Does ’social’ networking force you to REDUCE your fees?
It seems there is a tricky balance to be made here. I’ve written previously about how networking, whether online or offline, can be an effective way to secure new clients of the type you want – just as long as those with whom you network know enough about you, like you, trust you and know the sort of referrals that can help you.
I’ve recently seen the results of some research from the respected Kellogg school of management in the USA. The Price of a Billable Hour – Social networks affect transaction costs. The summary is dated July 2009 but the research itself seems to date back to 2004 and thus pretty much predates the rise of online ’social’ networking.
Nevertheless, this research highlights what may be a key disadvantage of networking – especially online where we are encouraged to include social and personal material rather than to have a solely business focus. (Although I would always advise caution and remind you that anything posted online will be there for all time. It could come back to haunt you if it is too personal, unprofessional or otherwise indiscreet).
To paraphrase one key finding, the research suggests that you will charge lower fees to your friends than to clients with whom you share no social interactions. And put like that it’s almost obvious isn’t it?
In the UK, Barristers are often perceived to be more expensive than solicitors and, in general, they are perceived as less approachable. Is there a correlation?
One conclusion that could be drawn is that you will end up charging lower fees to clients ‘won’ as a result of relationships developed through ’social’ networking. I wonder whether, for example, regular attenders at weekly BNI breakfast meetings charge their fellow group members the same fee levels as would be charged to new clients who are total strangers? Maybe any reduction in normal fees is justified if the client in question is a regular and reliable introducer of new clients.
I’m curious as to whether real life supports the conclusion drawn from the above research. And how you feel about it.
I’d appreciate your views as comments below or by email to the usual address.
* Relevant previous posts include:
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Mark,
Can’t say I’ve noticed reduced fees from clients that have joined us from our social networking activities, just because that’s how they came to us.
However, a social networker is perhaps more likely to embrace other technologies that are available, such as online bookkeeping systems and holding virtual meetings, rather than face to face ones. Using these technologies effectively certainly helps me keep my costs down and I don’t mind passing the savings back to the client through lower fees.
I can see why some might feel pressured to bill longstanding friends less than other clients, but new clients gained from social networking are not normally our friends at the outset. Generally, in a group such as a BNI Chapter the referrals will not be the members themselves, but people they know. Thus the introductions come to us with a warm recommendation of a good service and a trusted supplier. There is no need for us to discount our fees.
Our fees remain the same irrespective of the source from which we acquire a client.
We do sometimes discount or offer incentives to existing customers for repeat purchases, but not simply because they found us through social media.
There is perhaps a tilt in this topic – namely that social media and networking are often used to promote special offers, which could be perceived as impacting the value of a ’sale’?
As you can imagine, I question the whole concept of “the billable hour”. There are at least 30 reasons why charging this way is immoral and unethical.
So, assuming you are charging based on the value your client knows and understands they will derive from no longer suffering the problem you are fixing, how can your friendship or otherwise have any influence on this value, and thus the fee charged to deliver it?
You may choose to add in some “extra value” because it is your friend, but the core of your proposal will be a set of options, each of which fixes the problem, each of different value, and each with a different fee attached. Whichever option the client chooses, they know they are making a bargain investment for the value they will get in return, and you know you are making an extremely profitable deal!
I do not see why using more efficient technologies to deliver your service and run your ‘back office’ function should make any difference to the fee you charge, as long as the client is getting a huge value return on their bargain investment. Your internal workings are of no interest whatever to your client.
David
From my online experience it wouldn’t surprise me if typically fees charged are lower but I actually would have expected the main reason behind this would be the level of competition and options available online.
Most websites setup for jobs to be posted, and bids to be made certainly attract the offshore service providers and I expect the only possible ways UK-based companies can compete in these arenas is with convenience, service and overall value… often needing a fee reduction to secure jobs.
In addition to this, online communities open up the competition with far more than the usual 2-3 local quotes. With greater competition it is inevitable that some (though not all) will reduce fees to win those extra clients.
Competition is not only the usual “other practices” but then the tools that are made available such as SaaS which can put more power in the hands of the client. Whether or not they are any good at making use of that power is another matter.
I largely agree with David Winch. Since setting up my own practice I have never charged by the hour, simply on a fixed fee basis. The client knows the value of the service and that is the basis he or she agrees. However, in the accountancy and tax businesses, that is the general trend. I do not believe many charge by the hour.
Even when I worked for an international firm, more than a decade ago, the amounts on the client WIP on a time basis were rarely charged, and usually pared down. That said, I first came across a senior partner who believed in proper value billing three decades ago (when of course I was a toddler).
Anyway, I always sell on value no matter where the client-prospect comes from.
@jon – you must have missed the PWC memo where they’re asking staff to bill 55 hours per week.
Dennis
If you can introduce me to PWC I’ll re-educate them!
David
@david – I reckon I’m almost the last person on earth they’d want to speak with. I have a bet they’ll be the next big firm to fail. And it will happen.
[...] tweetmeme_url = 'http://www.accmanpro.com/2009/10/02/might-social-networks-be-bad-for-your-fees/'; Mark Lee has an intriguing post built around some Kellogg research into the impact of social networks and status on fee levels [...]
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