As designers, we sometimes forget that we are first and foremost problem solvers. Whether the clients’ problems are aesthetic, structural, or deal with getting the most value for their investment, we offer solutions. This is a tremendous value that often does not get “sold” enough. After all, if a client did not need help, they would have tried to do it themselves – or maybe they did try, and that’s why they’ve landed on your doorstep! As Alan Weiss, author of Value-Based Fees, states, “A ‘value-based fee’ is a fee that is based on your contribution to the results the client achieves.” Value-based fixed fees is based on the perceived value of your services rather than just the time spent on a project. If you follow this approach, you can increase client satisfaction and potentially increase your bottom line. The key is to keep your focus on the desired results.
Benefits and Considerations
Consider the benefits of the value-based fixed fee model.
- Higher Fees: When clients perceive significant value in the transformation your design offers, you can command higher fees.
- Client Satisfaction: If you focus on outcomes rather than hours worked, it can lead to higher client satisfaction. Clients appreciate results achieved.
- Predictable Income: Fixed fees make budgeting easier as they provide a clear understanding of costs for clients – and income for your firm.
When you make the shift from time billing to value-based fees, consider the following factors.
- Client Perception: You must understand how your clients perceive the value of your services. This perception can influence their willingness to pay higher fees. They need to understand the value your firm offers.
- Scope of Work: The key to avoiding misunderstandings is to clearly define the scope of the project from the very beginning. This clarity includes detailing what is included in the fee and any additional costs. Go over this information from the very beginning and be sure that there is a clear understanding on both sides before the project starts.
- Market Factors: Be sure to assess the demand for your services in the area, as well as the cost of living. This can affect your pricing strategies.
Selling the advantages of value-based fees for clients
It’s up to you to share with your clients the advantages of fixed fees, particularly if they are more familiar with time-billing. They can plan their finances more effectively with a fixed fee – helping to avoid unexpected costs. They also can appreciate knowing the total cost upfront, which creates feelings of trust and satisfaction.
Focus on value delivered. The value-based fixed fee model shifts the emphasis from hourly work to overall value provided. This shift allows you to showcase your expertise and creativity. It’s much more effective to have clients focused on the value delivered rather than hours billed. Your clients will be more focused on the final results rather than time spent, which creates a more positive experience.
Positive results for your firm
You are able to charge based on the perceived value, which can create the opportunity for higher fees compared to hourly billing. In addition, your team can streamline your processes as they are not focused on tracking every hour worked. This change of focus can potentially increase their overall profitability.
Additionally, by focusing on value, you can build stronger relationships with clients, leading to long-term relationships with repeat business and referrals. Using a fixed fee model creates an atmosphere with clear communication about what is included in the service, reducing misunderstanding.
Three ways to “sell” your value
Part 1: Identify the “Why”
First, it’s important to spend enough time at the front end at the initial appointment to discover the reason behind their design plans. Clearly identify the “why” behind what they are asking you to create and focus on the emotional connection they have with that “why”. Then suddenly the monetary investment they will be making is not their main concern. You need to help them clearly paint the vision and don’t let them lose sight of that throughout the process. Add in the solutions you can offer to make the best use of their investment and address those monetary issues before they arise. Identify their emotional connection to this project and be results-focused. They need to understand that you are providing a service they need, not a commodity. That will help them understand that all service providers are not equal.
Part 2: Have Confidence in Your Business
Second, you need to have “posture”. You must have the courage and belief system to support the extraordinary value that you can offer the client. If you are focused solely on the worry that they won’t want to pay that much, you become a “commodity” and can easily be “shopped”. And your posture will probably communicate that to them. Instead, tap into their emotions and emphasize how you will help them best use their investment to reach the results they envision. This approach keeps the focus results-oriented.
Part 3: Ask the Right Questions
Finally, you can establish value-added with the client in the questions you ask. For example, what will be the difference in their lives at the completion of this project? What lasting memories do they envision creating in this space? How will the completion of this project affect their friends and/or family members? What will the project mean to them 5 or 10 years from now? These are just a few questions you might ask, and you can adapt them according to the clients. The idea is to get them dreaming and to connect with them emotionally about the importance of a successful result.
Pitfalls of Fixed Fees
At Pearl Collective, we warn designers against using fixed fees. So why sing its praises here? Because we know plenty of designers do use fixed fees, and those systems may not change overnight. If you’re going to use fixed fees, it’s best to do it the right way, and that’s with value-based fixed fees. The truth is that time tracking is hard, and it can be a burden on everyone in the company. And if the leader doesn’t track their time, that behavior trickles down to the rest of the staff.
While time tracking is important, you don’t necessarily have to reflect those hours in the client bill. But they are important to keep in mind when setting fixed prices, making estimates, building in guardrails, and assessing your risk. Working your value into your fees can be a partial solution to these pitfalls, but it’s critical to understand how long things take and how much money you are gaining or losing versus billing by the hour.
Transitioning to a value-based fee model requires strong client relationships and understanding of value, but it offers the potential for higher fees and focuses on outcomes. Spend time educating your client up front as to the worth of the project and the short- and long-term effects brought about by hiring your team. It can be very beneficial if you are looking to enhance your business profitability and client satisfaction. By focusing on the value delivered rather than just the time spent, you can create a more rewarding experience for both your firm and your clients.