On value - what is it worth?

"Whether you think you're worth it or you think you aren't, you're probably right."

What is the value of a service? Is it the cost of the person delivering it? Is it the least amount the person needing the service is willing to pay? Or is it related to the benefits of that service?

Effort is important but knowing where to make and apply that effort is what makes the difference. We rely on people with both expertise and experience to deliver services and provide us with benefits.

Perceived benefits, deliverables and outcomes

It's easy to pay people a daily rate. Effectively that's what organisations do for staff. But what do you get for your daily rate?

If you engage someone not very good and they take 20 days at half the going rate, is this better than someone very good who charges the full rate but does the job in ten days?

There are four things you need to examine when commissioning work:

1. Benefits (perceived and actual)
2. Outputs
3. Deliverables
4. Outcomes

Benefits are what you gain from the work or project. They could be instant or medium to long term. They may be difficult to quantify but you should try. Ultimately they are the value you get from the work.

Outputs are things which happen. They may be tangible like a report.

Deliverables are actual tangible things you can measure.

Outcomes are changes which result from the work.

Costs and money to burn

In any project there are costs. Some involve cold hard cash - consultancy fees, expenses (travel, accommodation, tools, capital equipment) - others take resources but may not directly impact your personal bottom line (staff time, use of a meeting room the organisation pays for anyway). Then there is opportunity cost - the cost of not doing something else with the time or resources. Finally, there is the cost of not meeting your intended outcome or deliverable right at this moment.

Let's take an example. If you know there is a project which will deliver 10% savings to your budget, for every day that you delay that project you are not getting the 10% saving. So far, so obvious. You may never notice the difference if you don't do it. After all, if you can manage with your current budget what difference will a 10% saving make. Why take the risk? Why?

Income and value

There are things you try because they are worth trying. We have post it notes and Dyson vacuums because someone invested the time and effort in trying. There are other things you do because they are worth it (or you think there is a very strong likelihood they will be worth it). This is where value comes in.

The value of a project or piece of works could come from a number of things:

• The outcome - a specific change which makes the situation better, cheaper or faster
• A deliverable - the usefulness of an event or report or some advice (and the fact someone else's provision of this was cheaper and more effective than your own)
• Reduced expenses (tools, capital) - you need less of something and therefore save money (either to invest somewhere else or because someone else slashed your budget)
• Reduced internal resource time - saving time and effort which can be used for something more valuable (usually comes from doing something better or doing better things)
• Unexpected outcomes and benefits - something you didn't plan for but which was happened anyway and has had a positive effect
• Income - either earned or fundraised (obvious for fundraising projects but also occurs as a results or the doing things better and doing better things)

So how do we price?

I'm not a big fan of daily rates. I will quote them if necessary and of course I need to know how long something will take because I need to know if I can do it in the time available and when I need to do particular things.

Yet the daily rate is a poor indicator of value. Clients often try to beat down the rate. It's a false economy as we all need to earn a living. A low daily rate linked to a large number of days doesn't help you. It's time to think about the value.

I know charge fixed price value for most projects. If the nature and scope of the project change or more work is needed then there is room to negotiate and discuss. 

In a fixed price contract, with clear deliverables and outcomes, you know what you are getting and for how much. You're not afraid to pick up the phone and ask for help. There's no interest in adding bits and pieces to the project to increase the cost (ethical consultants don't do this anyway but how would you know?).  As a consultant we're not worried about taking a bit longer on a piece of the project to make it better because we know it won't cost you any more and there's no room for complaint.

When you engage a consultant (or any skilled contractor for that matter), you are presumably buying expertise and experience. That has a value in itself, over and above any 'daily rate for the job done'. You are buying time and you are buying effort (either cerebral, practical or reflective). You may be buying tools (either things the consultant has developed or will develop as part of your project) and you are buying benefits (literally the benefit arising from the project - it could be increased efficiency, increased effectiveness or new opportunities). 

Ultimately, only you and the consultant/contractor can decide what something is worth but isn't it time to stop penny pinching day rates and start pricing by value and benefit. After all, you wouldn't want to pay for something which doesn't make a positive difference or didn't need (and no ethical consultant would do the work knowing this in advance).

So what is it worth?

Experiences of value billing and pricing

It will take a long time to convince some people and organisations of the benefits of value pricing. From a personal perspective I know what I'm doing and why I'm doing it and feel fairly remunerated for the work (being paid badly has a really bad effect on motivation and quality). Clients are content because they know upfront what something costs and don't get surprise bills. We both have a sense of what work and the outcomes and benefits of that work are worth.

I shouldn't charge you £5,000 to make £1,000 worth of difference. Equally I have invested many years in developing my expertise and experience and if you want the benefit of that it's coming at a cost. 

My take on value billing is this. If you can do it yourself or do it cheaper than me then you don't need me. If you want to squeeze the last ounce out of me then I don't need you. If we can work together to help you get benefits (however we might define them and believe me, we do need to define them) from the work then it's in our mutual interests and the price is somewhere between my minimum cost of delivering the inputs/efforts (and expenses) and the economic value of the benefits from the project.

So next time you price a project forget about daily rate and start measuring the benefits and value. You will get better engagement, better impact and probably save a lot of money in the long run.

Closing thoughts

Ever heard the story of the giant ship engine that failed?

The ship's owners tried one expert after another, but none of them could figure but how to fix the engine. Then they brought in an old man who had been fixing ships since he was a youngster. He carried a large bag of tools with him, and when he arrived, he immediately went to work. He inspected the engine very carefully, top to bottom. 

Two of the ship's owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed! A week later, the owners received a bill from the old man for ten thousand dollars. 

"What?!" the owners exclaimed. "He hardly did anything!" 

So they wrote the old man a note saying, "Please send us an itemized bill." 

The man sent a bill that read: 

Tapping with a hammer ......................... $ 2.00 

Knowing where to tap ............................ $ 9,998.00