So, How Do We Benefit From Your Value-Based Fees?

This short list explains how value-based fees overcome the inherent unethical aspects of time-based per diem fees. It shows why it is in clients' best interest to work professionals on this basis.

1. There is a definite ceiling on your investment. You know exactly what is to be invested and there are no surprises.


2. There is never a stopwatch running. You do not have to worry each time my assistance is requested that we might be here for an hour, a day, or a week.


3. It is unfair to you to place you in the position of making an investment decision every time you may need our support. Otherwise, you are trying to determine the impossible: Does this issue justify a $1,000 site visit or a $200 phone call. You should never be put in such a position.


4. Your people should feel free to use my assistance and to ask for my help without feeling they have to go to someone for budgetary approval. This only makes them more resistant to sharing their views, and at best delays the flow of important information.


5. If I find additional work that was unanticipated but must be performed, I can do it without having to come to you for additional funds. In those instances, legitimate, additional work would otherwise be viewed as self-aggrandising and an attempt to generate additional billable time. That is plain unethical.


6. If you find additional, related work that must be done, you can freely request it without worry about increased costs.


7. The overall, set fee, in relation to the project outcomes to be delivered, is inevitably less of a proportional investment than hourly billing. We all have heard about legal cases where the legal cost was $100,000 to deal with a $10,000 claim. And if the claim is successful, the client is out of pocket by $90,000. That is robbery.


8. If your situation changes in your organisation in any way, you won't be in the difficult situation of having to request that the project be completed in less time. The quality approach is assured, since the fee is set and paid.


9. If I decide that additional resources are necessary, there is no cost to you and I can employ additional help as we see fit.


10. This is the simplest way of working together. There will never be a debate about what is billable time (e.g., travel, report writing) or what should be done on site or off site.

Summary

There is a key distinction here. Professionals who set value-based fees focus on the outcome of the project, that is, the improvement in the client's condition. Professionals who set time-based fees focus on selling more hours, which may or may not contribute to end results. Value-based fees are client- or outcome-centred, whereas time-based fees are self-centred.

As a client, you can't improve your situation simply by purchasing 10 hours of consulting time. It takes demonic focus on the objectives you want to achieve. During the US civil war, General McClellan's union army could, drill, march, dig trenches and looked militaristically impressive. They just couldn't win battles.

General Grant, on the other hand, was more relaxed about this dong and pony show, but he knew how to use his army to defeat the Confederates. Grant became a national hero. Where is McClellan in history? In the footnotes. McClellan knew how to perform tasks. Grant knew how to create results. Huge difference.

When a pregnant mother selects a doctor to oversee her pregnancy, she is not buying number of hours from a gynaecologist. No!

She is making an investment in her healthy and happy baby, and The perceived value of the outcome (the baby) will determine whether she invests in a top notch doctor or hires the cheapest medical charlatan. And while not even the best doctors can guarantee the outcome (the healthy baby), hiring the cheapest doctor is definitely an invitation for a family disaster. I suppose being cheap is just a form of being dumb.

I am one of the less than 10% of management consultants who has adopted the value-billing fee-structure, the only fee-setting method that aligns the client's and the practitioner's interests, and allows clients to pay what they perceive to receive through the services they retain me for. The investment becomes the function of the expected return. This approach also allows clients to better manage their budgets for the project. They receive a fixed amount to invest upfront without extra costs hidden in small prints.

Back to main FAQ page.