Issue 8 - September 2010

THE SILK REPORT

Warrior Marketing, Selling & Fee-Generation Strategies For Freelancers, Independent Consultants, Coaches & Info-Marketers...

Fee Propulsion: How To Structure Your Consulting Fees So You Get Paid What Youre Really Worth
From: Michael Silk.

Dear Reader,

Jungle or zoo?
Zoo or jungle? Where do you hang out? If you work in a job you live in the zoo and, in almost all cases, get fed a fixed salary. If you operate as an independent consultant you roam in the jungle... and... if you want to eat.... You Need To Hunt And Feed For Yourself Have you ever been to one of those marketing seminars? Where the marketing expert on stage asks the audience what business theyre in? One guy will say hes in the accountancy business. A lady will say shes in the interior decorating business. Another gentleman will surmise hes in the consultancy business. And so on. Then the marketing expert will say something like: All of you are right but, all of you are also wrong! See the business all of you are really in is the business of marketing your services.

Published by: Michael Silk, Michael Silk Consulting, 2 The Compasses, Leigh, Nr, Tonbridge, Kent. TN11 8HT. ENGLAND. T. (UK) +44 (0)1892 871446 F. (UK) +44 (0)844 507 0076 E. MichaelSilk01@Gmail.com

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In other words, youre not in the accountancy business... youre in the business of marketing your accountancy services. Youre not in the interior decorating business... youre in the business of marketing your interior decorating services. Likewise, youre not in the consultancy business... youre in the business of marketing your consulting services. All of which is very true. And the aforementioned marketing expert (having shifted the mindset of the seminar attendees) will then proceed to educate them on how to be.... Better Marketers Of Their Respective Services Maybe the audience will be taught how to create responsive print advertisements for their business. Maybe the audience will be taught how to fuse offline lead-generation advertising with an online name capture and automated follow-up system. And maybe the audience will be shown how to set up endorsed referral type relationships with other non-competing businesses that also serve their target clients. All of which will be excellent information. And thus, each seminar attendee will be armed with marketing tactics and strategies (weapons) they can use in the real-world (the jungle) to harpoon the interest of a prospective client for their services. So far, so good. BUT... then (typically) begins what I call... The Dance Of The Fee Fandango This is where the consultant in conversation (or worse, extended email communication) quotes their fee to the prospective client. Actually, a more accurate way to describe the dance of the fee fandango, would be to say this is where the consultant in conversation (or worse, extended email communication) talks himself out of the fee(s) he could (and should) be getting from a prospective client. And so this brings up an important point. And that point is this: The real business you are in (if you are an independent consultant) is not the marketing of your consulting services. Sure, that is super important. But get this straight. The real business you are in... is...

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The Fee Generation Business After all, great marketing campaigns dont pay the bills. Fees do. And so listen, the rest of this report will be dedicated to the most important (yet most often neglected) business topic for an independent consultant... which is of course... Ensuring You Get Paid And Paid What You Are Really Worth Lets get to it. OK, it all starts with getting conceptual agreement with the economic buyer (the individual within a company who can personally cut you a cheque or transact a bank transfer, or personally see to it that payment to you is taken care of). But what does conceptual agreement mean? For our purposes here, it simply means getting a verbal agreement in principle on three things: An agreement on the outcome (overall goal) the consulting project is designed to achieve for the client. An agreement on the metrics (or measuring criteria) you and the client will use to know if the objectives (stepping stones) leading to the overall outcome are being met. An agreement on the overall value (usually per annum value) to the client if the outcome (goal) is achieved.

Notice that conceptual agreement has nothing to do with any agreement on what your project fee will be. In fact, if you start talking about your fee at this stage... you will have lost control of the process and you will be talking yourself out of the fee you probably could get. But, you say: What if (before conceptual agreement) a prospective client asks you the dreaded question, So how much is this going to cost me? or, What are you fees going to be for this project? Well, if such circumstances arise (and they invariably will) your reply should be as follows: My fees are based on the overall value I provide to the outcome of a project and represent a significant return on investment to a client and an equitable remuneration for me. Do you mind if we look at the value of this project so I can give you an accurate fee? That statement, will, in most cases steer the conversation back toward the value your services will be worth to a prospective client.

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However, if the prospective client still pushes for a quote or a figure on fees then say something like this: Mr Prospect, you seem to be primarily concerned with what the fee will be... is that because you will be making a decision based solely on fees or are there other factors that might be important to your decision? If the prospective client still pushes for your fee at this juncture its a pretty good indication they see you as a vendor and not a peer-to-peer partner on a potential project. And you are going to have to put the ball squarely back in their court like so: In truth I dont know yet. I dont have enough information about what youre looking to achieve and it would be unethical for me to make up a figure on the spot without having more input from you. Where do you think we should go from here? You get the idea. If you mention your fees before you have conceptual agreement with an economic buyer (either by your own volition or pressure from a prospective client).... You Have No Basis For Quoting Value-Based Fees What are value-based fees? And why should you be using value-based fees for project consulting work? Those are a couple of great questions. And the answer (to both) in a nutshell is: Value-Based Fees Will Enable You To Get Paid What You Really Deserve From The Input And Results You Contribute To A Client Project Value-based fees are the antithesis of fees based on time and deliverables. Anyway, lets assume you have a trusting relationship with the economic buyer and you have indeed reached conceptual agreement (i.e. youve agreed on the outcome of the project, the metrics you will use to measure progress toward that outcome and, youve agreed on the value of what meeting that outcome will mean to the prospective client). The question now is: Where do you go from there? Simple: you then say something like: Mr Prospect, based on our open discussion today, I can have a proposal with you within the next 48-hours, with a set of options you will be able to choose from. Now, so that neither of us waste each others time, is there a figure that would represent an upper limit to what youd be able to commit to this project? That last sentence is designed to prevent sticker shock when the client sees (for the first time) your fee structure you are going to provide in your written proposal.

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OK, to bring all this back down to earth, lets you and I assume you are a marketing consultant and you have reached conceptual agreement with a prospective client on a project where: The outcome (overall goal) is to increase the client company sales by 50% at the end of 12-months. The metrics (measure) you will both use to determine if key objectives are being met and progress toward the desired outcome is happening will be month-to-month sales figures and lead-to-conversion ratios. And lets say the value of a 50% sales increase to the client represents 100k per annum.

If that were indeed the case, you are now ready to produce a written proposal based on the value of your contribution to the project (not based on deliverables, hourly rates or day rates). I am going to show you an example of a value-based proposal in a just a moment. But first, its important you understand that a successful proposal (a proposal that gets accepted in the majority of cases as much as 80% of the time) is dependent mostly upon... Correct Sequence & Structure Of The Information You Communicate To An Economic Buyer Weve already covered sequence. Remember: never send a written proposal until you have conceptual agreement (agreement in principle) with an economic buyer. Now lets move onto the structure of the written proposal. There Are 9 Components Of A Value-Based Fee Proposal: And each component part of the proposal is designed to move the economic buyer through a series of nods or yeses that ultimately allows him / her to choose between an array (or different options) of fees (based on the associated value to the project). OK, without further ado, here then are the 9 component parts of a value-based fee proposal: COMPONENT 1: Situational Appraisal: This is a brief summarisation of the current situation the prospective client is experiencing -along with a succinct summarisation of the ultimate objective of a partnership arrangement between you and the prospective client.

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COMPONENT 2: Prime Objectives: These are the business objectives you will work with the client to achieve within the project time-frame. Please note: these prime objectives should not be deliverables or tasks you are going to perform. No. These prime objectives (of which there should be 5-7 listed in the proposal) should ideally be as vague as the client and you are comfortable allowing. The more specific the objectives the more you put yourself at the mercy of external variables or unexpected circumstances that have the nasty habit of scampering your work (and hence any fee payments owed). It is better to have a prime objective of increase sales toward 50% over last years total than it is to state increase sales by 50% or more than last years total. Im sure you get the idea. COMPONENT 3: Measures of Success: This is where you state how you and the client will know you have made progress. It is also where you define how you will both know when the prime objectives have been achieved. Its a good idea in the proposal (for the prospective client's ease of reading) if you show the measures of success in bullet (or numbered) format. And these measures of success will usually encompass things like increased sales, reduction in resources / expenses, increased customer acquisition, reduced stress, more motivated workforce, etc. etc. Please note, the measures of success dont have to be delineated to the nth degree, they simply have to be a measure (either objective and / or subjective) that you and the buyer will be able to agree upon that progress is being made toward achievement of the prime objectives and overall outcome. COMPONENT 4: Expression of Value: This is where you reaffirm the value that was established during the conceptual agreement phase. This value could be objective (quantitative) or subjective (qualitative). For example, an objective (quantitative) value would be along the lines of: A sales increase of 50% would result in an extra pre-tax, net profit of about 100,000.

An example of a subjective (qualitative) value would be along the lines of: A reduction in stress levels to the sales personnel within the company leading to higher energy levels and motivation to bring in more fee generating accounts. As you can see, this section of the proposal is designed to recreate (and enliven) the vision in the prospective clients mind of what your value is to his / her company.

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COMPONENT 5: Options for Achieving the Outcome: Never submit a proposal with just one take it or leave it course of hiring your services. Instead, always present the buyer with a choice of yeses. This creates a very powerful shift in the mind of the prospective client from Should I hire John? to How should I hire John? Again, never base your options on a number of deliverables, days on the job, number of reports to be submitted or number of meetings to attend, etc. Its better to provide an overview of the methodologies in each option... and not the precise number or amounts involved. Remember, the overall goal is to improve the prospective clients current situation not to be seen to be working on the project every day. In other words.... Focus On The Destination (Goal) And Dont Become A Prisoner To The Route (Action Steps) You Take To Get There I like to include 3 options (as in basic, better and best in terms of value). You may include 4. But I suggest no more than 5. And no less than 3. In any case, just list whats included (generally) in each option. Dont (at this stage) attach a fee to those options. You want to keep the prospective clients mind focused solely on the value and not dilute the waters by attaching a fee to those options. At least not yet! COMPONENT 6: Timing: This section simply indicates when you can start the project and how long it will take. Always be as specific as possible in terms of time-range of the project. So instead of saying the project will be completed by 14th September you may say the project will be completed 3 months from project initiation date which is when first payment is received. COMPONENT 7: Joint Accountabilities: This section lays out whos doing what and what each party should expect of each other. Remember, you want to have a trusting peer-to-peer relationship with the client where you have their full commitment to a partnership type arrangement. If all you have is the clients compliance (and not commitment) sooner or later a trip wire is going to spring and the client (who perceives you as doing something for them, as opposed to something with them) is going to turn out to be a nightmare do deal with. Youve been warned! COMPONENT 8: Terms and Conditions: Finally, this section details what the fees are for each option and the payment terms on those fees.

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How you schedule your fee payments is, of course, entirely up to you. But here are some suggestions. Always get a healthy percentage of your fees in advance of starting the project. A good ruleof-thumb is 50% upfront and 50% at a pre-set date or time scale. And offer a 10% discount if payment is made in full in advance of the project starting. COMPONENT 9: Acceptance: This is where you simply state that you need the prospective client to select which option he / she wants to go with and for them to sign and return the proposal to you. Got all that? If not, heres an example of a value-based proposal (containing those 9 component parts):

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Some quick observations and finer-points about the value-based proposal: Notice the proposal is just 4-pages. 3-4 pages are sufficient. Ive seen proposals that are close to 20-pages that would require me to take a week off just to plough through it all and make sense of it. Know this: The Longer It Takes A Prospective Client To Wade Through Your Proposal... The Greater The Chance Something Will Crop Up That Will Kill The Deal Notice that I dont use any legal jargon or boilerplate contract terms in the proposal. If you make your proposal too legal looking it will get sent to the legal department... or passed by a solicitor... and that is the kiss of death as far as getting the proposal accepted quickly. Always send at least two physical signed copies of the proposal to the prospective client. Its also good to send a brief covering letter and a SAE return envelope for ease of returning a signed copy of the proposal to you. If a prospective client (at conceptual agreement stage) tells you there maximum budget for the project make your first few options below that budget. And make your final option above that maximum budget. If the client really wants to go for the highest value (highest fee) option theyll often find the money! Value-based proposals should mostly be used for project work. If you are just consulting with the client in a purely advisory capacity (thats to say the client has access to your street smarts only) you may prefer to structure your fees around a recurring fixed retainer basis. Theres no such thing as an exact science to calculating value-based fees. Its both an art and a science. However, as a general rule of thumb -- value-based fees could be based on around 10% to 20% of the extra value you are going to contribute to the project. Theres no law that says you have to charge every client the same fee for a project. Every project is different. And every project will mean different results (value) to a particular client. Therefore, I suggest the fee you charge for a particular project should be based on the overall value your contribution will mean for the client. At the end of the day... all you are aiming for with your fees is a good deal which can be described as follows: A Good Deal Is When The Client Feels Theyve Got A Bargain... And You Feel Youve Been Well Paid For Your Services! Please note: The information in this section has been put together with your best interests at heart. It is based heavily on the value based proposal recommendations of Alan Weiss. However, it would be remiss of me to mention this: dont allow me (or anybody else) to tell you what you should
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charge or how you should structure your fees. Ultimately you must decide what you charge and how you charge for what you do. This information in this strategy report is meant merely to provoke a thought process toward structuring your fees around the value you provide to a client; and not merely on deliverables or showing up on the job. Finally, if I may, Id like to end on this sage advice from the real virtuoso of value-based fees, Alan Weiss: The Earlier A Fee Is Quoted, The Lower The Ultimate Fee Will Be; The Later A Set Of Fees Is Quoted, The Higher They Will Be! Amen to that! Warmly,

Michael Silk.

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