Could Consultants Offer Incentive-Based Pricing?
Could Consultants Offer Incentive-Based Pricing?
by

Karen Klein asked a tough question of me at Social Media Club Seattle last week. Karen is the CEO of SilverPlanet.com, a website focused on helping boomers and elders with aging products and services, particularly home facilities. She expressed an interest (past or present) in hiring a consultant to help with her company’s social media marketing. But, like many small business owners, non-profit organizations or recession conscious companies might agree, Karen seemed to say that consultants are often too expensive.

Her question was a good one:

Would you consider incentive-based pricing, so I could afford you?

(For the record, I’m paraphrasing. She offered some other context. I just simplified it for the sake of argument.)

Not really knowing how to answer and having never thought of the possibility before, I said that I would consider it because if I don’t perform, I should be held accountable for that. But I also said the problem arises that you’re getting my time and counsel, which is worth something whether the projects and programs we develop work or not. I also can’t pay my bills on the possibility your social media marketing programs work.

But the question is an interesting one to consider, social media notwithstanding.

Chris Brogan’s now infamous pricing post got people talking about what a national social media consultant charges for his time and services. Peter Shankman, another elite PR and social media expert even posted this flippant (but perfectly valid point) tweet recently:

Peter Shankman's $400 lunch tweet

I can certainly attest that being someone who has built his reputation on sharing knowledge through blogs, tweets, conference talks and even responding to the occasional email asks, there are lots of people who mistakenly think you’ll just counsel them for free all the time.

My typical approach is that I provide general opinions and observations on my blog, Twitter stream, Facebook Page and even direct communications (in-person, email, phone call, etc.) free of charge. If you ask my opinion, I can’t help but give it. But when you ask me to consider your specific business challenges, the meter is running. So I can sympathize with Shankman’s tweet, even if Kami Huyse thinks its egotistical.

But even that general, free advice comes with a catch: I don’t have enough hours in the day to only do that. My time is valuable and a 30-minute lunch or a 15-minute phone call do answer your question is probably 30- or 15-minutes I’m unable to bill. No disrespect and I don’t want to be rude, but by asking for my nice guy helpfulness, you’re costing me money. No, money isn’t all that drives me. But I have kids to feed, friends. That’s just life.

And please know: I recognize daily how blessed I am to be able to make a living doing what I’m doing. To take something I did as a hobby for years on my own time and turn it into a viable job is like winning the lottery in a lot of ways. If you can’t sympathize with someone who is constantly asked for free advice, “10 minutes to pick your brain” and friendly lunches that are all about what their business should be doing on Facebook, I’m sorry. It’s the perspective I have. Every time someone approaches me with their somewhat-of-an-imposition ask for free advice, I’m not earning money that puts food on the table for the three people who matter most to me. No offense, but I choose them.

The premise of Brogan, Shankman and other consultant’s business model is that you’re paying for their time. The price of that time varies by consultant based on their experience, availability, ego (yeah … that plays into it, too) and opportunity. I typically charge $200-250 per hour for my time. It’s far less than some consultants I would consider at a similar level of experience and ability. But I’ve also had PR and marketing folks hear my rate and laugh, saying no one should ever pay that for my efforts.

My hours are typically booked at least 60-90 days out, so I’m not sure others agree with them.

And no, I don’t charge people to go to lunch with me like others may. Perhaps I’m leaving money on the table. But I just think that’s a dick move. If you think they’re trying to milk you for advice, just say “no” and offer them an hour of consulting at your standard rate.

Being asked to price my services on performance alone is terribly problematic. While I agree that if I don’t deliver, you deserve some form of discount, restitution or break, it’s not only the social media marketing program I’m giving you. It’s my time, energy and expertise. And we are working together on it. I don’t just wrap it up and hand it to you.

Social media marketing also doesn’t exist in a vacuum. How are we to know the promotion to drive Facebook fans didn’t work because your media company placed the ads in the wrong venue or your oil well ‘sploded the day before the launch? (Hypothetically. I have not worked with BP.)

You don’t buy traditional media on performance alone, either. An ad in the New York Times costs a ton of money whether it compels people to buy your stuff or not. Sure, Pay-Per-Click advertising is a step closer to a more efficient system, but all you’re paying for is the click. The performance should be judged on the lead or purchase capture.

Yes, I sympathize with Karen and businesses in similar circumstances when it comes to paying consultants. Small businesses get the raw end of the deal when hiring social media help. For what they can afford, they typically get inexperience or a limited perspective. And yes, I think social media marketing consultants are generally overpriced … at least the good ones. But capitalism teaches us interesting things, like when the market is ripe, you charge more.

I want to see the world from the incentive-based perspective. It’s the only true measure of a vendor’s worth in many ways. But even with a ton of capital and even more balls, I’m not just charging for productivity or success. I’m charging for my time, experience and wisdom.

And isn’t that worth something?

Am I an egotistical prick or fair-minded capitalist? Would you resent it if I said “no” to your lunch invite? If you’re the person who has emailed five times, called 10 and DM’d me on Twitter everyday for a month would you clue in and realize I’m not going to give you constructive feedback on your strategic plan, “when I have a moment?”

I’m here for the whoopin’. The comments are yours.

Enhanced by Zemanta

About the Author

Jason Falls
Jason Falls is the founder of Social Media Explorer and one of the most notable and outspoken voices in the social media marketing industry. He is a noted marketing keynote speaker, author of two books and unapologetic bourbon aficionado. He can also be found at JasonFalls.com.
  • B. Gilpatrick

    Thanks for this post. I’m a consultant in a different field but it’s every bit as relevant–and almost six years later yet.

  • Pingback: This Site()

  • Pingback: blog network()

  • Anonymous

    I can probably ask him about a pain I’ve had in my mouth. He may offer a piece of general advice, but he is not going to examine my mouth and provide a professional diagnosis. If I am serious about getting it fixed, I know that I’ll have to go in to his office and pay for it. That’s just life.

  • Another option is trying to add a monthly retainer on to what you're charging. But if you already have a deal in place, it might be hard to break out of that.

  • It is not about price, but value. Any consulting relationship should be focusing upon that as the context for the cost. As consultants, we make the judgment whether or not the client is capable of benefiting from what we uniquely bring to their challenges. Are we the right person for the client? Metrics for consulting are difficult unless they are tied to overall performance, such as earning a portion of the fee in equity (which can be good but can have its complexities). If you and client can agree on the question 'what is success?' in advance of the assignment, which includes a clear definition of scope (what is in, what, out?) and what is required of client (in terms of doing their part on a timely basis, support, intelligence about the organisation), then perhaps. If not, don't touch it.

  • Pingback: 86 answers: The best construction marketing ideas may be in your experience and strengths - AEC Forensics()

  • Pingback: The Value of … « Taking Aim()

  • Seems like this could be a natural fit for a bonus system, as is often used in other professions. I am paid a certain base amount, and if the strategy takes off (for reasons within or sometimes outside my control) then I am paid a bonus.

    @SocialSkoop I feel your pain. It might be tough to do so now, but I'd recommend setting a clear line regarding how much time you'll continue to teach her. Because that teaching can go on indefinitely. Yes, the tools are fairly easy, but it takes months of work to really feel comfortable with them, and years to master. Another option is trying to add a monthly retainer on to what you're charging. But if you already have a deal in place, it might be hard to break out of that.

  • It’s the only true measure of a vendor’s worth in many ways. But even with a ton of capital and even more balls..

  • Great article – very thought-provoking. I'll add this – incentive-based compensation only makes if the sense if the consultant is helping with the execution. If the implementation is the responsibility of the client, then incentives should not be part of the package.

    • Well said, Ed. And while I sometimes manage execution, I often times
      only provide strategic counsel. So incentives for me are problematic.
      Well put.

  • Pingback: How to locate Consultants, Accountants and Attorneys()

  • Hard to say. I can appreciate both sides. There are certainly enough charlatans out there and I can understand that performance should drive compensation. At least the parts that you can control.

    I am working with a founder right now on measuring SEOs by assessing things like page rank before and after and allowing companies to peg compensation to those improvements. It is a bit trickier when it comes to something as squishy as social media as there are not a lot of good metrics and the effectiveness is still based on the customer. With that said, I would be thrilled to get away from the “pay by the hour” sort of pricing and instead focus on getting a slice of the value that I provide.

    Obviously, I distinguish incentive-based pricing with “free” advice. As an attorney, I suspect I get at least as many free lunch requests as many social media “gurus” but as you say–a polite no and a referral to my consulting calendar– is usually enough to deflect that request.

  • Pingback: How Do You Begin a Presentation to a Skeptical Audience? - AEC Forensics()

  • Jason,

    In a world where almost everyone wants to learn how to “do social media” this is a problem that seems to crop up almost daily. Thank you for your poignant and accurate monologue. All I can say is “Here, here!”

  • Pingback: Worse than Pick Your Brainers: Meet the Network Rustling Cowboy | Liz Strauss at Successful Blog()

  • Jason,
    I am in a similar situation but with a client that is a very influential person and basically a gate keeper for the target clients in the area I am trying to break into. I agreed to consult her at a discounted rate to get her business's social needs met and then partner later to offer my services to her clients.

    Problem is, she basically wants me to teach her social media and hand-hold her through everything. I have to wonder whether this is a foolish decision I am making for a promise of future business. To me its the equivalent of asking her to come to my office and teach me all the things she has learned professionally and get paid peanuts. The last thing I want to do is burn bridges with a potential gate keeper but how do I explain that what I do is not as easy as one might think? Should I be more patient?

    PS- She already knows that I normally charge 3 times what I am charging her per hour.

    Does anyone else have any suggestions? Tomorrow I am supposed to teach her how to use Twitter…uuuugggh!

    • Daniela, I think that is difficult as I did a small project at 50% of what I would consider my base fee. I did it because I had a long-term relationship with the person and wanted to get my feet wet.

      If you don't have a contract with her, I would recommend that you get a contract. I recommend limiting what you're showing her at the discounted rate. Once you hit a certain ceiling, then your rate goes up. Furthermore, maybe you should create a workshop type format that gives her the high-level ideas but not include actual implementation.

      Right now, you're tutoring someone without any concrete evidence that you will be introduced into her clientale. My concern is that once you train her, she will turn around and do this for her clients without you.

      Good luck,
      Cece

      • Thanks Cece, I agree on all points, I will have to structure a new format for this and get a contract signed. Thanks for the advice.

  • Jason, There are some great comments here. Everyone has made valid points about the fact that the best work does not always generate top results, often due to factors beyond our control; the obvious fact that clients don't have the talent, expertise, or time for the work; and the perceived value of the work itself.

    Time is money and many like you and Gini “give” away so much value via blogs, Twitter, etc. Brain-picking (or “sounding board” is another one I get) costs extra. If a client doesn't see the inherent value of your brain (ideas, creativity, expertise) why are they reaching out to you?

    I posted on Gini's blog today that a lot of what we do is science, it is art, it is business.. and to what Marc called “ethereal” I'll add the X factor, that little voodoo we do that makes each of us different as a consultant. As Rachel said, it won't make you a perfect fit for every client, which is fine. In the end I think incentive or hourly matters less than the right client/vendor fit, coupled with David's “power of a check.” FWIW.

  • Great discussion Jason. I've been debating whether or not to run full-force into consulting and the perspectives here have been helpful in terms of how to proceed. Being on both sides of the fence – agency and client-side, here are two more thoughts to consider:

    1) Perceived value of the work goes beyond how much you're charging. It also depends how much your client understand the value that you're providing. If you have a client that believes in the power of social media/marketing/pr to drive their business forward, that is half the battle. I believe that these clients understand that you have to build a foundation upon when you work against and drive results. Without the foundation, I'm just getting results for the sake of results and not building anything sustainable.

    2) You're already giving something away for free during the proposal phase. I don't know about you, but I rarely hear of anyone hiring anybody without getting an idea of what you will do for them. This requires time to consider the person' business situation and to develop a proposal for consideration. In the case of competitive reviews, you may not even win the account, hence spending hours brainstorming ideas that you'll never get paid for. And though you state all ideas are your property, it's very difficult to prove it if the client uses it anyway.

    Thanks again Jason!

  • coreybiggs

    Jason, I agree, I love to help others and i get a great intrinsic value. People have to understand others have to make a living. I feel a great purpose helping people to reach their goals. But i would like to be able to live a happy and financial free life. So those who work harder in social media have the right to charge larger for their results. Incentive base you can tie in as my bonus and where good next time agree added on to my hour rate :). sounds better then good! Thank you

  • Jason,

    While I am technology consultant, not a social media consultant we have very similar experiences. I am often asked about doing incentive-based billing and I always decline. Although in my line of work, incentive-based billing means the client only pays if you are able to solve the issue. Sometimes after spending time looking at an issue I find a resolution, but that is not something the client wants to do (ex. we need to back and re-install)- so does that mean they shouldn't have to pay? Rather than disagree after the invoice is sent, I prefer to clarify expectations before work starts. I charge $X per hour – we can put a limit on how many hours should be spent, if budgeting is a concern – but working with computers/servers/websites is not an exact science.

    I know I am not going to be the perfect fit for every client, and I am okay with that.

  • KarenSwim

    Jason, very respectful and balanced post. A couple of weeks ago I was approached (a referral from a great client) to do an incentive based project. I would provide marketing / PR strategy and would be paid a percentage of the company's product sales. I talked it over with the client who referred who had made it very clear I do not work for free (don't you love great clients like this!) and I respectfully prepared a proposal that offered consulting hours for a fee and explained why I could not give away my time and have my fees come from sales which I had no control over. It preserved relationships all around and of course people do understand that I honestly need to be paid for my time. I give away plenty on a daily basis and am glad to help but there's a difference between helping and being asked to work free of charge.

  • ginidietrich

    Jason,

    I've read your post three times now and let me first say I do not think you're an egotistical prick. This is an age-old debate for those of us who make money on what's in our brains. I was riding my bike this morning and I couldn't shake your comments or what people have posted here so I had to write my own post about it this morning (thanks for the fodder!).

    We've been asked time and time again about working with small businesses who can't afford us on incentive-based pricing. We won't do it. For all of the reasons you list, but also because (like you, Peter, Chris, and other really smart people), we have products that have our wisdom and expertise in nice little packages. It's not for everyone…most people are lazy and don't want to do the work, even after you've outlined it step-by-step, but that's not your issue. It's theirs.

    Gini

  • Pingback: 3 Hurdles to Pay-for-Results Pricing for PR Consultants | Media Emerging()

  • Pingback: The Age-Old Question: Can I Pick Your Brain? | Spin Sucks()

  • Pingback: It’s About Doing What You Love; Not the Money | Mark Evans Tech()

  • This is highly useful for us and they render awesome guidance in this aspect. We can tremendously increase the traffic for our site with the help of their service.

  • Brad Farris

    Jason:

    I did a series of blog posts last week on this very subject; how should service firms price their services. (you can find the post on alternative pricing here: http://www.bradfarris.com/charging-results-alte… ).

    The truth is you are both right. In a perfect world you could take a pay for performance fee structure and make a fortune. But in the real world we give advice, the client hears half of it, their team executes a third of that and who knows how it comes out. That doesn't mean we don't need to take responsibility for getting results, we just need to know the limits of our influence.

    As far as giving away, blog and twitter is the extent to my free advice. After that we need to both have skin in the game…

    Brad

  • Doug Davidoff

    Jason,

    I firmly believe in what I call the transformative power of a check. Our expertise and advice alone does not accomplish anything. As advisors we rely on the people that we are advising to do things differently – based upon our advice. Change is always painful, and one of the things that enables clients to stick with the change when its tough and frustrating (everything feels like failure in the middle) is the hard investment that they've made. If they're just “paying on the upside” they have no cost of failure – and hence much less commitment.

  • Scarlett

    I'm not sure about the “free advice” stuff – I think that a good consultant should provide some “teaser advice” for free, especially to a client who's on the fence about your value. You need to do a bit of a fan dance to let them know that you know what you're doing. A few nuggets of freebie is the way to go (like the advice one provides on one's blog), with “hire me for fore” as a closer. It's flirting for business.

    Of course don't give away the farm and set firm boundaries around what you're willing to offer for free, but samples are a bit of a must, IMHO.

    • Fair, but keep in mind there's a difference (sometimes subtle, sometimes not) between a prospective client and someone who just wants free advice. I provide plenty of free advice on my blog, newsletter and even by responding live to questions. But to arrange a meeting just so you can run your marketing plan by me and get me to throw some constructive ideas at you? That's asking for too much, for free. Fair?

  • Glenn Street

    Likely stepping with both feet into the lions den here. I have been selling goods and services for thirty five years, and for the entire time my income has been solely based on pay-for-performance. No salary, no hourly rate, no bonuses. Vacations and benefits are what I decide they are, based on what I can afford to pay for – myself.

    And like it that way. I am accountable for my results in every sense of the word, or I don't get paid. Period. Have made good money in only thirty minutes time, and have made nothing after twenty hours effort. Them's the breaks. Learn, get better at your craft, and move on.

    I could raise the same objections/complaints about clients that others here have made. Office politics got in the way, “they” didn't follow through… on and on and on. BFD. Their problems are my problems. My job is to solve them – to their satisfaction, not mine. I figure if the job doesn't get done, it's my fault, not theirs.

    But I'm an old codger now. I have failed many times. The terror of failing doesn't frighten me. The terror of not doing the as well as I could have, does. Which is why I like pay for performance. It eliminates the need for excuses, and keeps you on your toes. In short, fresh and curious.

    But I also recognize that even within my field, mine is the “outlier” opinion, and the vast majority of my competitors are not comfortable with working in a pay-for-performance world. All I can suggest is try it. Your effort, if done well, will liberate your soul.

    • Love the vibe, Glenn, just can't see a practical way to apply it. If I start working for you today and the effort that we're producing doesn't actually launch for 2-3 months, then you're asking me to work for 2-3 months for nothing. Sorry. I can't run a sustainable business that way unless I'm willing to take on investors to supply me with a wad of capital. And I'm not. Thoughts?

  • As far as giving people your time and thoughts for free, that's totally up to the consultant. If you have time, and your'e feeling generous, then do it. If you don't, then don't. No one can be upset with someone for saying no to a request for free help.

    If you can't help though, you can do more than say no. Perhaps you know one of those less “established” consultants that Fleet mentioned, who could use the connection. You can say “Hey, I don't have time for this, but I'd like to introduce you to this guy who can help”. Then, the person in need, gets help, and a “small-time” consultant makes a new connection and potential client.

    David

    • Love that suggestion, David. And maybe I've just not found a good way to do the “no” or pass along part yet, but when I do say no, people do get mad. And if I say, “Sorry, but that would fall into consulting. I'm happy to talk to you about costs before hand,” they get belligerent and accuse me of being an asshole. I've gotten used to saying, “I'm sorry. I just don't have time to meet,” and let them call me names under their breath or think I'm a prick. I don't like it, but that's what I've got.

    • Daniela Bolzmann

      David, great advice I actually had to do this twice last week because the clients were not the right fit for what I am trying to focus on but with so many people looking for work its good karma to pass along hot leads, even if they aren't promising ones.

  • Mack Collier

    Jason this is an interesting discussion. I've done this once, what I did was offer the client the ability to not make the final payment, if they weren't satisfied with the work I had provided. No explanation required. I mainly did this because the project itself was one I was *really* interested in working on, and my guarantee ended up getting me the project.

    Personally, I lean toward offering clients incentive-based pricing simply because it helps them justify the expense. I think if you do good work, then you should be willing to take the risk. Yes, as you stated there are no certainties and it's still up to the client to hold up their end of the bargain. But I think in the long-run, it will benefit competent consultants like yourself, more than it will hurt them.

    • Fair, but still problematic in ways. I like the final payment approach. Unfortunately I've also had the experience of a client who signed a contract and after two months and the project being activated and results started coming in … decided to stop paying me. Not because they were dissatisfied, but because they just weren't honorable. Perhaps that was my fault for not investigating them more, but I can see incentive based pricing being problematic because it allows the client to just say, “Screw him. We'll just say we weren't satisfied and we don't have to pay.” Not walking down that road anytime soon, I'd bet.

  • Thanks for the thoughtful post, Jason…I would basically echo the sentiment expressed by many others that outcomes are, in most cases, dependent on factors beyond the control of the consultant. As a result, incentive-based pricing doesn't make much sense.

    I notice that most of the comments here seem to come from consultants (like myself), though, who have a vested interest in getting paid fairly for their work…I would suspect that most clients would say incentive-based pricing is totally fair and should be the norm. In many ways, this is analogous to the spec work and crowdsourcing debates that go on in the design industry. Clients all feel justified in getting more for less, and consultants / designers all feel like their expertise has justifiable monetary value.

    Sadly, this debate is never going to go away, because the economic motivators for the parties involved are at odds, on some level. Ultimately, we as consultants need to work with people to deliver value, and be able to show examples of good work, a solid POV and approach, and happy clients we've served in in the past. If people aren't willing to buy our services based on that information, then they should find another consultant.

    • Great perspective. And one that I certainly agree with. Thanks!

    • “Outcomes are, in most cases, dependent on factors beyond the control of the consultant” .. truer words have never been typed, and I'll add a bar of “New Coke” to that chorus.

  • Kristin Hersh has a quote on her site. She says “Music might grow from trees, but money doesn't.” Same with ideas.

  • Nice article Jason. I am kicking myself for being out of town when you spoke at SMCS last week.

    Your article is completely accurate. If I meet a dentist at a dinner party, I can probably ask him (though I wouldn't) about a pain I've had in my mouth. He may offer a piece of general advice, but he is not going to examine my mouth and provide a professional diagnosis. If I am serious about getting it fixed, I know that I'll have to go in to his office and pay for it. That's just life.

    As a blogger, I feel there is a responsibility to provide applicable, and valuable information to your readers, on an abstract level. If you have 1,000 subscribers, you're not going to write 1,000 stories, each tailored to their specific business. You can provide a general overview of a topic however, and answer any general questions they might have (as the dentist at the dinner party might). Anything more specific than that however, requires some type of financial commitment from them however.

    Jason
    http://www.facebook.com/pages/StartupSidekick/1… (Follow me on Facebook for more entrepreneurial advice)

  • I totally agree with your point.It reminds of an interesting story.There was a factory and a machine broke down,bcoz of some major problem.The owner called many mechanics and engineers tried to fix it but no hope.They new there was an expert engineer(sort of expert consultant) who can fix it but the owner feels that he charges a big amount.But still he had no choice but to get help from that expert.
    The expert comes, checks the machine in a minute,and hits a hammer at a particular part of the machine,and guess what..the machine starts running.
    The owner was so surprised seeing this.He was happy but confused also.
    He asks the expert,who do you charge so much for just hitting this hammer,we could have done it ourself.And you just took one minute to do that,you have not spend much time.
    Then the expert person replies, Sir, you are true, but it was only me who could tell you where to hit the hammer and with what force.
    Gist of the story”we need to value other person's wisdom, skills and time”

  • This was a really interesting read Jason.
    While I don't technically do consulting myself, I am asked for my advice on social media by friends, colleagues and sometimes even random strangers. Usually (more like always) I offer them my advice because I'm a genuinely nice guy (at least I think so). But, one day I think that I will be getting into the consulting game and it's good to know that while you can still work independently I can make a decent living.

    I totally agree with your point about traditional media as well. If a company hires a marketing/advertising/PR firm to help them do a campaign, the firm doesn't charge on a basis of whether they succeed in driving the companies sales or not, they are paid for the time and effort they put into the campaign. Social media should be no different. Yes, some of the tools we use are free, but that doesn't mean that the time and effort we put into using those free tools should be as well.

    I think I may need to stop being such a nice guy and start making a living for myself (outside of my job of course) and stop trying to make everyone like me by doing things for free. Friends can only get you so far. (I think that sounded a bit mean and self-centered, but I did it to make my point.) Work is work and should be treated as such. Even if you love doing what you do (which I do), you still need to think about your rent, your bills, and eating to stay alive to continue doing that job you love.

    Cheers,

    Sheldon, community manager for Sysomos

  • Francesca Trinidad

    Hi,

    My name is Francesca, I totally agree that social media marketers should be able to price and get paid per hour of consulting rather than be rewarded or perhaps not rewarded based on an incentive scheme program. you are absolutely on point that regardless of whether the marketing strategy provided pans out like a beautifully orchestrated alignement of the stars or busts to the tune of financial redlining, they did contract us for our time and expertise and that is the bottomline.

    PS — I want to share a related topic when it comes to tips on social media marketers <a href=” http://sn.im/z1egs“>marketing</a>

  • Incentive based pricing doesn't work outside of the world of well funded startups. Here's why. The implication is that the price you want to charge equals the value that the company will derive. But that's obviously not true, otherwise they'd just break even so why do it.

    Given that understanding, the only way you engage in incentive based pricing is if the potential upside (the gain *above* what you would normally charge) is worth the potential downside (the risk of it not succeeding and you getting *less* than what you would normally charge).

    Will the client pay me 2x my normal charges if I blow the roof off? What about 3x? 10x? What is the measure we will use for success and over what period of time? If my program succeeds and is the piece that tips the scale to your company becoming the next Microsoft will you pay me accordingly over the next 10 years? This is why well funded startups can play the “pay with equity” game. There is a set baseline and you succeed to whatever degree their company succeeds over any period of time. If they want to give you equity in the company, and you consider yourself a savvy judge of business mechanics and see a huge likely upside then go for it.

    The bottom line is that your current business model for pricing is based upon a set of criteria that doesn't include downside risk. If the company will let you reprice based upon risk then it would be higher. So no, the company can't have their cake and eat it too.

    • I think I'm going to use your comment as fuel for my new response to those people: “I'll gladly go to lunch and give you free advice for an equity share of your company.” heh.

  • Jason,

    A great and fair post.

    I think the rub comes from folks (the askers) not seeing your side of the coin. They just see 2-10 minutes of your time to craft an email, have a call, send back a DM, etc., but what they don't see is the other 10 folks that want/expect the same thing that day. Those little 10 minutes add up and as you point out, in the consulting world, if you're not billing your not making money. As I recall that was the crux of Chris' post.

    As for that smaller company, non-profit, they can afford you but often they need to get creative to do it. They might start by focusing less on hiring big guns like you and instead hiring the smaller guns that (all due respect) are just as smart as you but haven't for whatever reason gain the visibility that you have in the SocMe space. There are a lot of those running around and likely you know a number of them. Given that you're booked 60-90 days out and would probably prefer not to discount your rate, you might be happy to refer the non-profit to someone you know/trust that has capacity. They might also leverage their network. While they may not have big pockets, maybe members of their board, etc., represent companies that do and are also candidates for your services. I have one non-profit school right now that does this with me and a number of their other consultants. So I get to make some food money but also doors are opened for future business.

    As for performance based fees — agree, to ask a consultant to work strictly on a performance basis is just not fair. Unless you're going to turn over your entire brand, customer service, fulfillment, call centers, and HR training to me and follow my exact advice as I give it, then it simply isn't fair to make my paycheck be tied to your execution. It's the same thing ad agencies have been fighting for years. They do a great campaign but the brand doesn't manage the merchandising or pricing strategy correctly.

    A far better way, and a model I've used for many years in advertising and now in digital marketing consulting is this:
    First, decide on what your fee would be.
    Second, place 15-20%, or whatever you're comfortable risking, back on the table. The client then matches that amount.
    Third, create performance metrics that you can influence regardless of client (sans oil spill) activity
    Fourth, divvy the “bonus” amount amongst the performance measures.
    Fifth, launch and track.

    If you hit a performance metric you get the “bonus” and if you don't, the client saves money. At the end of the day, if you hit each one, you make more than you would have on a straight fee gig and if you don't then the client saves money for use elsewhere.

    @TomMartin

    • Thanks for the thoughtfulness there, Tom. I like the performance scenario you outlined. Certainly worth considering!

  • I can't agree more. One of the biggest issues with social media and clients big and small is that its “free”.

    Clients were used to how traditional marketing and advertising worked. They are accoustomed to paying for print, tv, radio(none of which comes with a guarantee) etc and you can meet with them and give basic information , but they still need you to carry it out for creative and media placement. So after meeting with you if they like what you say then you have the business.

    The issue I have come across with social media is after meeting with clients to pitch why they want to work with me, they want to pick my brain and then keep it all in house. They just don't feel that with this economy there is a reason to pay when they have a college intern that can set up their social strategy for free.

    Unfortunately it has forced me not to be as open at meetings because I have seen my ideas implemented by in house teams after I meet. I have always tried to be on call for my clients and give value added service with advice/ideas and support, but now I have to refrain and edit what I say.

  • There are plenty of billing models, each with its own pros and cons.

    We generally work on an hourly basis, as do you. While that gives you a fair way to justify your billings, one draw-back is that it doesn't necessarily reflect results, nor does it encourage efficiency (although you'd think that a competitive market would force that).

    Other options include fixed rates (though, internally, you'll still want to budget your time); value-based (the expertise that means something that might take relatively little time may have been built over years, thus justifying a higher rate) or incentive/results-based. I'm not a fan of results-based billing as, frankly, many other parties have influence on the results – especially when social media campaigns may involve engagement directly by the client.

    • Excellent point: other parties can influence the results too much for a pure “billing by results” system to be feasible. No matter how effective the social media campaign, there are other parts that need to come together to produce optimal results. A terrible sales job for example can ruin the “result” of even the best run social media campaign

      Jason
      http://www.facebook.com/pages/StartupSidekick/1… (Follow me on Facebook for more entrepreneurial advice)

  • Well stated Jason. I understand the desire from a client to minimize their risk over programs that don't work but as you stated, this payment model doesn't exist in so many other types of marketing, I don't believe we need to establish it here.

    Not every program generates the same result but working with someone over time a company gains your knowledge and insight, gathers ideas on what goes into planning and executing a program, and probably receives a fair amount of training along the way. The incentive is to continue a relationship together.

    Personally, if someone wants to buy me lunch, I don't mind having a conversation about the market and provide a couple of insights if I believe we can establish a business relationship or the person will be a good referral for me down the road. I see that as showing how I work and demonstrating my knowledge, but it has its limits.

  • Totally agree with the article. We're asked all the time to “take a quick look” someone's website and come back with comments on how we can improve the content for nothing. However, isn't there a dichotomy here though that a great deal of Internet marketing is based on the idea of giving something away for free then we're faced with the difficulty of persuading clients of the value of the services we sell? Are we then faced with the problem of admitting that what we give away isn't as valuable as we make out in order to convey the greater value of what we charge for? Fortunately most people “get it” (you pay for specific advice and strategy, you pay for professional experience) and those that don't would probably never part with their cash anyway.

  • The next time I need an oil change, I'll simply ask the mechanic to guarantee that I drive more effectively before I pay him/her. Or not.

    Professionals ranging from physicians to plumbers are paid for our experience and expertise. By virtue of my existence, I know that at some point I will have to pay a qualified professional for their skills or even opinion.

    When the marginal utility of engaging a professional exceeds the opportunity cost of not doing so, I'm going to pay and keep paying (even if that requires non-currency bartering or whatever).

    I'm always down for a free lunch, as long as you're buying. ;)

  • I wholeheartedly agree with the premise of this article. Knowledge is of value and if business owners want to get in up to speed with the communications of this New Economy, then they simply need to commit to learning new ways of getting the word out about their business.

    They are results-oriented, but the results of doing things the same old ways are no longer yielding the same results. Furthermore, unless the consultants are being hired to manage their social media program, there is no way to “guarantee” the results. Our Knowledge + Their Social Media Actions = Results. If they are not implementing the consultant's suggestions or strategy, the results will not be the same.

  • Jason, The longer we're in the business, the more we'll see a ton of opportunity coupled with an equal amount of those who think that with just a modicum of our opinion or help, “they can do it” themselves. We live in a DIY nation and that extends all the way to social business.

    I used to feel guilty for what my pay rate was and often undervalued, undercharged and overdelivered for my services. Fast forward past a few too many 70 hour work weeks later and you start to realize a) how many people don't know what they are doing b) how many people truly need what you know and c) how valuable what you know really is.

    When food and bills are on the line and you start to realize how few really know what you know, it's easy to trust and believe in yourself and not blink when plugging the numbers in on a proposal. The expertise and justification to charge what we charge resides between the ears and a belief in it's value.

    Incentive based performance is a great business model if you were a professional athlete-where we can measure points, attempts, goals, assists, catches, completions, etc. Those are tangible.

    The caveat in social business is that there are a ton of ethereal factors that might extend beyond our social intellectual property and expertise that we just cannot or ever will control or predict. Some of which may negatively affect the outcome of any social initiatives we propose.

    It doesn't diminish our work or define us as not being worth it. It merely means that sometimes you can make or sell them the road map, but if they choose not to use it, or take a shortcut, or if they decide to get directions from the guy on the side of the road or the girl in the backseat-It's on them, not you.

    • Excellent points. It is far too easy to undervalue what you are actually providing. Social media impacts are non-linear, as you mention. Outside factors beyond your control (such as a poor sales job) that diminish the end result of a social media campaign shouldn't affect the outlook on the service that you provided. This seems to be the core reason why a results based billing system is not appropriate for social media consulting

      Jason
      http://www.facebook.com/pages/StartupSidekick/1… (Follow me on Facebook for more entrepreneurial advice)

  • Farrell

    It sounds to me like your potential client isn't really looking to pay you in a way that creates incentive for performance. Rather, it just seems like a way to pay you less. I get this request from time to time in my business.

    Basically, I think you need to stick with your pricing structure. If someone really wants to pay you for performance, suggest a bonus on top of your normal fees for meeting stretch goals. See what the reaction is…

  • This will always be an area of contention between all consultants and the companies hiring them. As a consultant myself, I've been asked this question numerous times as well. Like what UrbaneWay says, it's true that most clients are only focused on the result. Here's my issue. The business owner, their staff, the environment, the customers, almost everything affects the result you (as the consultant) are trying to help attain. The laptop either works or does not work… regardless of any of these things. Your social media plan will work or not work DEPENDENT on ALL of these things.

    A true consultant's job is only to help setup the strategy, educate as to the best methods of implementation, and then work with the business to delegate the actual work (unless otherwise agreed to.) We are not a hired “grunt” (again, unless we allow ourselves to be.) So… how many of us would let our salary (I'm talking consultants, business owners, employees, and all workers alike) be dynamically determined based on the performance of our fellow workers… or in the case of consultants… based on the performance of workers of another company (the business you were hired by?) Not likely! I have great faith that anyone can learn how to do what I have learned how to do, but I wouldn't trust them on Day 1 with my salary based on their performance.

    For me to accept an incentive-based opportunity, I have to fully understand and believe that the company that hired me has all the right resources (or has 100% agreed to acquire them,) the right level of budget, the right level of understanding (ignorance breeds failure,) and we have perfectly outlined what would cause them to have to pay me a full consulting rate as oppose to the incentive-based plan. That's right, I always include both for the reasons above. Because let's face it, should I suffer for YOUR failure if I can prove it was your failure?

    Now this puts a LOT of responsibility for the consultant to track EVERYTHING (conversations, document decisions, capture how the implementation is working, etc.) but then again… wouldn't that make better consultants?

  • Brian Wallace

    A nicer way to say that pay per performance is bs by the way is to suggest that the client starts up affiliate marketing, since that in essence is what they are asking for.

  • Brian Wallace

    Hey Jason,

    Stick to your guns. Pay per performance is bs. That's not to say that you cannot structure performance incentives based on mutually agreed happenings. Still as you have mentioned it isn't reasonable for us as marketing consultants to be giving away time for free. That's like going to the doctor and you're only going to pay if you are cured. Like it or not, people that truly know what they are talking about in social media marketing have spent the time it takes to get to the top and should charge accordingly. True that it is a service based offering so customers might have a harder time cutting a check that they can't hold in their hand, but those be the breaks.

    • Thanks Brian. Appreciate the encouragement.

  • Jason

    I think most of what you say is great.

    Where I would disagree, to a greater or lesser degree is:-
    Charge for the result, not your time
    Get the client to define the worth of the result to them, before you start – And set your price accordingly, checking it'll be profitable for you
    Get them to pay a substantial proportion of the price before you start
    Maybe offer an incentive to pay in full before you start
    Maybe offer to waive the final payment if they think it's not working – IF they let you know within the first few days

    As you say, you also have bills to pay and mouths to feed, so you can't wait until the end result. If they offer you a percentage of what you save/make, accept it, but as a bonus on top of your fee.

    • Flawed thinking, methinks. First, no one can guarantee results. And I don't know very many clients willing to pay up front. I require a deposit to start work and get push back on that 99% of the time. But good thoughts to add to the mix. Thanks.

  • Morning Jason,

    Sounds fair to me. Diving into the consulting side, I have often wondered the varying pricing range against ones time. This helped.

  • UrbaneWay

    Jason, Good Morning
    I have been on both sides of this fence at different times throughout my career. If I have my business hat on and I am buying the consulting service, I am really only interested in the result. A consultants experience has little value to me if what I purchased didn't work. If my new laptop doesn't work, I can return it for a full credit. Not many, if any consultants are willing to issue any credit, let alone a full one.

    If I have my consulting hat on, I sort of see the point, but not really, although we all pay Dr's and Lawyers everyday that may or may not help us get well or out of trouble. It seems that the bigger issue is, typically the consultant has little real authority to really effect change to the company that hired them. As that authority decreases, results, or the likelihood of achieving them also diminishes.

  • I keep rolling this one around in my head and… I don’t know. I’ve been involved in situations where professional services have been used, but it’s been a case of having vendors compete vs. the vendor having more power than the buyer (e.g. competition). In those scenarios, I’ve seen the vendor give more than a little in the name of competition but the context was different.

    I’m not questioning your right to name your own price and set your own terms and conditions – you’ve obviously put a lot of thought into what you are doing.

    If you find yourself in a marketplace where the $75 – $150/hr folks are demonstrating top quality and decent results, do you think your approach might change? You could be on the right side of the scarcity line at the moment, but that could always change.

    As for incentive-based pricing… I don’t have a background in buying or using media/advertising/PR/marketing services, so the rules of the game may be a little different than, say, buying IT services or project management services, especially in terms of performance criteria, etc.

    Interesting thinking point.

    • Good question about the playing field changing, Mark. I do recognize I'm unthinkably lucky to be in my current selling position. If the playing field changed and they could get high quality cheap and easy, yep … I'd adjust approach and pricing. Good food for thought on how, though. Thank you!

  • Jason, really thoughtful post, thank you for this, I always enjoy hearing others consultants perspectives on this and related topics. I think the single biggest problem I have with performance based incentive is that (in my experience) it’s often the client that get’s in the way of success, not the consultant. There are insufficiently experienced consultants out there for sure but 9 times out of 10 if a client didn’t get what they wanted or expected it was because they listened to my advice and promptly ignored it or insisted on doing exactly the opposite.Even when they do listen, to make a system like that even have a chance of “success” the parameters/metrics for success have to be very well laid out and defined, agreed upon and non-negotiable (something most clients won’t go for, they like to interpret too much). Finally a lot of my clients have come in with misguided expectations around things like SEO (for example). It’s innocent enough to be sure but they launch a brand new website, with nothing but the SEO mechanics in place (none of the external stuff like any existing backlinks) and wonder why they didn’t immediately show up on the front page of google. Given the time-lines involved, the unknown factors… no consultant would make much of a living that way. Which might be fine with some business owners but my own flippant response would be to say that you came to me!