting.
Please do continue to read and participate. We value the feedback and interaction, and I welcome the challenge. Let us know what you think about the videos.