Question from a reader --
Hi Sebastian, I love your blog and I have a VERY short question for you. I see you answer a lot of your reader's questions so I hope you can help me.
My question is about monetising oneself. I am a public speaker and have recently been asked to coach a client one-on-one. My question is how do you decide how much one is worth (I know you also consult) and how do you differentiate between different mediums (Skype, in person and so on)?
Thanks in advance for your response Sebastian.
S
First, congratulations. Nice. Good place to be.
Second, I'd strongly recommend against billing hourly. Billing hourly is easy to do, but it puts a fundamental conflict into place -- when (not if) an engagement starts to run over the allotted and pre-agreed time, you're put in an awkward position of having to draw a hard line, or having to compromise your policies.
I remember having an attorney review a contract for me one time. He had two offices. He billed me an hour for driving from one office to the other to meet me. I wasn't in a hurry to meet him, and didn't request he do that. Afterwards, I felt like he wasn't on my side.
Ironically, the full charge of ~$500 USD was worth it, because he noticed a way a payment could be structured to make it tax deductible instead of not tax deductible, and gave other good advice, and taught me more about law. He would have been much better off, and I would have been happier, if he had charged a flat $500 for working on the contract, or a flat $600 or $700 even.
I have a lot of issues with hourly billing. I won't get into them all here, except to say I won't ever do it again, and I recommend against you doing it.
So, then, how to arrange the project and set your fees? Tougher question. Let's tackle the first part of it.
I recommend you set your engagement as a discreet "campaign" that works towards completing specific and concrete things that are worth a lot to your client.
You need to (1) figure out what your new client wants, and (2) prioritize the most important and readily achievable aspects of #1, and (3) work backwards as a series of logical steps to get to that set of results.
In terms of planning what actions and interventions are worth taking, you must be comfortable with a relatively high degree of arbitrariness.
This is one of the worst aspects of consulting. You can look at science and science papers, you can look at successful comparables, and you can look at past successes you have had with other clients, but there will be a certain degree of arbitrariness in any project you plan out.
Should you, for instance, work on five initiatives or three? Should you speak twice per week, weekly, or once every two weeks? How long should your sessions be? What off-session access do you want to provide?
If the project is specifically customized, there will be a degree of arbitrariness here. Get used to that.
What worked in the past for another client isn't necessarily a good guide for actions with the current client, who will have different learning styles, different communication styles, different goals, and different priorities. Even organizations or people who are very similar on the surface will often have differences in how they learn, interact, and achieve things -- and especially in what brings the most satisfaction to them.
Two quick guidelines on choosing how to define the actions and deliverables of a campaign --
1. Do not pile on a bunch of random and arbitrary things to try to inflate the value of your offering. This is a sign of low self-esteem, it also makes working with you confusing and hard to evaluate. Most likely, your client will have 1-3 core areas that need improvement the most, and the biggest gains will come from laser-focusing on those areas and not losing track. Don't throw in a bunch of useless extras to pump up your value -- it makes your work with the client less likely to be successful (by diffusing effort into trivialities), and ironically, makes you less likely to come to agreement.
2. Do make sure your lengths and amounts of time are enough for the client to achieve a permanent result. Many sales trainings, for instance, do not have enough check-in, evaluation, and persistence to keep the effects after the initial boost of motivation and inspirational "high" has worn off. If you're installing a new system, ensure enough check-in and additional training/refresher time so that people are being able to use at least 80% of the key features very well. If you're doing a one-off project that will only need minor maintenance afterwards, ensure it gets to the "fully complete and running smoothly" stage, not the "almost complete with just a couple little problems" stage -- which often never gets correct. Throwing in extra trivialities makes a deal worse; ensuring you have adequate training and follow-up makes things orders of magnitude more likely to bring enduring value and success.
In short -- stick to the most valuable things, and ensure the most valuable things stick.
On the matter of setting fees when you're new --
This is a difficult topic, one many people struggle with. I don't have an answer for you, but I do have some guidelines.
1. "Fill up your schedule, then raise your prices." If you're below the capacity you'd like to be working at, bidding the low end of what's comfortable to you is smart. I resisted this for years, and I think it held back my development. As soon I implemented this as a strategy, my schedule was full and my rates rose quickly. You don't want extra capacity you're needing to fill, because it changes your psychology in unfriendly ways. Don't lower your rates below what's comfortable to you, but don't try to maximize if you have a lot of empty space. Any work with a client you like, respect, and enjoy is going to bring all sorts of intangible value to you in lessons learned and future ability, and it'll build a relationship.
2. Don't go lower than is credible. If you're just starting, it can be tempting to go crazily low. Don't do that. Go to the low end of market rates at the lowest. There were clients I wanted, so I bid very aggressively low on work with them, and lost it because you come across as unprofessional with low self-confidence in your ability. Similarly, don't offer strange or crazy terms that are non-standard for the industry (120% of your money back if it doesn't work does not inspire confidence) and don't offer a huge potpourri of services -- just focus on what's relevant, and price it at a great value when starting but not absurdly low.
3. If you are going to go below market, explain why. I'll still work on the low end of my fee range sometimes, but I put specifically in the contract that I ask for 10 referrals and/or service trade in return. Don't go crazy with this, but if you're taking on a campaign that would normally be $18,000 and you're bidding $4,000, feel free to ask for referrals, a very thorough testimonial and evaluation at the end, and maybe access to your client's office space for meetings with other third parties three times per month or something along those lines. It can also help to write out specifically what you wish to achieve with the client on an intangible level -- what you admire about them, and what you think you're going to learn on the project. Don't go overboard there either, but remember that fees below market rates can wreck confidence, whereas that confidence can be rebuilt if you demonstrate your psychology and motivations are sound.
4. Don't base fees based on your own needs (because it's irrelevant), but do calculate what they are. How to do so quickly: first, figure out what you'd like to make annually. Second, figure out how many hours you'd ideally like to do on-project client work per week (when you're starting, asume a maximum of one-third of your work time on consulting will be directly on client projects, where two-thirds will be on marketing, sales, administration, networking, learning, research, etc). Then divide your annual rate by 50 (weeks), and divide that number by your hours-per-week. So if you want to work 20 hours per week on client work, and make $100,000... then it's $100,000 / 50 weeks = $2000 per week. $2000 / 20 hours = $100 per hour. Clients don't and shouldn't care about this number, but it can be useful for benchmarking. If you're brand new, consider calculating both a "survival number" and an "ideal number."
5. Set a minimum client ROI number to always exceed. The more tangible and immediate your value is, the lower this could theoretically be. The less tangible and the longer the time frame, the higher this must be. Consider 5x or 10x over the first two years as a decent starting point. That means if your fee for a short engagement is $2000, the client will have to gain $10,000 to $20,000 in additional value. When you work on projects, always calculate and assign a monetary value to what you're doing (at least internally, but usually to show your client and see if they agree). Calculate this conservatively! Far better to promise something reasonable and exceed it, than to promise something extraordinary and barely fall short.
6. Value for the client is what matters; hours and days are commodities, whereas key results are precious. Your project fees should be set far more on value received by the client than on hours or days worked. Never evaluate, bid, or tie your work to hours and days. There is a value in that, to some extent, but the real value is in delivering results. A nice thing about not billing hourly is I can go to dinner with clients (and constantly talk business and strategy and share insights), go shoot guns with clients, go do adventure sports with clients, etc, and it's just fun and exciting and not feeling like it's making a dent in time that would or should be billed. Don't charge for hours and days; charge for results. Don't even nail down hours and days except to the extent necessary. Those are commodities. Sometimes you'll underestimate the work required on an engagement -- but that's fine, you work hard to compensate and you still deliver the result. This gives the client reassurance and doesn't cap your income to time.
7. Cobble some guidelines together and just put something together. There's no need to obsess over this. You're new, you're going to make mistakes, and then you'll learn from them and cease making them. If you really want the client, bid on the low end of the market (maybe even slightly lower than that), but not so low you lose the engagement by destroying your credibility. Make it a relatively short engagement with high-impact results if you're bidding low. Execute well, and adjust your rates going forwards.
Terms are more important than fees.
I hate accounts receivable. Passionately. I'm not in the business of banking, I don't want people owing money to me. If you do not currently hate accounts receivable, you eventually will.
While you can be flexible and bid relatively low fees if you want an engagement and your schedule is empty, you should never be flexible with terms.
Get at least 50% upfront. Always have the remainder paid on a calendar date (ex, 30 days after commencement). Never accept "payment on completion," ever, for anything.
The only people that absolutely demand on-completion payment are people you don't want to work with. You'll keep ground down with, "oh, one more thing..."
Sometimes your terms should be that 100% of your fee is payable in full before commencement of the engagement. If you do not have that term for some reason, then at least offer a 5% discount for full prepayment in advance. Anyone that doesn't have cashflow problems or does not want to try to pull a fast one at the end of your engagement will usually take the discount. (And clients with cashflow problems or who want to pull a fast one are not clients you want. You will still quite possibly get burned early in your career by such people; later you'll get better at recognizing them.)
The more value you deliver and the more mutual trust you have with the client, the more your terms can be favorable. I've found very favorable terms to actually positively impact both parties -- the consultant doesn't have to worry about cashflow and invoicing. More importantly, the buyer is now 100% committed and no political battles or catastrophes can upset your engagement.
Perhaps a client will find out two weeks after starting your engagement that a formerly trusted employee stole quite a lot of money, and their bank accounts are now strained. If you had weak terms, you'll likely be blown off and canceled. If you had strong terms and had been paid in full already, the client will now be able to use you as a trusted advisor to help navigate the crisis.
I couldn't possibly say enough on the topic. Ensure your fees are paid on favorable terms. Never take unfavorable terms. This will be crucial to your success, you'll have better relationships, your clients will achieve greater results, and you'll have less stress.
Putting It All Together
You start with the client's needs, goals, and desires. You identify which will have the most impact. You work backwards from there to put together a plan of action to help deliver those results.
Your plan should emphasize the important things. Don't throw in extra niceties to try to get the deal that are irrelevant; it screws up your credibility.
There is an arbitrary component. Should you meet face to face every time? Half face-to-face, half Skype? It's somewhat arbitrary. Do your best research, review past successes, and ask other smart people; then just pick something. Emphasize the results you're focusing on, not the specific commodities of time, hours, days, or meetings.
Ensure your results "stick." Adding in review, training, "checking in," etc, after the bulk of the engagement is complete will deliver immense extra value and increases your professionalism. Make sure the client's results stick.
For setting fees, make your calculations in regards to your minimum target fees based on desired annual income and desired work hours per week. You won't be basing your bidding on these, but it's good to know them.
Create a Minimum ROI standard. When you evaluate a project, always ensure your fees (and related client expenses) will achieve that ROI.
If you're just starting, consider bidding on the low end of the market. Don't go crazy-low, but do ensure you get the work. If you're below market, specify that it's because you'd really like to work with the client, and ask for specific non-cash compensation if they're pleased with your work. They'll say yes to this. "Fill up your schedule, raise your prices" is not a bad guideline to operate by.
Always ensure favorable terms. Never take bad terms to get an assignment. Anyone that wants terms very unfavorable to you either has cashflow problems, wants the ability to back out later, or doesn't trust you or your ability. None of those are good situations to work in. Never take bad terms. You're not a banker and people owing you money is a bad thing.
And Finally, Just Decide And Move Fast
Far better to pick something reasonable and client-friendly today, than to obsess over it for the next week and give the client something 2% better then. You've already got your skills, the client approached you to work with you, you're in good shape, so go from there. There will be awkward moments and uncertainties on your end at times; this is fine and normal. All you need to do is to identify the client's needs, put together a plan around those, and put a reasonable fee on it that ensures an excellent ROI for the client.
I'll give you a final concrete rule of thumb for a coaching project. I don't know enough about your situation so this might not be apply, but I'd look for an engagement between two months and three months, with a very detailed intensive upfront working-together to kick it off and achieve some large results right away, followed by accountability and adjustment over the remaining time. Fee-setting is entirely up to you, but I'd ask for 50% upfront and 50% in 30 days, or a 5% discount for 100% upfront. Ensure the client is getting tremendous successes in the first week and put together an intensive curriculum and actions to take for that, and then make the followup useful. Ideally deliver so much in the first week that it's a "win" for the client already, which tends to start your working relationship on a great note.
Good luck, and do follow up and let me know how it goes.