Should You Use A Results Based Pricing Structure For Your Business?
I am often asked about results based pricing, both from clients that I work with and for, and by my clients.
As a marketing consultant, I am in a unique position that I can add value to my clients businesses. This value is usually quantifiable. If I implement a marketing plan and it delivers new clients to my client’s business, I could be paid for each result that I achieve for them.
I am also asked about results based pricing by people paying me to provide them with consultancy advice about their business, and also by a lot of my entrepreneurial business friends.
“Nick, should I use a results based pricing strategy? I know I can get a load of work in for this client, and even if I just charged £50 for each new client it would work out really well for me and for the client. Shall I do it?”
No, you shouldn’t.
There are a number of very important reasons why I believe that you should never enter into a results base pricing structure.
Lack of control
The first problem is lack of control of so much of the process. If you are a marketing consultant or a process improvement consultant, once a client is delivered to your client so much of what happens next is completely out of your control.
For example, if you are selling a high priced service, whether as an accountant, solicitor or financial adviser, the actual sales process is totally controlled by the client or their staff. You cannot sit with them with every new lead you deliver to them and ensure that they have a “meaningful conversation” with the client to ensure that they draw out all of the important elements of the transaction from the clients perspective.
You also can’t then manage the delivery of the quote or fee estimate, and you can’t control the follow up process, one of the most important aspects of the entire process. No follow up largely means only around one third or one half of the conversion that you would otherwise expect.
All of these matters are outside of your control, so make it really difficult to enter into a results based pricing structure.
Managing the numbers
The next issue is managing and controlling the numbers. You will be amazed how a client can go from having no new enquiries and no new clients for a period of three or four months before you implement your marketing plan, only to then state that every new enquiry they are receiving after they implement your plan is not related to the activity that you have carried out.
This isn’t dishonesty, that comes later. This is often the ‘knock-on’ effect of working with a business owner.
I know that when I start opening their mind to all of the opportunities in their business they will suddenly start seeing opportunities which before they were completely blind to. This will deliver new clients to them and is a direct result of my educating them; but I don’t get any credit for it.
Finally, there is the most obvious reason.
Now, you might think that as a former solicitor and working with a lot of solicitors this could never happen to me or my marketing consultancy business. Sadly, it has happened on numerous occasions, even when the deal was clearly ‘nailed down’.
We have agreed a payment package based on results, I have delivered those results then the client has wriggled out of the deal. Well, no that isn’t quite fair. They have point blank refused to honour the deal or denied that it ever existed.
Did I sue?
No, I just stopped working with these dishonest people. They know who they are. They can live with their dishonesty. They can also live with the fact that I won’t be helping them any longer. I do not bear grudges, but I do demand that people are honest and straightforward with me. If they do that, I will go above and beyond to provide the best service possible to them. However, ‘play me’ and I am out of here. There are better, more deserving, nicer people to help. I go and find them.
So what pricing structure should you use do if not use a results based pricing structure?
I now use a value based pricing structure. I will look at the entire picture, look at the results that I expect that client to achieve with my help, quantify what that will mean in financial terms for their business and then set my fee based on a small percentage of the anticipated results.
I end up with a fee that I am entirely comfortable with, that fairly compensates me for my expertise and one that the client is also happy with.
Value based pricing works for me and for my clients.
What pricing structure do you use?