Deriving a value for professional services requires that you first understand what it is you bring to the customer: something they cannot do for themselves and an outcome that will improve their condition…
From AV Matters July 2010 Best Practices Series
One of the more basic questions that Consultants must answer for themselves is how to value their services. Do you charge for time or for the outcome? If two proposed outcomes are the same, is one consultant worth more than another? Is a higher-priced professional necessarily better than a less expensive one? Or do you as several books suggest, calculate your cost of living, estimate the amount you want to work, then divide to get your hourly rate. Hmm, sounds easy…doesn’t work.
AV Professionals have a similar challenge. Many companies use an hourly rate to value Design Engineers, Programmers, or Project Managers – all are professional services involving considerable intellectual property, experience, and ideas. But if everyone uses hourly rates and transparently shows them to the customer, then these services become just another line item commodity. And as important as best practices and certifications are to the industry, these conventions only serve to further quantify what is essentially an art.
Deriving a value for professional services requires that you first understand what it is you bring to the customer: something they cannot do for themselves and an outcome that will improve their condition. If you can do these well and provide an elegant solution in the process, then you have set your services apart from the line item alternative. The problem therefore isn’t how to value the service; it’s how to sell it. For any given project there is the value of products, cabling, and installation then there is the value of making it work. Add to that the impact of making it work elegantly: the quality that exceeds the customer’s expectations, but once exposed to it they cannot live without. You cannot sell elegance in a contract bid proposal.
If you are one of those companies that already adds elegance to your services, then the following statement will make sense to you: the extended quality of your offering has an ROI to the customer than can be quantified. You can save them time, create impressions for their customers, or stretch their budget – all valuable things they would not have without your contribution. Calculate that value and ask for your share.
For those folks that aren’t ready to sell professional services and are comfortable estimating hours, I suggest that you re-evaluate your hourly rates. Do the Math: if you paid your Design Engineer salary and benefits equaling $100,000 per year, then divided that by the number of usable hours (billable) of say, 1500; then added a 50% profit margin to that – you would charge about $135/hour. What if you have a team of engineers? Is their collective knowledge worth more than a competitor with only one or two? Does the range of salaries from junior to senior designers lower your cost? What should you charge?
Many folks chime in about now about what fees they feel the market will bear. “Tom, I can’t charge more than $60 an hour or I will lose the project!” I understand. There some projects and customers out there that only consider the price. What you need to understand is that you are selling below your cost in most cases. The question and premise of this article is ‘what are your services worth?’ Given the value of engineering for instance, does it make sense to give it away? Or, are perhaps applying engineering resources to non-engineering functions? Does your low-price competitor have the expertise to bring brilliant ideas to the table, to wow the customer, maximize their budget – or are they just cheaper?
At the end of the day, what really matters is that salespeople have to be more than order-takers. They have to present your unique value to the customer in such a way that price becomes secondary. In a contract bid situation, there is no opportunity to sell added value much less elegance. Someone got there before you and earned the professional fees and left you the commodity opportunity. Your intellectual property and brilliant ideas are welcome but won’t add to your billings. Don’t sell your ideas if no one is buying; and definitely don’t give them away. Determine what they are worth to the customer and then earn your share.