The inherent weirdness of the traditional consultancy fees for premium IT services

Do you know that a significant number of kings and emperors throughout history have been totally crazy?

George III, who ruled as Mad George, England in the 18th Century, and was afflicted with porphyria, a disease that is insane to end his life rather prematurely in 1765.

For example, Caligula has his father, mother and brothers to be murdered emperor. Nero murdered his mother and his first wife.

There's so much incest in royaltiesthat over time become rulers dumber and dumber.
And the reason why I mention this interesting fact that, if it do to business development, many IT organizations simply "mate" their situation with the prevailing orthodoxy of the entire industry, and in the end, what does the rest of the industry.

Therefore, business development efforts are always dumber and dumber, and many IT Business Development Manager show similar silence when it comes to their pricesSolutions.

Do not get me wrong. It is not their fault per se, it is mainly peer pressure from their "professional" associations. These boards are pretty good at inventing "the only way to" certain things can be done, and then turn them into code of ethics for members of the association.

And many IT companies and believe that this is the only ethical way to run a business, you eat this garbage left, right and center. Unfortunately, many of them later Choke on it ... unless they spit inTime.
So, in this article I would like some methods you can use to pay your solutions in a way that provides capture any value to your business and your customers will benefit from discussing price, and you will get all that value.

While some of these pricing methods for specific situations are good, some are plain duds and you can land in deep Scope Creep.

So, let's see what we have here.

Agreed Flat Fee (project-Fee)

In this method, ITCompanies tend to calculate how many hours it takes to do their services, including materials that highlight the cost of a price quote that number and hope that is lower than the quoted price buyer perceptions of value.

You try to get their fees for the time and effort to justify it take to produce different results, often without regard to the final results.

But customers of views "and I need to install new servers and set up a new VPN system for you" is about asuseful as a barber on the steps of the guillotine. Customers looking for business solutions to improve these indicators show up in the boardroom.

So the question is how to improve indicators such as talent retention, etc. client attrition, profit margins of IT solutions.

If it VPN, VPN then it was, but we need to understand that the purpose is set to install a new VPN (tactics) to the client company on its way to achieving a particular strategy,such as reducing client attrition. As a result, the VPN client service all people can better meet the customers, which in turn increases wear and repeat client and referral business.

And if you down with your client that the purpose of cooperation is that your client wants a certain goal, which to a certain OU objective of reducing client attrition of 25%, which is a valuable set of do this.

You can notImprove the overall performance of the fire by conducting workshops on the physics of fluid dynamics. Hey, do not need to know this aspect of the water.

Thus, flat fees are high, but you must make sure that you do not end up with your fees competitive hourly rates by multiplying by the number of hours, and then add the cost of materials.

Monthly Retainer

There is a big misunderstanding. For many IT professionals, my followers a certain number of hours of pre-paid manualWork. In my vocabulary, is a holder commitment that customers have access to your intellectual potential, and if they have questions, please give them answers.

However, I think buyers hire IT professionals for what they know is, that their intelligence, and not for what it is to do physically in the form of physical labor, which, muscle strength.

Just think of doctors. You diagnose your problems and give your recipe, but it would be very difficult to convince them to go to the pharmacyand line-up and pay for the prescription and they only have prescribed.

It is important that an IT professional, you understand that your value does not lie to your customers in your smarts in your ability of performing manual labor.

Imagine a bomb disposal expert operator. The client calls and remote expert diagnosis of the situation. He advises his clients to cut the red wire.

Now, let us for a moment.

Can you imagine that the customer refuses to pay because the experts who refuses toappear in person to do the trim? Where the value lies here? In the act of cutting or know what to cut?

Those who have the intelligence level of dementia-bee, knows that the real value of knowing what is cut.

Once you are on a holder is like an insurance policy for your customers, and everyone knows that smart client can prevent and cure worth more than a tonne.

And as a kind of insurance, you need to get paid, even if you can not raise aFingers to pay for a period. Hey, we all pay car or home insurance, but that does not mean that we do to our houses, our cars crash or to recover claims and break us money from the insurance.

The bracket also includes a variety of tasks, such as ...

"Then we'll pay you anyway, why do not you come clean in the keyboard and put paper in the printer?

Make sure that you pay in advance and for the premium fee can offer you unlimited access to your help and support. Some people areconcerned that these abuses can be, but it is usually not the case.

Customers who live their own lives outside of the IT stuff too.

However, offers an unlimited "concierge" type service, you distinguish your company and have the right to charge premium fees.

Also, make sure that you specify in your agreement, who has access to you. If your customer has a 50-person IT department, and if all of them have unlimited access to you, then you have a problem.

Here, too, your fee isTo pay compensation to you for access to your intelligence and talent for a specified period of time. The holder is not a pre-paid hourly, which is drawn against as dispensable billable time. They are not human vending machine.

If you're on holders, there is no project. There are no specific targets. The focus is on access to your brain and accumulated know-how, finesse, creativity, intuition and hunches.

Fixed Fee With Exposure Opportunities

This is aparticularly interesting situation, because if a potential customer says, you should fire his cheapskate ass right on the spot.

And that is when a potential customer says ...

"Although we can not pay much, but you will get millions of dollars of media exposure."

Now imagine that I argued to go to my local supermarket and refuse to pay full price, that "I offer you an exposure, since my food in their shopping bags. What do you think would happen? The fund wouldYou call the next book to me a mental hospital for the rest of my life.

Push-back to buyers and tell them that you can accept their testimony, but anything you can offer to them in exchange for "exposure to value" the value does not myself. It's like a restaurant. If you can pay, you get food. If you can not pay, you can smell the food. Very simple.

Cost-Based Fees

His approach in turn implies that the value of your contribution on the basis

It is a problemhere. In this brain-dead situation you should be paid at your expense. As a special service, professional advice you can, worth thousands of dollars in ten minutes to offer at very low cost. So, why should you be penalized just because your overhead costs are so low?

This method is incorrect quantities of the work of Karl Marx's theory of value as to declare in his Value, Price and Profit, published in 1865 ...

"We therefore come to that conclusion. The product has a valuebecause it is a crystallization of social work. The size of their value or their relative value depends on the more or less the level of social substance contained in it, that is, the relative mass of the work required for their production. The relative values of goods are therefore determined by the respective quantities or quantity of work will be processed realized, attached to them. The correlative quantities of commodities that can be produced in the same time work --equal. Or the value of a commodity is the value of another commodity as the quantity of work in a firm, it is the amount of work in the other firm. "

So, good ol 'Karl idea that the harder you work and the more you sweat, suffer and starve to earn more money, basically no matter how much value customers come from the contributions of suppliers. Strange idea indeed.

At one point in our lives, we all were in the phase of the survey of our knowledge and wepaid for both our school and our education system. The older I get, the more I realize determine the difference between the two, and the more I do, that educational institutions provide many of the former and very little of the latter.

But as far as I remember, nobody came to tell me ...

"Let me help you pay your tuition fees, because a few years, we want you to rent and you need a competent as possible."

And now you're ready to recoup your investment. Invite good moneyfor your expertise.

Gig designing loading $ 250,000 for a team of 5 experts for one months and install a computer network that supports a $ 500,000 per hour production system is perfectly okay, even if you have your costs very low. What matters is the value the customer gets.

Performance fees

This is not typical for IT companies, but it happens more often than we would like to see.

The customer says ...

"You say that your CRM system could improve our salespeople'sEffectiveness. Great! So, ask for free, and we will pay you a percentage of sales. "

A few years ago a personal training client wanted me to do to help her with weight loss. As a hobby, I run a microscopic coaches entrepreneurs on practical fitness and lifestyle topics. Only 1-2 people.

And instead of paying me my usual fee, they wanted me to pay a fee for each set to lose pounds. I told her that it was her, as well as they would in the design program Ifor them, and they begin to design would accordingly.

She insisted on the payment for the performance. So I had no choice but to tell her that I could to the brink of certain death push to achieve maximum weight loss, but that would not achieve what she wanted. Although she saw that and was willing to accept my usual fees, but I decided to fire her ass before it's too late. Problematic prospects most likely to 'bat out of hell "type - Meatloaf Welcome! - Client.

How stupidYou think a mother would, if they have a babysitter for the pound of meat it needs to pay babysitters? Just a thought.

Business owners are pompous, that they only pay for performance. This statement is nonsense. You have already wasted a boatload of money for their own stupidity to the situation for which they are looking for help about. How come they are paying for the termination in such deep yogurt.

Imagine an entrepreneur whose business has been under-performing forYears as a result of his own incompetence and stupidity, but now, often in despair, he hires a consultant and now demands the immediate consequence.

This reminds me of my discussion with the President of the Vancouver-based high-tech companies in 2002. The President would keep me if I could provide new money in their bank account within three days. He had also insisted that I work on all of me, because the guys were in the company very busy, and she did notinterrupted by little things like customer acquisition. Best of my knowledge, the company no longer exists.

The problem is that far too many entrepreneurs to call in external assistance too late. Imagine that. What is the point in hiring consultants Saving the best ship in order to make your sinking ship, after an iceberg and is already 9 / 10 under water?

And then, the consultant says that he receives no fee but a percentage of sales generated in the ship into the next season.

My ViewContingency payment is that I do not want to take a 100% risk and invest 100% of my time and money, and then only when 10-15% of the premiums, while the business is a good time on the golf course in, well knowing that he abdicated all responsibility to an external helper.

My argument is that investment leads to zero zero commitment that leads to zero improvement. Then the whole exercise is is pretty meaningless.

Consulting is a collaborative business and can not be paid withContingency fees. The aim is to reach a joint effort on specific targets. Yes, the work is divided up, concrete measures, but at the end of the day, it is not the team that is successful or not.

Equity / Stock Positions

I personally would avoid this method like the plague. Let's face it. About 98% of all businesses fail before their tenth year in business. So, if you close a stock option agreement, you have only a 2% chance to be rewarded as a winner forTheir know-how. I can not be a mathematical genius, but even I know if I am only a 2% chance of reaping the fruits that I had better not be 100% risk if I am only a 2% chance to reap my rewards. It's just not a sexy money.

If you have business in the future, something they are trying to abdicate the risk to you. At the same time, only a brief look at the cars they drive, and the houses they live in, you do not want to sell their cars to inject moneytheir own businesses. They ask you to inject your own money as a "partner", so that the combustion of your money, their "High On The Hog receive" life upright.

They are a great time while you hope and pray that one day you will see some money for your work.

Ironically, investing it "in my business, and I will pay later" mentality comes from the high-tech industry.

The high-tech industry is the heaviest user of venture money, often to save their own dough inSavings accounts.

And we know that web, the success of high-tech companies, especially the sales-based stuff, even lower than other companies. For example, after only two years in the business, and burning 9 million U.S. dollars venture money went spiralfrog.com to the wall recently.

They had a great idea, but could not sell.

Commission

This is a fixed percentage of the profits from sales and it sucks. It promotes the corner-cutting and a shorterThink.

Imagine that your new CRM system helps force the sale to bring in an extra $ 1 million in monthly sales. Great. You appreciate a great commission check.

The problem is that the entrepreneur knows that from that 1 million U.S. dollars, he wants a new company car, a Ferrari Enzo for only U.S. $ 670,000 to buy. And for a good measure, he also buys some new company car for the seller for a total of $ 300,000. Great. Now the $ 1 million up to U.S. $ 30,000 and that is what you get yourCommission on the basis, since your commission is payable on the net profit.

This compensation method is also unethical, because the success of the CRM system depends largely on the people who use them. Make the tool, but the people are on them? Maybe. Maybe not.

In the movie The Exorcist - when the young priest, Father Karras preparation for the possessed girl, Father Merrin, an experienced exorcist to be fair, warning him ...

"Have you heard anything," says the demon. It isMix is the truth to confuse you. "

The Commission's structure is the same. It mixes so many lies in the equation, that the good intentions simply disappear. Just keep away from commissions.

Oh, one more little thing. As an IT professional, you are presumed and expected that an impartial and objective. But the structure of the Commission puts pressure on experts, the results create an environment where they are not even the decision makers.

If your compensation directly toon the result you are anything but unbiased, you will automatically be useless from the viewpoint of improvement.

Ask anyone anywhere in the world, what they think about their police. Most people regard the police as a major league criminals.

Why?

Because officers have a quota system, and month after month, it needs to be collected a certain amount of fines. And if people follow the rules and there is no reason to hand speeding tickets, the police"create" some reasons.

A Cincinnati police officer was removed from his duties road and on the desk duty because it fulfill its "good" to set quota. But we can not blame the police. The pressure comes from the government.

Yes, in the short term in police departments good money for their governments, but the police generals are also some of the most hated institutions in the world. We can guess why. The dreaded quota system and the Commission.

Barter

With this setup,They are the exchange of services should, but there is a problem.

Their solutions are both knowledge and stuff. Maybe you can barter, but how do you know swap of 15 million U.S. dollars IT infrastructure?

If you install this system, you will immediately be 15 million U.S. dollars from his pocket.

I think, especially in the trade. If you want my things to buy. If I want your order, I'll buy it.

It's fair-value exchange between money and property or money, and knowledge.

If people barter, they tend toinflate their prices so that they receive more. Many years ago, a printer with me wanted to trade. Their message was that they would go and write me a business card, I would give them a sales letter.

But a sales letter is $ 5-10,000 plus royalties, and a run of business cards is a few hundred dollars max. This is not a barter.

I suggest you keep a clean business and sell your order for money.

Hour Fees

This concentrated stupidity of the highest degree. It isBasically, you give your life and knowledge from fragments. And I do not care how high your hourly rate is, it's just negligence, bind your earnings for a limited time as a company. If your value is only a function of the time you spend in the company of your customers, you can only turn into a lap dog and at least you will be more highly valued.

There are so many problems that make it difficult to express in a short text, but here are some.

Hourly rates set a ceiling forYour income. You can create a solid foundation with unlimited scope to grow

Hourly rates are subject to the "going rates"

Hourly present you as an expense and disability

Hourly damage your market positioning

Hourly rates do not seek your customers in full for the project because they know that they will cut you off at any time

Hourly rates you lock in a "commodity trap"

Abstract

The way I see the situation is that it is me who takes the risk ofrunning my own business. I am willing to take that risk, knowing that I am the owner and the final decision manufacturer of my business. Whatever happens in my business, I'm a single hand responsible for the result.

But while I'm willing to take that risk in my own business, I am not prepared to accept 100% risk in companies of other people. Yes, I guarantee my work, but I can not guarantee results, simply because I am not the decision makers.

Military generals can not guaranteeVictory.

Pilots can not guarantee safe arrival.

Surgeons can not guarantee the survival of their patients.

As an IT professional, is all you can do to many of your previous experience and share your commitment to improve your customers' businesses. The customer must always be responsible for the greatest success of your consultation.

In my view, matched the best way of fixing fees at the perceived value of the customers are. Yes, you can stick price tags on the tasks and the thingsBut they are still only the price.

Just as beauty is in the eye of the beholder, value is in the eye of the buyer. So, everything you do should revolve around the perceived value than the client receives. Note: It is not 20 times more money for a Ferrari as it arrives in order for a Ford

Ford sells four wheels, some cushions, a motor and a radio for $ 20,000. Ferrari sells success, style and prestige to U.S. $ 400,000. Go figure. And Ford is about to go bankrupt, while Ferrari is onlyFine.

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