February 2, 2023
5 Types of Costs (Besides Your Fee)
When deciding whether to green-light an engagement with you, your buyer may have more costs to consider beyond just your fee.
Here are five that I have encountered in my years as a consultant:
1. Time Cost
The time that your buyer and/or their employees will have to devote to managing and participating in the engagement.
e.g., Your fee might seem perfectly reasonable to your buyer, but the fact that you’d have to monopolize the time of the entire data science team for a month is a deal breaker.
2. Switching Cost
If your solution involves moving from an old solution to a new one, there can be real or perceived economic and psychological disadvantages to the client.
e.g., Switching from Heroku to AWS might save the client enough money in the first year to easily justify your fee, but the transition itself might require a risky, expensive, and disruptive migration of data, files, and permissions that the buyer perceives as not worth the trouble.
3. Organizational Cost
If your solution will require a significant behavior change for the client’s employees or a significant culture change within the company, implementing it could create problems for your buyer that are potentially costly enough that they decide not to move forward with the deal.
e.g., Let’s say you’re an HR consultant and recommend changes to the internal communications policies that may upset the client’s employees. If the change is sufficiently unpopular, it could decrease productivity, ruin morale, increase employee churn, cause brand damage, etc. Even though your buyer may consider your fee reasonable for their desired outcome, the side effects on employee attitude might be too costly.
4. Opportunity Cost
What is the client giving up by choosing to work with you rather than all the other things they could do with their resources? This is more than just a consideration of the alternative ways they could solve the problem you are being considered for. It includes all of the other problems they could tackle instead of the one you are focused on.
e.g., Let’s say you are in talks to migrate a client from Heroku to AWS, but they might ultimately decide to stay on Heroku and instead take the time and money they would have invested with you and spend it on something completely different, like growing their sales team.
5. Sunk Cost
The time and money that the client has already spent pursuing a failed solution to their problem can create a gravitational pull to “stay the course” so their investment doesn’t feel ”wasted.” Sunk cost is a logical fallacy and should be excluded from the buyer’s decision-making process, but it often creeps in anyway.
e.g., A CTO who convinced the CEO to hire a cheap offshore team to build their SaaS app might be extremely reluctant to buy into your solution if your plan starts with throwing away three years’ worth of code, no matter how broken and ugly it might be.
Here’s the thing...
Your buyer is almost certainly considering at least one cost besides your fee when deciding whether or not to engage with you.
If you can uncover what other costs they are worried about before you write your proposal, you’ll have a much better chance of closing the deal.
Yours,
—J