The future is all about delivering services to your clients much faster than competitors can, Frank A. Stasiowski, FAIA, explains in his book Impact 2020–Predictions for the Next 10 Years of the Design Industry. Delivering what your clients need fast is a value-added proposition that allows you to charge premium fees that clients are more than willing to pay in order to meet their pressing deadlines. Stasiowski recommends abandoning the old business model of just selling hours in favor of basing your service prices on the unique value you alone can offer them—be it knowledge, technology, talent or quality.
Some time back I talked about the concept of value billing and how it can lead to a win-win situation for both you and your clients. Yes, you can charge higher fees and still win more clients, as long as you’re able to demonstrate your niche and value to them. Remember, if you deliver the promised value, your clients will return for your services again and again.
Having said that, I see most professional services firms focusing on the hourly rates, role-based rates or deliverable-based fixed fee when billing their clients instead of heading toward this value-based model. I always wonder why they’re willing to work for less money. A value-based fee is more about highlighting your expertise and unique value, and getting paid commensurate with that. If you start looking at everything as a value proposition, you’ll be surprised how favorable the outcome is.
Value Billing is for Everybody, But…
Value-based billing is applicable to all service-based industries. But mind you, it can’t be implemented in all situations blindly but rather for those projects which fall within your ‘sweet spot’. For example, the sweet spot for a local architecture firm could be single family homes in Southern California. Most of the firm’s projects are local and hence a tremendous value to the client – being local, within driving distance, knowing the building officials, having knowledge about the locally available materials, and much more. On the other hand, doing a commercial shopping center in Nevada may not fall in their sweet spot. So it all boils down to the actual value you can quantify while highlighting your niche!
Reap Higher Profits with Value Billing
Market-based fees usually end up creating a profit of about 7-18% in most professional services firms today in USA. The average US firm makes about 12%. The assumption is that you are making 8-10% profit but the chances are that in some projects you may actually be losing money.
With value billing, you take your base price (hourly or fixed fee based on market value) and add the extra value you bring to the project. Say you get a housing plan approved faster for a client. After quantifying the savings to the client, add a percentage of that to your fee. Paying $10,000 more for a service that saves the client $200,000 is a no-brainer! Value billing does result in a higher fee than conventional billing because you are adding your value on top of it. But your client will be more than happy to pay you a higher fee if you can clearly demonstrate your value, which in this case is getting a plan approved faster (therefore minimizing the debt service fee for your client) and being able to select locally available materials (hence reducing the overall construction cost).
Bottom line: If you are efficient, let the beneficiary be you. Value billing is going to be significantly much more profitable for you, and often result in winning more clients. So while other firms focus on listing their services and talking about their experience, you can focus on the quantifiable value you will bring to the clients.