Value-Based Fees. Alan Weiss
MERCEDES-BENZ SYNDROME
People believe they get what they pay for. Moreover, emotion makes them act, while logic only makes them think. Put those two immutable theorems together, and you have what I've termed the Mercedes-Benz syndrome (MBS).
When people enter an auto showroom today, no matter at what economic stratum, the salespeople don't launch into intricate pitches about the electronic fuel injection or the wonders of rack-and-pinion steering. They encourage the potential buyer to sit in the car and then mention, with a straight face, “You really look cool in that car!” Yes, and the more expensive the model, the cooler we tend to look.
No one needs a Mercedes-Benz for transportation. Not at that price level, they don't. But a car purchase is, after all, a lifestyle statement, and a Mercedes can begin to look quite reasonable in that light. When women try on a new frock, the sales help always say, “That was made for you; it brings out your eyes!” Despite the fact that I've never understood why a woman wants her eyes brought out, this ploy is always effective, even though it's repeated 26,000 times every day in the same department. When a man orders wine at dinner, the captain always says in response, “Excellent choice!” as the guy preens in that complimentary glow. (Never mind that he ordered Wild Coyote Road Kill or that May wasn't such a good month.)
Fees are based on perceived value. That perceived value is in the eyes and the cerebellum of the buyer. Consequently, the buyer's perception of value is the first point of attack for a consultant who wishes to maximize income.
Psychologically, people believe they get what they pay for. Consequently, there is tremendous power in helping the buyer stipulate his or her perceived value from the project and then working to maximize that perception.
Consultants are almost always remiss when it comes to obtaining some agreement from the buyer on the value of the results of the project. Sometimes the consultant is too anxious to attempt to close the sale; sometimes the relationship isn't yet strong enough to do it; many times the consultant feels inferior and not enough of a peer to suggest it; sometimes the skills are missing; and often it's plain sloth.
Here are some basic questions to use to help the buyer arrive at some measure of value for any given project. You don't need to ask these interrogation-style, but it is a good idea to have them written somewhere and work them conversationally into the discussion until you're comfortable that you've obtained a clear expression of value.
Thirteen Questions for Establishing Value with the Buyer
1 What will be the difference in your organization at the conclusion of this project?
2 What if you did nothing?
3 What if this project failed (or have these attempts failed in the past)?
4 What will you be able to do that you can't do now?
5 What will be the effect on revenues (sales, profits, market share, and so on)?
6 What will be the difference for your reputation (image, standing, stature, and so on)?
7 What are the three greatest impacts of the result of this project's success? (People love to think in threes.)
8 What will your boss's reaction be to this success? (Even economic buyers have a boss; sometimes it's the board.)
9 What will this mean to you personally?
10 What peripheral and secondary value do you see accruing to this project?
11 What will you be proudest of at the conclusion of the project?
12 What will be the legacy of this project?
13 What will it mean to be on the leading edge, the thought leader in the field?
You can create another bunch of questions if you like. My point is that you have to be prepared to discuss value with the buyer very early, prior to discussing methodology, options, timing, or, heaven forfend, fees.
Another fascinating aspect of MBS is that buyers have egos, which can greatly affect the buying process if you allow them to (and you want to allow them to, believe me). No buyer in my experience has ever said, “Okay, we've managed to secure the cheapest consultant we can find for our sales development. He was sitting at home with nothing to do, waiting to go to his normal day job, but I've persuaded him to work with us for $250 a day. We can afford that much, so let's use him as best we can.”
Alanism: About 20 years ago there might have been a dozen cars commonly available in the U.S. that cost in excess of $100,000. As you read this there are over 30. Don’t use the wrong metric or an old metric to judge success.
Buyers are much more apt to say this to the troops: “Listen up. I've hired the finest consultant in the country on sales development. She graciously agreed to postpone a vacation to be with us. She's very expensive but worth every cent if we use her right. Now pay close attention, and plan to work with her closely.”
When a CEO is in trouble, that person will call either someone who has clearly helped in the past or, if no one comes to mind, a “name” or a “brand” such as McKinsey or Andersen. No CEO wants to appear before the board and introduce a consulting firm without a track record or without a recognizable name. The executive ego will not permit it (“This person is taking advice from someone I've never heard of?”). The same holds true for every buyer. People believe they get what they pay for—and with their careers and businesses, they want the best.
Consequently, does your image fit the MBS? Do your materials bespeak a successful consultant? Are you proud of your web site? Is your appearance professional and that of a peer to the buyer's? Intellectually, are you able to interact and even “push back” to demonstrate value in the earliest meetings? Are you building a brand and cementing your position as an expert? You can't start this too early, and you can never stop doing it.
Value is often a function of not agreeing, not being supportive, and not being a “yes person.” How willing are you to disagree, question basic premises, and refuse impossible expectations?
Finally, the MBS creates rising expectations, which means that the buyer is prone to improve his or her condition through perceived high-value assistance. Why purchase a less expensive model when the (perceived) better one is only a few hundred dollars more per month on the lease payment? Why take a basic consulting approach when a more sophisticated one is available?
That presupposes that a more sophisticated one is available, meaning that higher fees will always depend on the buyer's seeing a set of options. The ultimate consultant always provides options for the client's review so that the buyer can determine just how much value is available in terms of differing investments.
Offering options—a choices of yeses—moves the buyer psychologically from “Should I do this?” to “How should I do this?” You've just increased your odds of a high-fee sale by at least 50 percent.
A consultant once asked me, “Aren't we ethically compelled to provide every possible assistance to meet the client's objectives?” Unequivocally no. We must meet the client's objectives. But if the client's objective is, say, “increasing sales closing rates,” then conducting industry-wide benchmarking studies or longitudinal analyses for two years or 360-degree feedback on four levels of management represents value above and beyond merely meeting the objective of “increasing sales closing rates,” for example.
Offer a client various “value packages” that help the buyer ascend the MBS ladder. Over the course of my career, buyers have chosen my least expensive option less than 10 percent of the time and my most expensive option over 35 percent of the time.
How much money are you leaving on the table? If it's $50,000 a year, in 10 years that's half a million dollars that can never be recovered. If it's $100,000 annually, just $10,000 on 10 projects a year, you are going to lose millions.
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