Value Based Coaching Fees? Thinking Out Loud
What does a vegetarian community restaurant “Lentil As Anything” in Melbourne, Australia, have to do with my coaching fees? Simple. The restaurant uses Value Based Fees rather than setting prices for their dishes. “Our Philosophy is that the customer decides what they want to donate for the food they’ve eaten – they decide what it’s worth and give as they feel.”
I’m thinking of trying this.
It’s taking a huge risk, I feel like I’m stepping off a cliff, jumping out of a plane without a parachute.
Coaching without being paid in advance. At present my business model is set up so clients pay me in advance, using Paypal monthly subscriptions.
What if – I stopped that?
What if – my clients paid after the session, and set their own rates?
What if – my clients paid the amount that they believed they got the value of?
What if – no-one pays?
What if – unscrupulous nasty people took advantage of me?
What if – I tried it and no-one was interested?
What if – it was a huge success and my clients loved it?
So what’s holding me back? (Apart from the fact that the first thing my husband is going to ask is “What about the mortgage?) Fear, it’s different, it’s out of left field, no-one that I know of does this. It’s totally out of my comfort zone.
What’s the worst that could happen? Well, I guess I’d do a lot of coaching for little or no money. We live off my husbands wage (done that before). I decide I don’t like this way of doing business and go back to setting fees and requesting payment in advance.
I could get taken advantage of. Yes, that’s possible. However I believe that people are inherently good and honest. That’s a risk I am quite prepared to take.
What’s the best that could happen? I could end up with heaps of extremely satisfied clients who have fantastically profitable businesses because of my coaching, and they pay me well because they are receiving great value from the Coaching.
What’s the advantages of this? Wow, I would have to be an amazing Coach who gives great value in every session. Oh, wait… I already do that…
Clients who would normally not be able to afford the current set coaching fees would be able to access quality coaching, based on how much they can afford and the value they receive. This is one of the big advantages for me, I know what it’s like to not be able to afford what I needed to grow my business. To be able to help those who really need it is really important to me.
What have I got to lose? I already offer a 100% money back guarantee so in effect I already have this happening in a way. I’ve never been called on to give a refund, so that suggests that my clients are all really happy and profiting from my coaching.
Thinking about this…. What do you all think? Who would take me up on this?
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Interesting take! I remember something a teeny bit like this back in 2002/2003….a marketer decided to let his customers pay what they thought his product was worth.
Alas, the experiment didn’t turn out well for him. I certainly hope your customers recognize the value you deliver!
Best of skill, Barbara
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And here I was thinking it was an original idea! Oh well, I haven’t decided yet if I’ll definately try it, just looking for opinions, suggestions, ideas etc.
I myself personally would not do it, because I myself have tried something similar years ago. People were happy to take…and there it ended.
Sad to say, my personal experiences were that if it costs zero, people tend to unintentionally treat it like it’s valued at zero. ‘Course, I’m lousy at following up for payment/etc., so the model would be destined to fail for me anywhos. But just like universities charge for their knowledge, I now will always charge for mine (unless it’s helping out at the forums
).
If anything you’ll always be able to say, hey! I tried. You never know.
Best of success, Barbara
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I want to play devil’s advocate here. Mark Silver of Heart of Business recently discussed this idea in an article. Unfortunately, I can’t find the original now.
Doing it this way places an awesome amount of responsibility onto your clients. They are dealing with their own situations, their own sense of worth possibly, which is why they’ve come to you.
You might well be burdening them with a great deal of guilt. How are they supposed to know the value of your service? If you don’t, how can they? You can offer special support and pro bono to people who really can’t afford it, but it isn’t really a question of being taken advantage of – it’s about the burden you place on the client to try to value the service you’ve given them. While some may feel confident about doing this, what if others don’t?
Think about how you operate in the world most of the time. You make decisions about what you’re going to buy based on price, from houses to bread and milk. You know that price and you process it. Although coaching is hardly the same as bread, price will come into the decisions people make about coaching. What this creates – with no fixed price – is a great deal of uncertainty. At least with a price you can decide whether or not you are prepared to pay for what you’re going to get. The other way around, and people are likely to worry that they may end up getting more than they can afford. At this point, how would they know?
An alternative might be to put up prices but say that you would be prepared to negotiate with people who can’t pay to take advantage of the service but would still like coaching.
In the end, this isn’t about you and how you feel about money. It’s about the burden you place on your clients to have to make a monetary assessment, and as long as they work with you, to feel uncertain about how much money they might or might not be spending. I was advised to be absolutely up front about my pricing because it makes that side of the process very simple indeed.
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The problem with your current model is that it translates into time = money and ultimately that is incredibly restrictive.
Value based pricing is the way to go because it frees you from the time = money mentality but there’s a big problem.
Clients don’t have a clue what that value is to them and the onus of proof falls onto you as service provider.
Take SEO as an example. There is plenty of data out there that tells us exactly how many clicks a site ranked at number 1 gets. From there we can extrapolate how much more money you’d make if your site held that top spot and consequently how much you’d be willing to pay to get there.
If someone says to you I can help you get that top spot, it’s not guaranteed but judging by the competition you have a very good chance. You’ll make an extra $500 a month every month. The fee? $500.
Perhaps a number 1 spot will make you $5000 more each month in which case spending $5k or 6k for SEO services doesn’t seem so bad after all. In a sense you are justifying their spend.
Joely makes some excellent points but for true value based fees (which is not what the restaurant is doing) you must prove the value to your clients. Can you do that?
That’s really really difficult Melinda. I’m inclined to say try it because A) Huge risk can yield remarkable reward and B) It’s totally our of the box and would set you apart. However, I agree about the burden of guilt it might place on the client, and that can be a hard thing to overcome. Best of luck and good on you for being willing to try in the first place.
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I would not do this. Instead, have you considered offering ‘coaching to success’. Charge a reduced rate, set goals with your client, upon reaching those goals you receive the remainder of your normal rate as final payment. This could work with monthly rates, per session rates, hourly rates, etc. Just a thought.
Here’s my take on this:
Go for it! But not with the selflessness you’re thinking of.
Step 1: Limit your value based clients to a certain number per month (or however long a coaching generally takes).
Step 2: Set a price to your coaching or a certain percentage that they will have to pay. You can keep the % small since you want to target people who can’t afford your services. Once the coaching has reached its end, they can pay according to the value they received.
Advice: Let your clients know your usual rates. This way they’ll know what a bargain they’re getting. It will also give them a scale on how much to pay. One clients high price in exchange for the superb value you offered may not be high for you.
As for the guilt. You can offer them options. A certain % of their profit for x number of months. Or 5 referrals that turn into business for you. Or give your clients the option to come up with something. For the ones that really need your coaching and cannot pay – consider bartering.
I’m just shooting from the hip but I do believe you need to put in more thought and organization into your idea.
I’m excited about what your idea and really hope it kicks off.
P.S: Another thing, get in touch with Lentil As Anything. Find out how its working for them. Talk to them about the challenges they faced and if its been a good business model for them (even though they’re a not-for-profit).
Phew. I’ll stop now
Good luck Mel!
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@ Joely. Thank you! I love having someone play devil’s advocate!
@ Marc. Everything a person does translates into time = money at some point. There is a definate limit there. Scarcity comes into play….
@ Writer Dad. Thanks Sean!
@ Charlene. Interesting idea. I’ll have a look at that.
Couple of thoughts:
I’ve seen “value-based” tossed around as a buzzword lately. And until you explained it here, I had no idea what it was. That’s a problem: Your customers don’t understand either. Any “huh?” moment is a lost sale.
Now that you’ve explained it and I’m thus the wiser with a new buzzword, I think it’s not a good idea. Yes, it’s nice to be nice. Yes, saying, “Pay what you think is worth,” is kind. But I agree with the others. The onus of deciding the value of your services falls to the clients shoulders, and they’ll become uncertain.
They won’t say, “What’s the value of what I received?” They’ll say, “Oh god… I don’t know what this kind of coaching is worth… what if I give her too much? Or too little? Oh man. Why didn’t she just tell me…” All bad feelings and it’ll take away from your customer experience.
I think Samar’s idea of limiting services to a select few a month is a good idea. But I wouldn’t do it value based – I would just do it pro bono. If they’d like to make a donation after, great. If not, great. Go all the way or nothing at all.
Lastly, this value-based idea essentially gives a message to clients: “I don’t know what I’m worth. You decide.”
That really what you want to do?
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@ Samar. Thanks for the suggestions. This would definately need to have a strong framework and structure within it.
@ James. Nice to be able to educate you on a new buzzword
Lot’s there for me to think on, thanks!
Joely- how sweet to mention me here! And thanks, Melinda, for getting my attention or I would’ve missed it.
Let’s make some terms clear. “Value-based pricing” is not commonly used to refer to “sliding scale” or “pay-what-you-can.” It’s more commonly used to refer to pricing structures that side-step the question of what something might cost per hour, but instead price based on what someone gets as a value.
Alan Weiss, who wrote “Million Dollar Consulting” popularized this in certain circles. He made the point that if he came in and did two days of work for a company, but the work he did saved them or made them let’s say $700,000, then he felt perfectly justified in charging $40K or $70K for those two days of work, and the companies would pay him, because it was such a good deal.
He set the price, but not based on his time- instead, it was based on the monetary value of what he was delivering.
By the way, I highly recommend going to value-based rather than hourly-based pricing, because hourly-based just doesn’t make sense. The two articles Joely might’ve been referring to are these:
The Wackiness of Resonant Pricing
and this one:
Avoiding the Horror of the Sliding Scale.
In an interesting twist, I was recently introduced to Tad Hargrave and I was really impressed with him. We talked for about an hour, and part of what he was explaining was all the work he’s done on thinking through what he calls the “Pay What You Can Economy”- and there are a lot of examples of this in action successfully.
However, he has worked through it that you can’t just throw it out there, willy-nilly, because of the dynamic I discuss in the Sliding Scale article above. Instead, you need to set expectations, and use it in particular situations, while giving the customer a context and explanation for how it works.
I’m going to do an interview with Tad, probably in July because of our at-odd schedules, on just this idea. And I think we’ll all learn a lot about it, if you get a chance to listen in.
Has this been helpful?
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I tried it with a workshop and found it seemed to confuse people. I told people the value ($69) and got anywhere from 2 cents to $40. But that might have been because I asked for people to pay *before* buying the product, meaning I went to sliding scale instead of value-based.
As a business coach, you could probably do a value-based program using a metric such as increased sales having the first exercise as a benchmarking session and then charging a percentage of the difference. Of course that would be difficult because what if due to other reasons the client didn’t get more business, or despite you doing lots of work with the client, they didn’t put in the effort to implement changes.
It’s an interesting thought and I’d love to see it work for you if you try it!
Thanks Mark and Alex. You’ve both given me more food for thought.
I’m still really interested in seeing if there is some way this could be workable. Although I’m not sure if I’m thinking it’s a good idea because I’m thinking as a Coach, rather than thinking as a business owner.
I really appreciate all the points of view that have been given here.
Melinda, what a great idea! It’s really pushing the boundaries of the coaching business model. I can’t wait to hear how it goes, and most importantly, what you learn.