Tuesday, August 19, 2008

Setting And Talking About Fees - Part 3

How should you broach your fees during our hypothetical meeting? Either the prospect will ask (“What are you going to charge me if you do my tax work?”) or you can introduce it. I suggest the latter because when you discuss fees in the meeting is important.

Quoting Fees Rule #1: Do not discuss fees until you are ready to do so. If you are part way into the meeting and the prospect says, “We could save some time if you tell me how much you charge because if it is too high we won’t be working together anyway.” Don’t respond directly! Instead, say something like, “Charlie, we’re both busy and believe me I’m not in favor of wasting time for either of us, but at this point I don’t really have a sufficient understanding of the issues to give you any numbers. Just bear with me a bit longer and we’ll discuss fees in detail.”

When fees/costs are eventually discussed, I suggest you don’t try to minimize or hide it (“Say, how about those Red Sox? Uh, your taxes and stuff should cost about $2,000. Do you think they’ll make it to the World Series?”), nor should you give it center stage spotlight treatment (“I have a rate card here that lists our entire fee structure in glorious color. As you can see – there, where I’ve made the underlines - I’d estimate your annual fees for my services will be approximately $2,000. Of course, if your work for any reason exceeds the scope discussed today, additional time will be charged at the hourly rate – listed over here on the card – of $175 per hour.”)

The reason you don’t respond directly when first asked is because extensive studies (empirical field studies with actual sales people and real prospects) were conducted in the ‘80s with the goal of discovering the most effective methodologies for broaching price. Both examples in the preceding paragraph scored poorly.

Which brings us to Quoting Fees Rule #2: Always discuss fees in the context of matching fees to specific activities or goals. This rule is so important that you’ve already read it in two prior posts. You want the prospect to connect what they will be paying to accomplishing the things that are important to them.

Essentially, what was demonstrated to work best is a two-step process.

I have good news … you’ve already accomplished the first step: your questions of the prospect have already identified their financially-related issues/challenges/ problems are and how they prioritize them.

The second step is to link your fees/fee structure to solving/addressing each of them. For example, let’s assume Christine and Doug are in their 50s; fairly well off from appreciation and cash flow from three apartment houses they own and manage, blessed with three children, all of whom are in their 20s, and two grandchildren.

An activity-based fee proposal might sound something like this: “Based upon my review of your prior year’s returns, I’d estimate the fees for your annual federal and state personal returns to be $1500. Preparing trust returns for the two grandchildren will be $500 each. The annual P&Ls and balance sheets for the three apartments will be $650 each assuming we can clean up the cost collection issues you brought up earlier. In that regard, Wanda, one of our associates at the firm, is an expert on Quick Books, and is familiar with their application to income producing property. I’d like her to take a look before I commit to a specific dollar amount, but I think it would take her about five hours to clean things up. Her rate is $125 per hour, so it should be around $625.”

This has been empirically determined by multiple studies to be a much more successful approach when compared to, e.g. “Doug, I’ve looked at the returns and we can do it all – the various returns and clean up the cost collection problem – for an estimated $5075.”

In the past I have participated in spirited discussions about which task & fee module you mention first. The issue is whether you mention the most important one first (start off with a bang) or last (end with a bang)? My observation is the majority of experienced business developers believe the first item you price should be the activity the prospect appears to care the most about. The idea behind this is that the prospect will have a higher probability of finding this price reasonable because accomplishing this task is important to them and this, the argument goes, will tend to lead them to conclude the subsequently mentioned task & fee items are also reasonable.

Finally, remember that everyone; you, me, everyone, is generally willing to pay for something they want. Obviously, one purpose of the questions you ask the prospect is for you to determine what work needs to be done, but of equal importance is establishing what their priorities are so you can develop a successful pricing proposal. If you don’t, the odds increase that you won’t get the job and you will have to chalk up the meeting to experience instead of adding the prospect to your book of business.

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