Podcast

Episode: 508 |
Ulrich Riedel:
A Value-based Pricing Model:
Episode
508

HOW TO THRIVE AS AN
INDEPENDENT PROFESSIONAL

Ulrich Riedel

A Value-based Pricing Model

Show Notes

Show Notes

Ulrich Riedel and Will Bachman discuss Ulrich’s unique pricing model for independent consultants. Rather than being paid upfront or daily rates, Ulrich gets paid a percentage of the value he creates for the client at the end of the project. To make this type of pricing model possible, Ulrich needs to make sure certain conditions are met, such as creating value for the client, measuring the value,  and convincing the client of the value. He also needs to make sure that the client will be willing or able to share in the risk associated with the project. Ulrich has learned how to do this through experience, and was willing to share his knowledge with Will and the viewers of Unleashed.

 

What to Consider with an At-risk Pricing Model

Ulrich Riedel explains that there are four main themes to consider when using an at-risk pricing model. First, the offer needs to have unique value to the client. Second, the individual must be willing to accept risk. Third, the client must be open to the at-risk pricing model. Fourth, the approach to project generation must be tailored to the at-risk pricing model. He suggests that the network may not be enough for project generation because many close relations may not be able to accept at-risk pricing. A solution to finding suitable clients, may be to develop cold  lead generation through LinkedIn might be helpful. He also suggests partnering with people who have contacts to potential clients and projects, and what he found most helpful is to establish oneself as an expert to increase trust. 

 

Pricing the Project

Ulrich specializes in large, complex projects that are worth more than $100 million that involve many functions, hierarchies, global reach, different countries and cultures, change management with hesitancies  and conflicting priorities, and the list goes on. He analyzes the entirety of the project,  helps implement it, and generates an added value of 8-15%, and has resulted in an NPV of between $20-600 million to date. 

Ulrich discusses a project they are working on with a client to shape the future. His role is to provide insight and advice on the strategy and execution of the project. He recently worked with a small company with a few $100 million turnover to help them optimize three main projects.  Ulrich is also responsible for talking to many people in different hierarchies to collect data and figure out where value is hidden and how to create an intervention and implementation plan which could generate much more value. 

 

Prospect Generation

He studies the mentality of the client and the company and  talks to people in all hierarchies to gather in depth information from all levels, including employees at the water cooler or the factory floor during the night shift. Once he has an implementation plan in place, he sits down with the client to discuss two main variables: volume and cost. Ulrich also talks about how he determines his fees, and the search time for finding projects, and how long projects typically take. 

 

Timestamps:

  • 03:54 Exploring At-Risk Pricing Models: Strategies for Generating Projects and Establishing Trust 
  • 06:05 Exploring Value-Based Pricing for Large Complex Projects
  • 06:25 Consulting on Building a New Business Model with a Hybrid Technology 
  • 11:46  Value Creation and Compensation for Consultancy Services 
  • 12:06 Calculating Professional Fees 
  • 14:39 Exploring the Long Sales Cycle and Prospect Generation 

 

Links:

https://www.drulrichriedelconsulting.ch/

 

CONTACT INFO:

https://www.linkedin.com/in/DrUlrichRiedel/

 

One weekly email with bonus materials and summaries of each new episode:

Will Bachman 00:00
Sir Hello and welcome to Unleashed. Unleashed is produced by Umbrex, you can find us@umbrex.com, that’s UMBRE x Umbrex is the fastest way to find the right independent consultant for your project. I’m your host will Bachman. And I’m here today with Umbrex member Olbrich. Rebel, who’s going to talk to us about his pricing model, which is relatively unusual, practically unique among consultants that I know Oh, Rick, welcome to the show.

Ulrich Riedel 00:34 Hello, good to be here.

Will Bachman 00:36
So, all right, take it from here, give us an overview of your approach to pricing. I don’t know any other consultants who do it the way you do.

Ulrich Riedel 00:47
Thanks so much. Well, first of all, just start each independent consultant is of course unique and different. Today, you will hear only my perspective on the topic, I see a couple of themes here which are, which are necessary to build up an at risk pricing model, it’s a value based at risk pricing model. So, it means I don’t get paid upfront, I don’t get paid daily rates, I get paid at the very end, when I can convince the client that at a limit value, and I get to share a percentage of that value. So, what’s necessary to make something like that happen, and some of that I learned the hard way, it’s a complicated thing to set up. The first one is you need actually the right offer, if you but if the client doesn’t perceive your value to be unique, it’s difficult to convince him to accept at risk pricing. And you need to somehow be able to measure it.

The second is yourself, you need to start an appetite for risk. You need to be willing and able to digest a zero compensation every now and then. Not everyone wants that you need the right third theme is you need to write client personality, only a fraction of clients, the client individuals are actually willing or able to accept an at risk pricing model. The fourth theme is and that’s linked to it somehow, you need to develop your own approach to generate projects. And that approach needs to work for your offer linked to your at risk pricing model. And that’s not my personal estimate. But I think you need two to five times the effort, you normally need to generate projects. And you just need to be aware of that and need to build your business model around that. And seek three key levers two levers to address that. And how do you generate projects with an at-risk pricing model. So, the first one is, I think you will find quite quickly that your network won’t be sufficient for generating enough projects simply because so many of your sometimes close relations are simply not able to accept an at risk pricing model doesn’t fit well into

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budgeting cycles and so on. So, a solution for that can be a targeted ad, and quite deep cold lead generation via LinkedIn. And that’s a whole topic for itself. And we’ll maybe I mentioned that here that there will be a separate Unleashed podcast on that specific topic.

Will Bachman 03:54
Yes, stay tuned for that episode.

Ulrich Riedel 03:57
Excellent. Then we have a second lever here. Just booked with with people like like Bill and others in your sphere, and who have contacts to potential clients and projects. And two can make the link and then with a with a profit sharing model, depending on the situation. And the third one, which I found especially helpful is establish yourself as a real expert in what you do, but not so much with the objective. convinced people you’re an expert people would trust that you deliver. Otherwise you wouldn’t try selling them something like that. But that let establishing yourself as an expert should have the objective to establish us as someone who can be trusted. Trust is the big item here. It’s different. It’s a different model. You work potentially with People you have never seen before in your life. And you need to establish a quite a significant level of trust to make them willing to to even engage with you and then to have a project with you. And then there’s of course, a fifth theme, you need to know how you value, the value, how you how you put numbers behind the value you created, how you have the dialogue with, with a client at the very end how that that whole piece works, and what you will, but what principles you would like to establish there. And that’s it right offer your appetite for risk, the right client personality, the right approach to generate projects. And then as a core of at risk of value based pricing. You need to be able to put numbers behind that value.

Will Bachman 06:05
All right, let’s talk about your practice for a minute. To give an illustration of you know how this at risk pricing works. Tell us about your specific service, which is also very specific of what you do.

Ulrich Riedel 06:19
Yes. Well, I’m not doing projects themselves, I’m looking at projects, I’m looking at what I call large complex projects, large means more than 100 million, and PV generation. Complex means as many functions and hierarchies and global reach and country is difficult and implementation as possible with different cultures with change management necessary necessities with hesitancies with conflicting priorities, the more complex, the better. So if, if a client has a large complex project, then then I’m there. I’m there to look at the entirety of the project and its implementation, and I will simply generate another eight to 15% of value from that project, which so far has been something between 20 and $600 million in PV always talking NPV. So a typical example is it just came up yesterday, a small or that was not such a big company, a few 100 million turn over. But they have only three main activity main projects to shape the future. And one of them is building a complete new business model with a new technology, a hybrid version of what they are currently doing their work market, or market leader, at least here in Europe in that area. And they want me at the point where they decide how to go forward. So they’re currently working on all that building a legal entity? What would the team look be, look look like? Including already names? What is the strategy? What is the execution of the strategy, how to the next three, five years would look like and the moment they are ready to decide on that they would like to

– 2 – Transcribed by https://otter.ai

engage me and and have me do my spiel, which is I talked to a lot of people, I am in a lot of meetings to look passively to learn about the mentality of the client, how the client works, therefore, how implementation works, therefore, what works and what doesn’t work. And during implementation, and of course, content wise, I do whatever’s needed, talking to 10s and 10s. And 10s of people in all hierarchies, especially down where things are, are translated into reality. I mean, I love night shifts in factories, for example, you learn so much there, because no management is there. And then if you just participate there, you’ll hear at the coffee machine and ATM machine. You hear so much I accumulate I collect a lot of data points. And then I sense where value is hidden, either a risk which has not yet been addressed adequately on opportunity within the frame of what what is it plan, but tweaking it a bit and generating much more value out of it only one or two changes interventions, I call them with a extremely solid implementation plan. I work half of the time only on the implementation plan. So for me, value is only when it’s when it’s real on the ground. And then once I have I finished that I came up with one intervention and I end with the implementation plan then I sit down with a with a client and I tell him I mean what did we change very simple in your world in your world of NPV calculations, I only touch two different variables. It’s more human It’s cost. And I touched like that. And my assumption is isn’t that and then there is a value of, of x. And then we have a discussion on, on content on video, right was like half if you just cut some, I don’t know when if you purchase a company, you will discuss the purchase price, you look at value creation, buy off the deal or in an investment discussion, you will discuss value, what is the change in the business? And what is the value of it, and therefore, is it worth it. And that’s what I do, I offer and kind of at least a change. And I tell I give a suggestion what that change is worth, from my point of view, of course, always checked and verified with the finance department from a methodology methodological point of view. And then, and then we agree, I take away my right to sue the client, at the very beginning. And part of my business model is, I have no way to sue for compensation. And that very moment, suddenly I discuss with ministers, I’ve also seen your management past, I discuss eye to eye on content, and not with legal departments and provability. And I don’t know what, and it works, it’s it’s it that piece, clients are always very worried about, but in the end, it’s pretty straightforward. They have had these discussions 10s of times in the life, they are just not aware of it, because I’ve never applied it to a tour client, consultant situation. But it’s a day to day discuss for them. And and then we agree, and then we agree on but then I get can we get compensated.

Will Bachman 11:46
So walk us through how you actually, you know, calculate your fees. So let’s say that the project was 100 million in PPP project and you do an intervention that is going to increase that by $10 million. So now it’s 110 million? How would you typically calculate your fee?

Ulrich Riedel 12:06
Now, that’s not a very, very personal question. But I give a very clear answer. I mean, it, the starting value for me personally, is 5%. And that’s what I communicate. And of course, if, if I have, if I had a project, which is 10 times to speak 20 times to speak, I would never get 5%. So then it will be adapted. But 5% is the value. If for typical project, which which I have to ask for from the very beginning, it’s in a one page contract, I call it handshake agreement, because legally, I can’t enforce it, it’s still a contract both people or both parties sign. So they would need to break a contract if they don’t pay me, but I can’t enforce it. So in that contract, it’s very, I mean, it’s just one page, very simple thing. And, and they are

– 3 – Transcribed by https://otter.ai

the percentages in if it’s a smaller company, I go up because otherwise it would not match what I could could generate. In other places. I’m not driven by money, but but it still has to make sense for my site. And so it’s between, let’s say, one and 10%. And I my starting point is 5%.

Will Bachman 13:13
And what’s the search time, like? Are this the sales cycle to you know, it’s you mentioned at the beginning how specific it has to be, then it has to check all these different boxes of, you know, clients open to this sort of pricing model, and they have a big project that starting so, like how long have you typically, you know, looking for a project versus the time to work on one

Ulrich Riedel 13:39
been working on a project is two to three months, it needs a substantial time to get into it. But it doesn’t need too much time because at some point, I won’t just find any anything. So it’s no point to continue so that it takes three months usually, the search time is huge. It’s I mean, it can almost go into the years you have something and then there’s an idea and then things change and circumstances change but there is still the contact and people like to engage you and but then they start a new project that will finish in eight months time and so you have a call in seven months time and it’s really a long sales cycle. And that’s why client how Yeah, I mean prospect generation lead generating client generates however you want to call it is at the center of my book much so much more time than I thought originally.

Will Bachman 14:39
And how can people find you online? Or if they wanted to follow up and learn more about your firm or reach out to you?

Ulrich Riedel 14:48
I mean, my my name on LinkedIn is maybe the best way. Otherwise, my web page which I think you’re mentioning it’s it’s I’m happy to be contacted any any way you will also find my telephone number on LinkedIn. I like LinkedIn for me LinkedIn has become I don’t like the, the so much anymore the content piece of LinkedIn articles and so on, although I also participate there, but I do like, stay in contact and find new, interesting people. And so whoever contact me via LinkedIn will certainly get an answer pretty quickly.

Will Bachman 15:31
And we will include those links in the show notes. All right. Thank you for joining us today. This was amazing and it’s very cool hearing about your unique model. Thank you so much. Thanks.

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