The Most Valuable Things You Sell Cannot be Priced by the Hour

If you’re a professional service firm, what is it you really sell, and what do your clients really buy? Here is one of my favorite answers to that question:

“Our fee doesn’t cover our time, but rather our experience, expertise, contacts, and industry knowledge.”

The expertise you bring to bear in client engagements cannot be imagined, described, or invoiced as units of time. Time is the wrong unit of measurement for knowledge work. It’s like placing a ruler inside your oven to measure the temperature.

An invoice for five minutes?

When a PR firm is able to resolve an emerging crisis for its client in a five-minute phone call, it’s impossible to employ the hourly rate as an effective mechanism for capturing the resulting value. Crisis communications clients are ultimately paying for the firm’s Rolodex (or its digital equivalent), not the hours logged on a timesheet.

Similarly, the fact that an advertising agency has deep experience in the client’s category has value that transcends the amount of agency hours reported on an invoice. Should the agency therefore double or triple its hourly rates (which no client would accept), or is there a better way for the agency to capture the value it creates?

For a consumer electronics brand, what’s the value of an amazing unboxing experience created by a design firm with specialized expertise in packaging? Such things cannot be calculated using an hourly rate card.

The economics of behavioral science

Some of the very best examples of value that cannot be correlated with the investment of time are in the area of behavioral science — a sphere where we see incredibly effective solutions to thorny problems not only for brands, but for governmental institutions and other organizations.

In marketing communications firms, the senior people get to develop high-profile television campaigns, and the junior people are assigned work like designing forms on a website. People like Rory Sutherland in books like Alchemy argue that this is a wrong-headed view of how to ensure marketing effectiveness. A television campaign may succeed in its objective to drive prospective customers to a website, but if prospects are then confused by the forms required to make a purchase, the marketer will be wasting their budget. Moreover, a well-designed form can make the difference between an average response and an over-performing marketing success.

The authors of Inside the Nudge Unit: How Small Changes Can Make a Big Difference report that laboratory studies show that an easy-to-read message is not only more likely to be understood, but it is also more likely to be believed. For example, people are more likely to believe a statement as true when it is written in bold rather than standard text. Working with the British government, these behavioral science experts improved the effectiveness of tax collection letters by up to 300% by rewriting them in simpler language, with a clear, simple request at the beginning of the letter. That’s value you can take to the bank, at a cost equal to a less enlightened approach.

This same team found that click-throughs by businesses to get further information in response to emails from a major government agency could be increased by 40 to 60 percent simply by reducing the volume of text in the email.

In Australia, they helped the government of New South Wales improve by $10 million the collection of overdue traffic fines by simply adding the words “Pay Now” in red letters at the top of the mailing.

Similarly, insights from the world of neuroscience can intensify the effectiveness of business and marketing communications in simple ways that don’t require any additional investment of time or money.  A recent study published in the Journal of Marketing Research shows that luxury brands appear significantly more luxurious when slow motion is applied in a video message.  French wine drinkers are willing to pay more for the very same bottle of Cabernet when exposed to commercials that depict each drop and ripple of a sumptuous pouring of red wine.

Exponential value

This is the market value of knowledge and expertise, which is what professional service firms ultimately sell and what their clients ultimately buy. If your business is selling a “healthy” food brand, what’s the value of knowing that food labels printed in green will tend to give the impression of healthiness, regardless of the actual ingredients? An inexpensive freelance designer probably doesn’t know that, but a design firm schooled in behavioral economics can provide its clients with these types of insights that transcend anything that gets recorded on a timesheet.

Does the marketing firm you work with understand The Messenger Effect, the Halo Effect, the Pratfall Effect, or the principle of Loss Aversion? The best ones do, but the great majority do not. That’s because they have their heads down in the trenches of marketing communications, cranking out 30-second commercials and digital banner ads that pass the style test, but are lacking the substance that leverages the type of behavioral science insights that can exponentially improve business results.

Marketing solutions based on changing consumer behavior with inexpensive nudges rather than multimillion-dollar media campaigns showcase the nature and value of expertise over effort. In knowledge work, the quality of solutions always trumps the quantity of effort.

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Tim Williams leads Ignition Consulting Group, an international consultancy that advises professional service firms in the areas of business strategy and pricing practices. Tim is the author of several books, including "Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success."

X: @TimWilliamsICG