Value-Based Fees. Alan Weiss

CHAPTER 1 The Origins of Value: What People Want Is Not as Important as What They Need

      ABUNDANCE AGRICULTURE AND THE ARTS

      Somewhere in the mid-eighteenth century, agricultural production exceeded population growth, meaning that surplus farming could replace subsistence farming in many places. The farmer could therefore barter crops in exchange for someone to repair fences, tutor the children, or sing in the evening.

      Thus, “value” became highly important. Was someone who planted crops more valuable than someone who tended the animals? Was a plow horse more valuable than a new roof? Could some of the children be released from sunup-to-sundown chores by employing others, perhaps even sending them to school, or the priesthood, or the military, or a convent?

And I'm quite sure that about 200,000 years ago one of our forebears exchanged some flints or arrowheads he had prepared in exchange for a mastodon steak or some hide for clothing. The two parties involved somehow reached an agreement about the value of the transaction and the worth of the services or products.

      “Value” represents worth, usefulness, importance, good stuff like that. A “fee” is equitable compensation paid in return for a desired service or product.

      Questions? Simple, right?

      I was the keynoter at a convention once where a participant in the audience told me that he could make more by billing hourly for his time than anyone could basing fees on value. I laughed and walked away. This isn't a shade of grey, or a debate, or philosophic point. He was denying the existence of gravity or oxygen.

      Alanism: Logic encourages thought, emotion urges action.

      When retailers find sales declining, the smarter ones raise prices, they don't engage in desperation sales. Buyers are willing to pay the higher prices when they perceive those prices denote higher value.

      People believe they get what they pay for; otherwise no one would buy a Brioni suit, or a Bentley car, or a Breitling watch. Now, you don't need Brioni, Bentley, or Breitling for attire, transportation, or the time of day. But they do fulfill certain ego needs, certain emotional desires. Nothing wrong with that.

      Logic makes people think, but emotion makes them act. When I was confronted with the need for a wrench, sending me to the unfamiliar hardware store, I found three wrenches, all alike, at three different prices. I chose the most expensive on the “emotional” basis that it was probably made from better materials (I had zero evidence of that). Some people will buy a brand name they recognize on that same basis, which is why we'll focus on the relationship between fees and brands later in the book.

When a woman asked me in 1985 if I'd like to have one of the very first car phones in New England (the last four digits were 2468 at my request), I didn't do a cost analysis or ask for references; I told her to get over to my place and I'd cancel my afternoon appointments. Ego needs are quite legitimate and very powerful buying catalysts. Today I carry the latest iPhone in my pocket; it works through my car's sound system (but I wouldn't mind looking into a mastodon steak if possible).

      At some point, of course, there was the question of how many days, how much time, how much presence was required, and time became a measurement of value. Yet it's interesting that a field hand might have been paid by the day or a teacher by the lesson, but the great artists were paid by results. Michelangelo, da Vinci, Beethoven, and Mozart were commissioned to create works of art, not to work by the day or to be “present.” Some of these works took years and there were vast gaps between the commission and the fulfillment thereof. Da Vinci was famous for lugging works around with him that were in various stages of completion, including the Mona Lisa. Michelangelo required four years to complete the ceiling of the Sistine Chapel, despite the imprecations of Pope Julius who, understandably, wanted to see it in his lifetime.

      For our purposes here, and for your purposes in terms of future success, “value” pertains to the quality and power of the results delivered. There is no value in a training program, a book, a focus group, a strategy session, a coaching engagement, unless there is a demonstrable tangible and/or intangible result of quality and pragmatic application. By “intangible” I refer to ego fulfillment, aesthetics, comfort, security, and so forth. Not all value is monetized, and in fact some of the greatest value is intangible, such as an improvement in self-esteem or closer relationships and intimacy.

      As we continue, please bear in mind that this type of thinking is a question of “mind-set.” You have to believe that the result is the key, and not arbitrary “deliverables,” those darlings of the human resource crowd, or the time required. Cole Porter, Salvatore Dali, Thomas Alva Edison never worried about the time required to create value.

      However, there is a second aspect about this mind-set that is overarching: Charging by a time unit is unethical.

      I mean that as harshly as it's written. I read a piece on social media while writing this book from an Australian accountant who pointed out that if you charge by the hour (as most accountants still do) you “run the risk of cheating yourself of greater income.” What he meant is that if you're good and fast, an advantage to your client, you get paid less. If you're slow and inept, a disadvantage to your client, you can make a lot more money.

This is the inherent unequivocal problem with fees based on time units or “showing up”: They abuse your client relationship or they undermine your ability to earn money. Every client deserves fast and quality results, and every professional services provider deserves equitable compensation based on the results they create.

      I don't believe anyone ever asked Picasso how long it took to paint Guernica. Some expert valuations place it at a worth of $200 million. That is not a typo. At a $1,000 an hour, an incalculable fortune in Picasso's time, he'd need 200,000 hours to equal the $200 million price by the hour. That's about 22 years. He lived to 91, so perhaps working round-the-clock he might have done it.

      That agricultural transformation, as well as ego fulfillment and including great results not based on time, are a function of an abundance mind-set.

THE ABUNDANCE MIND-SET

      It's insufficient to possess abundance. One must be willing to use it. We must move from a poverty and scarcity mentality to an abundance mentality. If the farmer with a surplus decided it was best to keep it and protect it for that proverbial “rainy day,” there would be nothing with which to pay for a tutor or fence repair. And some people, no matter what their income or savings or prospects, act as if they're