When To Use Alternate Pricing Strategies
I am happy to report that my webinar for the Institute for Management Consultants about licensing your expertise (slideshow is available here) has generated quite a bit of interest.
My engagements are all custom—except for legal due diligence. All of my engagements start with making sure the client’s legal foundation is free of cracks before we start building on it.
Since the webinar, I’ve received inquiries about many different aspects of licensing expertise—from the client-to-licensee conversion I discussed during the webinar to adding an IP-based revenue stream in preparation for an exit. The fees, all fixed but all different.
One request had me thinking about this graphic 8 STRATEGIES TO DECOUPLE YOUR INCOME FROM YOUR TIME from about a year ago. In particular, this strategy:
Performance-Based Pricing: You get paid to produce a specific result which aligns your interest with the client, such as 10% of increased sales attributable to your services during a 12-month period.
It is not one that is frequently used by lawyers (due to ethical concerns), but it is underused by consultants who make a direct impact on revenue.
This is a different spin on value-based pricing, which is capped at a fixed fee but calculated on estimated value. Performance-based pricing allows you to participate fully in the upside, so long as your fee is not capped.
Yes, of course, there is some risk involved. You don't get paid if you don't produce the result. Increased risk for increased reward. My example is actually pretty conservative and should be negotiated to fit the risk.
So when does it make sense to dive in? A few minimum requirements:
Performance-based pricing is effectively an investment. Make sure you know enough about the client to make an informed investment decision. Accordingly, performance-based pricing will almost never be appropriate with a new client.
You need to be very clear on what the upside is and that the upside is objectively measurable. Transparency is essential.
You need to be confident in your ability to deliver and that delivery will reflect directly on the revenue line. Are you a sales coach? An SEO expert?
If you have a proven methodology that directly impacts your clients’ revenue or profits (this is also something to consider if you can deliver measurable savings), performance-based pricing is an option to add leverage, increasing your revenue and profits, doing exactly what you are already doing.
There are other intriguing ways to create leverage using your expertise. Interested? Let's chat.