How executive coaches can stop charging by the hour once and for all

If you study how executive coaches charge for their services, you will find it is all over the map: high, low, hourly, daily, monthly….Most charge by the hour, and at too low a rate at that. But the most successful coaches have borrowed a page from consultants and figured out the right way to charge. It is by the engagement, based on the value provided to the client.

If you want to switch to this approach, and we teach you how in our program, this article gets you started.

First, here is some background to consider.

Let’s say you were working with an investment banker to raise $1 million. Would you rather have an investment banker who takes a year and hundreds of billable hours to raise that $1 million for you, or one that makes a couple of phone calls and sets you up with the money? Of course, we would pay more for the second. But how should we pay him? An hourly rate makes no sense, because he didn’t spend a lot of time to bring us a lot of value. (Important note for the literal reader: I’m not suggesting here that executive coaches take a percentage based on whatever financial results the client gets, only that clients can see value in different ways than hourly).

Meanwhile, a number of management consulting firms won’t touch an engagement without a minimum client commitment of $250,000 or more. Also, it is common for consultants to be paid per engagement, with high-end firms charging high-end rates because they work on pressing, even mission-critical issues for clients. Finally, note that most companies have much larger consulting budgets than executive coaching budgets — often by factors of 10 or 20, and usually controlled by the true general managers of the company (not Human Resources, as with most executive coaching budgets). Now, consultants sometimes back into these rates to justify their fees, for instance by bringing in teams of analysts at high billable rates; however, they are smart about how they do this.

Both of these examples highlight a few important conclusions:

1. Clients are willing to pay for value based on things other than hours.
2. Clients will invest large sums of money when the value is there.
3. Many other types of professionals are used to much larger fees than coaches earn. If you come from that background, you won’t be as worried about asking for larger fees when the time comes.
4. Positioning as a coach vs. a consultant or other solution provider might not always be the best idea, because that locks us out of bigger budgets and more powerful decision makers than what we find in Human Resources (although, of course, we always want to work with Human Resources, involve them, and support their important goals).

I am fortunate that I came from a consulting background when I got into coaching. Pricing based on value was second nature to me. 

The trick is how to have conversations with clients so that they agree to pricing based on the engagement, and also at high-end fees. It’s easy once you get the hang of it, but hard for some coaches transitioning from the mindset of charging by the hour.

Following are some steps to make this transition. The Center for Executive Coaching’s programs, and one-on-one support, show you how to do it. If you want to be a top-tier executive, leadership and/or business coach, you should join us and learn this. In fact, at our in-person seminars, we have a lunchtime session in which we practice this exact approach.

Before we begin, make sure you have some sort of default pricing in your mind. You can always adjust it, but it will help you think about whether or not you have a serious client. For instance, with leaders in mid-sized companies, I have a figure of $25,000 for six months in mind. I know if I can work with the client to find a problem worth $250,000 or more (and often the intangible, emotional issues like stress and frustration are worth much more than that to a leader), I can win the engagement. Note that this pricing is on the lower end for executives in larger companies, for instance, over $100 million.

Here is the process:

1. Market yourself so that prospects come to you with issues. Don’t chase clients. Do this by getting good at networking/asking for introductions, forming alliances with complementary professionals, conducting educational marketing (e.g., speaking, writing, webinars, online videos, whatever works for your style), and leadership roles in industry associations and non-profit organizations (quality over quantity; pick a couple and go deep vs. dabbling in many).

2. When a prospect comes to you with a problem, don’t pitch or sell. Instead, coach them through the buying process. Your job as the coach is to discover together whether the prospect has a big enough problem to hire an outsider, whether they have the money and the authority to get it, and whether they want to work with you. Ask the tough questions to find out:
– Probe about how big the problem is and what it is costing, as well as what it will cost if they client doesn’t act soon
– Probe to find out the value of solving the problem
– Ask about what the client is willing to invest to solve the problem, and how they can access the money

3. If the client doesn’t seem to have a big enough problem to afford your fees, there is nothing you can do. Politely move on. You have saved yourself a lot of time.

4. If the client has a big enough problem, and the money, to pay your fees, that’s great news! Now you can ask about how they see you working together. The client might already have ideas. If they don’t,  don’t worry. When you join our program, we show you what to say here so that you explain to the client at a high level the process you use and the path you take to get results.

5. Ask the client what they want to do next. There is no better closing question than this. The serious clients usually say they want to move forward. A proposal then summarizes everything you discussed (price, scope, etc.; never submit a proposal if the client hasn’t already agreed to sign it and has agreed to price and scope beforehand).

6. Through the process, you are willing to be open and on equal footing. If the client hems and haws — even after you take time to explore the client’s concerns and objections — you are willing to move on. You are okay with saying, “I thought you had a big enough problem that you wanted to take action. It sounds now like you don’t.” Don’t be obnoxious about it, but hold your ground.

7. Negotiate on the scope but not your fees. Again, it is not about hours. It is about value. The value is there or it isn’t. If the client complains about time, ask whether they would want to spend more or less time with you to address this issue. You can even offer to spend as much time as they want; most executives will chuckle when you do. They understand. If the client is adamant that the engagement is too expensive, go through the value of solving the problem again and ask what you missed. Ask what part of the solution/value he or she doesn’t want to experience.

If you are new to this, realize that some clients will never get this approach. Let other coaches work with them. Plenty of other leaders do understand that the top professionals charge based on value, and they are willing to pay a fair price to solve big issues. Consultants and other professionals have already trained them that this is fair.

The above has changed the practice of many coaches, increasing their income and cutting the time they spend on business development. For new coaches, it has allowed them to leapfrog coaches who have been at the game a long time.

Try it. I wouldn’t be a coach if I had to charge an hourly rate and track hours with every client. It’s too task-oriented. I want to get results and have impact, and so do you. We should charge accordingly.

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