Good At Consulting: Chapter 4
Pricing, Products & Outcomes
I am writing a new book. It should be done very soon.
As an experiment, I am going to be publishing chapters (as they are edited & ready for publishing) here on the site. When it is complete, you will have all chapters hosted online and I will likely leave it here for free consumption.
Some links may be inactive until the final chapter is written.
Chapter 4: Pricing, Products & Outcomes
This was one of my favorite chapters to write, because it gets deep into the gritty “tactical” models we use to sell consulting at scale. As I’ve discussed elsewhere, I learned by doing. In many cases, I learned by doing it wrong.
A quick note on “scale,” as it’s italicized above for a reason.
Scale is subjective and relative. For some people, “scale” is 100 clients. For others, “scale” is 10 clients. It’s beneficial to think of “scale” in terms of your market cap.
I have a special definition I use when talking about the “market cap” in your business.
Here it is:
When the “increased growth” of a business begins to produce diminishing returns, or less options, you’re approaching market cap.
Diminishing returns is not to be siloed to just financial returns. There are non monetary returns that matter just as much — sometimes more — than monetary returns.
Wealth, as I define it, is the cumulative sum total of your assets minus their required maintenance. You can have whatever definition you want, but to me, wealth is not a “gross number,” it’s the net.
Achieving a “number” and losing options in your life is the opposite of wealth (if you use my definition of wealth).
The market cap theory I’m trying to get you to adopt will protect you against unhealthy scale. What defines “unhealthy” scale?
Glad you asked.
To me, unhealthy scale is anything that becomes counterproductive, produces diminishing returns, or removes options. It can make you money, but if it removes your options — it isn’t making you more wealthy.
A few months ago I walked out of my home office. I had a meeting at the Nashville offices with my team, and I live about 30 minutes away. Kate, my daughter, who at the time of this book is 3 years old — is sitting on the floor dressed up like Elsa from Frozen (we’re on a Frozen kick right now). She looked up, saw me, grinned real big and said “Daddy! Will you dance with me? I am Elsa!”
And I had a decision to make.
To stay and play meant I would be late, and people would be waiting on me.
To leave and be on time for the meeting and… well, Kate would’ve understood (eventually). But the more important question I had to wrestle with:
“How many days can I count on her to be at home, in the living room, dressed up like a Disney princess and wanting her dad to play with her?”
They say that somewhere in the range of 80% of the time you get to spend with your kids happens before their 18th birthday. Makes sense, if you think about it — but we hardly ever think about it. I sent a text, re-organized the day around a new schedule (the team understood), and we twirled and danced for 20 minutes. My daughter and I made a memory, one that I hope we remember it forever…
The point of this story is to simply provide a point: options involve more than just money. I work to provide options for my family, and to hopefully provide options for you and your family. If I help you create monetary surplus and do not help you protect your options — I’ve taken from you.
When you understand this you understand a central point to my philosophy: you do not have to sacrifice being “successful” for the things that matter most; and you do not have to sacrifice what matters most in order to be “successful.” These are not dichotomies to CHOOSE between, but rather puzzles to assemble and “stack” the right way. You can have both. You should have both.
But doing so requires finesse and skill.
The reason I wrote this book and particularly this chapter, is to transfer to you some of that finesse.
Back to my definition of wealth and market cap: the utility of wealth is literally CHOICE — OPTIONS. Because of this, I’ve found it helpful and beneficial to add “constraints” to my targets such as:
$300M Net Worth [target] at 10 hours a week workload [constraint]
$10,000 per month [target] with only 3 clients [constraint]
The constraint protects my priorities and allows the mind to begin solving the problem of hitting “X” without sacrificing “Y.”
The frameworks in this chapter have earned me tens of millions of dollars.
Let’s dive in…
3 Kinds of Product
“If you want to command higher prices than anyone else, then guarantee better results than anyone else.” — Perry Marshall
In the world of “information” and “experience,” I’ve noticed three main kinds of product, as it pertains to the consulting industry. You can mix, match & configure a near-limitless concoction of products & services by using this framework. To extract repeatable patterns, I’m going to just give you the three basic levels.
Here they are:
Education (information; books; a newsletter, a video course, etc; $100 to $1,000)
Assistance (coaching; consulting; done-with-you; events & retreats; $2,000 to $50,000)
Service (agency; done-for-you; $50,000 to $250,000)
I know you’re never supposed to give away the cheese that early in a chapter. But I don’t want to waste your time. Those are the three types of product, there are no others that I have successfully, or consistently, used at scale. What most people get wrong is they either stay stuck in one type for too long or they try and create all of them all at once.
Each type of product can be broken down into smaller and smaller parts. My firm, The Wealthy Consultant licenses our consulting models out to clients all over the world. A repeated problem folks experience is wanting to do “too much,” too soon. In the rest of this chapter I’m going to explain what types work best for which markets, and how to customize your product types to fit your end goals.
Quick to market
Large market cap
The key to making education work is publishing consistently and keeping your quality high. You can typically take these types of products to market quickly but the downside is people can (and will) model you (a fancy way of saying they will literally copy you). One of my friends wrote a book recently, a lot like this one.
His book is really good. But now there are a dozen books that look just like it and even sound similar. He’s popular, so all of his competitors study him and “model” him. You just need to know that when you publish consistently, people will eventually know that you’re worth studying and modeling.
That’s okay - keep producing.
Another thing to pay attention to with education level products is you have a lower “relationship” threshold with people. They might “follow you,” but they aren’t necessarily going to be fans or students forever. In the higher tiered products, you typically need to focus more on “keeping” clients rather than “getting clients,” but with lower priced education products — the name of the game is deliver value and get more customers.
The next tier up is “Assistance.”
Still high leverage
High profit (pricing can scale without correlated rise in cost of goods or cost to deliver)
Fulfillment can be difficult (sneakily in the middle of ‘education’ and ‘service,’ people struggle to define WHAT they’re doing and what they’re NOT doing; scope creep is an issue)
Sales process more difficult than Education or Service
Assistance is a beautiful “in between” for education and services. Typically when you see folks offering a combination of “course” + “coaching” you’re seeing this second tier at work. Courses fit into the education tier. Coaching makes it “customizable,” giving it the added value of delivering assistance to your market.
There are a few downsides you should be aware of, the largest of which is nailing fulfillment. Clients tend to appreciate having assistance working through your education and curriculum — but we’ll splinter “Assistance” here a bit further into two categories:
Customization is simple: you are taking a giant educational experience, and customizing it to a particular person’s situation — speeding up the time to value and delivering a higher ratio of results.
Access is usually more expensive, because you’re giving them the ability to be “in the room,” or experience access to you, your team, other clients, etcetera. Masterminds have gotten big over the years because they blend education with access. Assistance is up a tier from education, which means it can usually cost a bit more. Customization and access both provide ways for you to guard your fulfillment processes for the client.
The goal is not to systematize so you can scale. Building a great business is about delivering value first and foremost. You shouldn’t “optimize” something so you can make more money — what you should do is optimize something so your clients have a better experience or get more value. This will, inevitably, lead to you making more money.
Natural MOAT (retention is higher if people are dependent on your deliverables)
Higher barrier to entry (more durable, harder to build, less competition)
Pretty easy to sell
Less profitable in most cases because of labor costs
Churn hurts a lot because you’re typically dependent on fewer clients
Services are the final tier in the three types of product.
Sometimes I see people selling coaching or consulting and they just hate on services — but I don’t understand this. Services, as a general category of value, is an excellent way to secure a market if you’re battling infringement or competition.
I own a few service firms and we do great work for great people. These clients love us and have an extremely high lifetime value because they don’t want to leave. There are risks for this tier of product, the first and foremost being profitability.
Nobody gets into business to lose money. Unless you’re backed by venture capital money (which I’m assuming you are not), you need to deliver value and generate surplus (aka profit). Oftentimes, when clients of mine get “big” or want to get big, we’ll look at putting service offerings somewhere on the back of their business so they can secure longevity with their client roster.
It’s a thousand times better to focus on keeping a client than getting clients. Your profitability will not be a problem if you’re taking care of the folks you already have. When people get in trouble it’s usually because they’ve switched their focus to “getting new clients,” rather than overdelivering for the clients they already have.
Let’s talk about PRICING.
Let’s go ahead and lock in on tier TWO of the product rubric and optimize the rest of this chapter for consulting, coaching, educators & trainers. You will make more money, in most cases, by offering assistance first and then backtracking later to education (lower priced products) to serve more of your market.
3 Models of Pricing
These three types fit almost every consulting brand I’ve built.
My firm has created & configured what I believe to be the “perfect” model for consultants. This is just my belief; I believe this because it layers in all three product types, and we primarily license the model to consultants and soon-to-be consultants so they can build using the right models and frameworks from the ground up. Let’s tackle each pricing model in more detail.
The first is “time.”
Most of you have done it this way.
A few weeks ago, as I was wrapping up a client training, I happened to look out my window. We’ve used the same lawn company for several years because they’re awesome. They bill us for their time and we pay them as soon as we receive their invoice. I am happy to pay people for their time; usually it’s cheaper to pay for their time than their expertise.
Most people get started with the “time” model. Your first job was likely an hourly wage. You traded your time for a predictable amount of money that you could collect at the end of your deliverable. This brings up an interesting point: one of the downsides of the “time” model is the payment is tendered after the value of services has been delivered.
The perceived value of a service is at it’s peak just before it’s rendered. The time model is working against you in terms of monetary value… my time is least valuable right after I’ve given it to you. It is MOST valuable right before I’ve given it to you. Nonetheless — I’ve seen many experts charge based on time blocks where they collect money in advance for blocks or chunks of time.
It can work but it’s not preferred for the long run.
The second is “process.”
Process incorporates everything you’ve learned about a specific something (or group of things). The byproduct of your process then creates demand for the process. It’s more nuanced than the time model, but you can make a lot more money this way than you can by charging “per hour” or “per block.”
Here are some examples of process models:
A current client, who just hopped in to refresh & dial up his offer, is an eCommerce “Growth Consultant” that has a great track record for growing eCommerce businesses with ads… we beefed up (and simultaneously simplified) his “process” which now is simple: “We Grow Bulletproof E-Commerce Businesses” (and if they fit his addressable market, it’s guaranteed with a money-back option that clients use if they want to)… there’s no “DFY,” just process and advisory.
A past client helped people deal with and eliminate pornography addictions. He obviously can’t “do it for them” but he did develop a process that, when followed, has been proven to work (applied to any addiction, but he specialized in one category).
A past client helped solar companies restructure their sales pipelines. He’s not taking sales calls for his clients or digging around in their CRM. He’s developed a process that, when followed, eliminates all holes in the CRM & dramatically increases the yield from any paid advertising or lead gen.
Another current client helps gyms go full savage and take members from other gyms. It’s kind of epic. The gym space has been largely burned out by more and more and more “aggressive” advertising. Most of the ads you see are “If you don’t get clients, it’s free” blah blah blah.. but it’s like the whole market forgot what advertising really is (which is telling stories, sharing common problems, then justifying and demonstrating rationally)…. We simplified WAY down and are undercutting the market, so far it is working and he’s getting applications to work with him for cheap.
I could bullet point out a hundred such examples of process-model clients. Process is my favorite style of building because it can be fast, easy (for clients), and predictably effective. There are cases when the process model won’t work, however. Most of the time, this is when the practitioner is not a legitimate expert and is just making stuff up along the way. You should never charge someone for a process that you haven’t personally tested, vetted, and successfully implemented. You should never paint a picture that is not true.
It sucks to hear this, but if you’re not a pro (yet), earn your expertise by charging as little as possible until you actually know you’re good. If you aren’t sure what to charge because you’ve never actually done it for someone, do it for free — earn your stripes.
The third is “outcome.”
This is when you are not charging for time or process but, rather, the outcome. This is usually a payment model that’s tied to upside, or equity, in some cases. One of my clients is building (from scratch!) websites and stores for clients… people pay him $50k and his team builds the entire thing out. He added an option to his pricing model, that allows clients to pay less and instead, pay a profit-share for any business that comes through their sites.
This would be an example of process + outcome because he’s getting paid two different ways. I love this model but it’s for veterans (by veteran I don’t mean “old” I mean experienced, and confident, with a track record of success).
I have a small handful of minority position equity clients where I am tied to their company’s upside. My preferred model is as follows: they are responsible for a small minimum monthly draw in exchange for my expertise (process), and I receive a percentage of the quarterly profits (outcome). This is an example of mixing models and it works tremendously well for legitimate experts.
The way I got started was “time.” Then I advanced to “process” in 2016. Now, I’m able to mix & match depending on the client, the targets & my own personal goals with the partnership. This is why I love consulting so much… you can learn the rules, then do basically whatever you want!
“What about done-for-you/agency styles? Is this time, or process, or outcome?”
There are loose connections between the type of product and the pricing model.
For instance, service is typically going to charge a combination of #1 (time) and #2 (process). Assistance can be #2 and in rare cases (for legitimate pros) a mix of #3 (outcome).
Hopefully you got clarity from this chapter. I can go deep on this for a very long time because it has helped me deliver more value to the world. There’s a fourth type of pricing that I will occasionally use and this is called “Scholarship.”
The non monetary benefit of building a great business cannot be talked about enough. Yes, you need to make a decent income to pay for your life and your family. Past a certain point, I’ve noticed the ‘utility’ of MORE doesn’t keep pace with what it did at the beginning.
When someone’s eyes light up because they understand something they’ve never thought about — that is non monetary payment for me. When they go and USE it, and it WORKS, and they come back excited & motivated to keep helping people — that is non monetary payment for me.
You need to decide what your “line” is and make a commitment, once you’re past the line, to give back in as many ways as you can. This can mean taking someone under your wing (scholarship) and teaching them the ropes. This can mean donating funds to nonprofit causes you believe in. There is no “right” or “wrong” choice, there is simply this: the more you give, the more happy you are. And the happier you are, the higher your market cap goes.
Next, we’ll talk about building the offer you will need to create money from your expertise.
Strap in, it’s a good one.
As always, precious insights, thank you Taylor!