FAQ: How Does You Fixed Fee Structure Compare With Time Based Fees?

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

First Let's Look At The Problems With Time-Based Fees...

Basic Premise

Service -> Cost -> Price -> Value-> Prospect: You offer certain services -> You figure out the minimum payment you can accept -> You figure out your asking price -> You expect the prospect to perceive your value higher than your price -> Prospect pulls his decision about your price out of thin air and tells you about it.

Your prospect is a mere afterthought in the equation. You don't help the prospect to establish value. The discussion revolves purely around the price you ask for, and most prospects try to haggle it down. You present your price tag, and since you can't present value, prospect responds to your price: "Drop it, or get out".

Can you see that strategic improvements are in the mercy of tactical action steps? And that is wrong. "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat." ~ Sun Tzu - The Art of War

And here is the value-based model in which we define specific improvements we are seeking and flexibly adjust the tactical steps to get there.

Prospect -> Value -> Price -> Cost -> Service: Prospect perceives the value of your services -> Prospect tells you the perceived value of your services -> Prospect tells you what he's willing to invest to acquire your value -> You figure out how to deliver that value effectively -> You deliver the value through your services.

As beauty is in the eye of the beholder, similarly, value is in the perception of the prospect. But it's your job to create that perception. If you don't create it, the prospect can't recognise it. The establishment of value revolves around the prospect's perception.

So, Here Are Some Client Benefits

There is a definite ceiling on your investment. You know exactly what is to be invested and there are no surprises. You set your investment according to the return you are seeking. Small investment if you want to build a doghouse and larger investment if you are after a palace.

There is no timer running. You don't have to worry each time my assistance is requested that I might be here for an hour, a day, or a week. But you always know that we focus on getting things done instead of just getting through a certain number of hours and activities.

It is unfair to you to place you in the position of making an investment decision every time you need help. You should never be put in such a position.

Your people should feel free to use my assistance and to ask for my help without feeling they have to obtain budgetary approval from management. That would only make them more resistant to sharing their views, and at best delays the flow of important information.

If I find additional but unanticipated work that must be done to achieve our objectives, I can do it without asking for extra money. 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.

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

The overall, set fix fee, in relation to the value of the project outcomes to be achieved, 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 win a $10,000 claim. And if the claim is successful, the client is out of pocket by $90,000. That is robbery.

If conditions change in your business, you will not 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.

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

This is the simplest way of working together. There will never be a debate about what is billable time or what should be done on site or off site.

Summary

The biggest problem with hourly rates is that you are rewarding sloth and inefficiency. The more slowly one works to help you, the more you have to pay. Would you double your payment to your dentist just because he takes twice of the time to pull your tooth out, making you suffer for twice as long?

There is a key distinction here: Professionals working on fixed value-based fees focus on results and outcomes, the improvement in your business. Hourly paid professionals focus on getting through the day, marking time and if possible selling more hours, which may or may not contribute to end results.

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