PACKAGE VS. HOURLY PAYMENTS (January/February 2002 Issue)

By-the-hour billing is the biggest impediment to a prosperous private practice, in my opinion.

It's also the hardest thing to get my private practice "proteges" to abandon. I think it's a comfort zone thing; no one is opposed to the amount of money -- they're just not comfortable asking for a commitment to the whole fee and the whole campaign. I mean no one has a problem charging someone $3000 if it's $100 an hour for 30 hours of work. So, it's not the amount of money. It's asking for a $3000 commitment, and a "til-new-job do us part" contract that puts the deal out of their comfort zone.

I think they get two self doubts, "Am I going to be able to produce $3000 worth of value?"; and, "Can I really commit to working with this person through to the finish?"

Well, think for a moment of the value of your consulting. Is there anyone that thinks we career consultants cannot show $3000 or more worth of value in the bank for our client? We help people get re-employed months sooner than on their own. What's that worth? Someone who gets their job 4 weeks sooner than they would have on their own (We can do that, right?) is $2500 - $6000 ahead. And this doesn't even factor in the value of being in the right job, nor the extra $1,000 to $20,000 we help our clients get by coaching their salary negotiations!

I believe that any career advisor worth their salt can reliably produce $3000 or more in monetary value to any client who works with them and follows their coaching.

We're worth it! So, we create that value. But we can’t create that value if we charge by the hour!

I say that the only way we can create that value is if we have a "use-me-fully" relationship (fixed fee), not a "pay-as-you-go" (hourly) relationship. In my experience, paying by the hour for career consulting is a recipe for disaster, not only for you and your private practice, but for the clients you serve.

Sure as shootin', when the going gets rough -- and it always gets rough -- an hourly client will quit coming for help. When you feel stuck, dejected, frustrated, and nothing you've tried is working out, are you going to plunk more money down on the person who did the resume and job search campaign that got you into this mess? Nope, you'll try to "save" money by cutting down the sessions; you'll drift apart. When clients need their consultants the most is exactly the time hourly-clients feel like coming in the least.

How are you going to get them back in? You'll have to sell them all over again. What's worse... you'll constantly run up against conflict of interest situations.

With an average client you have, say, six sessions before they're ready to do networking interviews. If they come across a job interview after one session and ask for your help, and you are billing hourly; you now have a conflict of interest. Helping them win the interview means you lose five sessions worth of payments! Sabotaging their interview will put another $300 - $500 in your pocket. [I know you're ethical; I know you wouldn't do that, but why have a financial arrangement that rewards bad work and penalizes excellence?]

Single-fee structures work the opposite. The career advisor makes the most money when the client scores quickly. And will a client who scores after just 3 meetings begrudge you the $3000 money? Nope--he's happy he got his job so fast!

On the other hand, if the campaign takes a long time, will the client begrudge paying over and over and over again every time he or she picks up the phone or comes in to see you? You bet. As a matter of fact, hourly clients in that situation resent it so much they'll disappear. Do you have disappearing clients? Odds are, in many cases, those are hourly clients.

[F.Y.I. "package clients" disappear, too, but you don't have to worry that money scared them off. That's not an issue. In fact, because they're all paid up, you can go track them down and drag them back kicking and screaming if you want. You can't do that with hourly.]

Charging in an hourly fashion turns you into a salesperson every day. You are always trying to sell the next session, clients are trying to avoid it. You'll both feel that struggle, and it will make you less effective as a career consultant.

This really sank in when I had an hourly client who I felt needed to take some pro-active steps in her present job. I wanted to call her up and tell her to come in to discuss it, but I felt squeamish. "How can I ask her to come in for a $150 session on a "hunch" that we should talk?" So I didn't.

Four weeks later, however, she was in a crisis and called me saying, "I might be fired." At the next session, I told her my predicament and that I thought we really had a 12- to 24-month project here. The I proposed a 3-year contract (everything takes longer than you think) for $2800. She saw the value and signed on.

After that, it felt "free" to her every time she called me (kind of like dinner on an airline--you know you paid for it, but it feels free). She called me much more often, we got her moving faster, and she was in a new job (same company) within four months at a $15,000 increase. That $15,000 never would have happened for her without the intense work and contact we were able to achieve; even if it did, working hourly, I'd have made only about $800.

Another bad idea: some consultants go 1/2 way towards full-package and they package their services into two or three modules, like: $750 for preparation, $750 for research and marketing preparation, $750 to coach the job-search campaign. No good! You're still selling all the time! You're wondering if you can string this out to collect all three fees; your client is looking to cut corners and avoid the last $750.

Ask yourself, "What do people really want when they come to us?" They want a new job. Don't sell them anything less, for both your sakes. Set it up so that you're both committed to sticking it out all the way to the finish line.

This will help you become more prosperous in two ways: first, in dollars (and the security and efficiency of having to sell each customer only once!)... and second, in your confidence level. You'll always know you're giving value for value, selling results, not hours.

This doesn't mean, by the way, that you must demand payment in full at the beginning of the campaign. My clients usually spread payments over a few months (I have them sign a note that authorizes me to charge their credit card each month), but they're clear that the fee is the fee; it won't go up if they take a long time, and it won't go down if it takes a short time. This protects both of us.

I encourage anyone in private practice to bill this way. If you have a hard time doing it, have a little discussion with me or with one of my proteges who has been in your shoes and can tell you how they moved from hourly to package. You'll like it, and your clients will like it too -- I promise you!

Jack Chapman is author of:
Negotiating Your Salary: How to Make $1000 a Minute
He is a career consultant in private practice and runs ongoing support and training teleconference sessions for career consultants in private practice.
He can be reached at 847-251-4727 or jkchapman@aol.com.