Pricing Guidelines
The game continues. Yesterday’s best practice in professional services pricing could be today’s problem and tomorrow’s big loser. Pricing is an important part of maintaining business and winning new business. But there’s no point in looking for a panacea for pricing – it doesn’t exist…
Here’s how it is in many (probably most) market segments where there are a number of sources of competent professional service advice:
o customers want predictability and controllability of price – they also want economy, but economy alone will not compensate for unpredictable prices
o customers want to clearly understand the basis of your fees
o it follows that many customers want to use this understanding to take action to control their spending with you
o customers crave a match between the price they pay and the value they ultimately receive
o mostly capped fees are a loser – no possible positive effect and the only downside for you as a professional
o event costs or segmented project flat fees can be profitable as long as you are aware of what is (and is not) included in each event, project segment or flat fee
o blended fees continue to have some appeal to a handful of customers, mostly those already philosophically inclined towards “democracy” and de-hierarchy
o some clients who are so familiar with what standard services should end up costing and who don’t really mind exactly who does the work also love blended fees – but even more of those same clients are quite happy to stick to hourly rates
o very sophisticated clients only look closely at master rates for partners and key team members, realizing that paying what is being asked for other team members is the price of attracting sought-after talent of choice to their projects and not they care about details as long as their work is done efficiently for a total sum in the region they expect
o few clients can accurately tell researchers the full schedule of hourly rates for each team member, and many cannot specifically recall prevailing hourly rates, but most have definite views on whether they are getting value from their investment in your professional services
o “differentiated hourly rates” can be profitable because they help you demonstrate alignment of interests with higher rates for early result work and a “profit penalty” for allowing a matter to exceed the planned or target endpoint
o often volume discounts don’t work – except when given upfront with no return
o rebates are a nightmare for most professional services firms
o fixtures can work well – meaning thoughtfully constructed, carefully covered and accompanied by meaningful reporting and demonstration of value.
Of course, these generalizations change in the context of a market segment where you and your colleagues are truly scarce resources in a market hungry for expert input.
Smart pricing requires you to:
o work in specific situations
o clearly articulate your pricing objectives in every circumstance
o explore the range of possible pricing options
o realistically evaluate the advantages and disadvantages of each for you
o evaluate the appeal and disadvantages of each for the client
o choose the best alternatives
o identify inherent risks and how to mitigate them
o be fully prepared for any price negotiation.
#Pricing #Guidelines
