Here's a Seth Godin's post titled "Value capture (and the minibar)" a consulting partner shared with me for comments:
No one freely buys anything unless it’s worth more than it costs.
And so, in a competitive market, organizations will compete to capture as little value as they can afford to, offering the most surplus to the customer, because that’s how they can grow and thrive.
And monopolies (and organizations that would like to profit as they do) work to create situations where the customer has no real options, so they can capture almost all the value that’s created.
That’s why nuts at the minibar cost so much. The goal is to price them a penny less than they’re worth to the traveler in that moment.
Value creation is a worthwhile goal. Capturing all of that value might not be.
How do you apply this idea to your consulting practice?
I love the way Godin clearly articulates ideas and illustrates them with analogies such as the nuts at the minibar. But I believe this post can cause more harm than good for us consultants. Why?
It ignores the challenge of measuring value. You can't capture what doesn't exist.
The "Value-Quality" Gap
Demonstrating to clients that your projects actually generate value for money is not simple. When we talk about value creation in the context of consulting, we're talking about different questions, with very different answers.
The value-quality gap is the difference between how clients see the quality of the work delivered by consultants, and the value created by them.
- From 2017 to 2021, an average of 69% of clients spoke positively (gave a "high" or "very high" rating) about the quality of the work delivered by consultants.
- During the same period, only 40% of clients spoke positively about the value created (the value delivered was noticeably greater than the cost of the project).
What creates this 30% gap?
Godin could take this number as an indication that consultants typically overprice their clients. But that's simply wrong.
It's Not The Real Value, But The Perceived One
The gap might also exist simply because clients struggle to see and quantify value.
Can you tell me how much value did your client took from your last project? Multiples indicators could be used to measure it. Your project might (and probably will) benefit your client for years to come.
Measuring value is a whole different game than rating quality.
You need to be rather naive to believe clients would naturally equate them. They don't. And since most of us don't make it easy for our clients to quantify value, they struggle to see it.
You can read more about the value-quality gap in this older post, which includes initiatives to increase perceived value.
Instead of obsessing about how much value you're capturing, most consultants would benefit from helping their clients better quantify how much they're getting first.
You can't capture value if it's not perceived by your client.
Grow the pie first, cut the slices later.