Eight Advantages of Charging Premium Fees and Eight Disadvantages Of Failing To Do So

Do you know that in Alabama kangaroos are strictly forbidden to enter barber shops at any time? By some brain-fryingly fiendish coincidence, so many consulting firms forbid themselves to enter the "premium league" and get busy eking out a living for the rest of their existence. Most consulting firms aspire to sell more of their services, that is, increasing sales volume and gross sales, but pathetically negligent of increasing their profit margins. Some people have the great idea that where there is enough gross revenue, there must be enough net profit too. Hm. I wonder how these experts explain some of the US car companies that have plenty of sales, but have serious profit problems. At least I reckon they have lots of gross sales because some car salespeople I know make pretty good money, while the companies whose cars they sell are in deep trouble. So, how can consultants turn their gross revenue to higher net profit? They can fiddle with a few factors. Actually a Mckinsey & Co study shows that...     1% reduction in variable costs leads to 7.3% increase in profit     1% increase in sales volume leads to 3.7% increase in profit     1% reduction in fixed cost leads to 2.7% increase in profit But...     1% increase in fees leads to 11.7% increase in net profit So, the conclusion is that... Consultants Have To Learn Why To Charge Premium Fees Here we could discuss how to do it, but in my view the mindset must come first and then the skill set. So, here we discuss eight advantages of being a premium consultant who can call the shots, as opposed to a low-budget alternative who is condemned to scrape by from one competitive bid to the next.  So, let's see... 1. By charging premium fees, you pre-empt both your firm and your services as being something different, something-one-of-a-kind. You can also offer better overall working experience than your competition. You put your firm on an upward spiral of internal improvement and external perception. 2. You can do exponentially higher quality work, thus charge higher fees for the higher value. Think about it. A Ferrari doesn't take 10 times more time and effort to build than a Ford. Yet, even an entry level Ferrari costs more than 10 times more than a Ford. And there is a huge difference in the quality of service. And the differentiation in consulting is even more significant. 3. Charging premium fees allows you to acquire top-tier talents to provide top-drawer service. Unlike junk food joints that can produce consistent and predictable results using minimum-wage kids and rigid systems, selling consulting stuff needs both good systems and real talents, not merely workers. Go to a specific junk food joint and order only some deserts. The kid on the other side of the counter will ask you, following the rigid system, "Wanna fries with that?"   4. Charging premium fees lets you finance more profitable initiatives in your firm. You can be more responsive to your clients, you can send your people to the best continuing educational programmes. You have more time and financial resources to respond rapidly to clients' emergencies which will put you head and shoulders above your competition in your market's perception. 5. By charging premium fees, you can better focus on servicing the few existing clients and stay in touch with your five star prospects. It means you can create value beyond the scope of your basic services because you're not watching the clock and you're not on an airtight schedule running around from appointment to appointment. 6. You're overall sales may drop a bit, but, rest assured, your overall profit margin and cashflow will increase. If your cost of doing business is the same, a 10% fee/price increase means you make the same profit on 68% of your previous sales volume. So, choose now. What will it be for you? Volume or margin? And you can't have both. 7. When your firm plays in the premium league, you find that your people's morale, enthusiasm and passion get higher because they know they are part of a winning firm that is going somewhere above and beyond the daily survival. Your people are less stressed and more cheerful, which increases their ability to attract great clients. No one wants to do business with a miserable firm staffed by minimum wage, minimum skill, minimum commitment frustrated people. 8. Premium clients are more loyal and committed to the success of their projects than low-budget clients. They also understand that business is a value exchange, not an all-for-nothing deal. They respect your boundaries, and, while they expect you to be responsive, they know you're not on call to them 24/7. And now let's turn the table and look at the Disadvantages Of Getting Stuck In The Mud As A Low-Budget Alternative 1. Since, often due to financial constraints, these firms are forced to do some shortcuts, they attract clients who don't mind some shortcuts to save some pennies. Performing quality work is always undermined by cashflow problems. Low-budget clients create bidding frenzies to fish for "lowest bidders", so these low bidders can get at each other's throats for the pathetic promised reward. It means they live the rest of their lives from bidding frenzy to bidding frenzy. 2. Because low-budget firms' work quality and overall services are constantly undermined by casflow problems, these firms can never create the kind of perception to that would attract premium clients who would willingly pay higher fees for the firm's services. And this problem is further deepened buy their owners' unwillingness to invest in improvements. 4. Since money is always an issue, low-budget firms are forced to hire low-paid, hence low-skilled people, often the ones whom the competition has already rejected. Yes, these people cost less in compensation, but they can create exponentially less value in their performance. In time substandard clients further undermine morale, passion and enthusiasm, and the firm gradually becomes a treadmill from futility to oblivion with occasional stops at tedium and counter productivity. 4. Low-budget firms live in constant "client chasing" frenzy because their cheapskate clients hardly ever do repeat business with them and hardly ever give them referrals. So, an awful lot of the firm's time, effort and money are spent on acquiring new clients to sustain the already dismal cashflow and high-volume but low-margin business. 5. Price buyers go for low prices regardless of value. And most firms serving this segment of the market don't mind compromising on quality in order to get even more clients. This approach leads to arguments with clients over fees, quality and reimbursable costs, and this undermines the firm's brand and reputation. And unhappy clients lead to unhappy employees, leading to even more unhappy clients. 6. Since skinflint clients are also skinflint suppliers to their own clients, the low margin mentality goes to the next level. Any problem they have with their bottom feeder client" rubs off on anyone who's involved in the chain. They pay late or give you reasons for not paying, "We expected XYZ client pay us, but they have cashflow problems." Cashflow and other problems ripple through several companies. 7. For tightwad buyers, loyalty is an unknown entity. They squeeze the most out of their suppliers, vendors and consultants, and then give you the screaming heebie-jeebies about paying for the extra work they requested. This is the proverbial car buyer who buys a car, and demand free driving lessons and free insurance from the dealership just because he's bought the car. 8. Due to living on a shoestring, low-budget buyers have developed a scarcity mentality, and tend to see everything in the wrong way. They are looking for faults in people and errors in their actions. But this is just a reflection of their own shortcomings, and the people they blame are merely the mirrors. In their eyes everyone is out there "to get" them, but they've become "price smart" not to be ripped off by "premium" companies. They are pathetic negotiators but class act hagglers. They have a habit of wanting it all, wanting it now and wanting it all for nothing if possible. On Summary Now, hopefully you can better see why it's in your best advantage to work hard and become a "premium" firm. You have a better life, get better paid and will be surrounded by higher calibre people. Gross revenue and headcount may be good success indicators to select behemoths for the Fortune 500 list, but for consulting firms there is one real measurement: Net profit per person. The rest is really just financial hallucination. So, choose wisely! 2009-04-13T05:27:33Z

-9.02286

543 4137

true

21997

eight-advantages-of-charging-premium-fees-and-eight-disadvantages-of-failing-to-do-so

2009-04-14T19:00:51Z

2009-04-14T14:59:19Z

Many consulting firms make the mistake of trying to get into the market by being low-budget alternatives, but they often get stuck there. But the real success in consulting is not high-volume brawn work but low-volume high-margin brainwork.

Eight Advantages of Charging Premium Fees and Eight Disadvantages Of Failing To Do So

2009-04-14T14:59:19Z