Archive | Pricing RSS feed for this section

Is Your Price Right?

By on January 20, 2012 in Pricing

 You may be reluctant to tinker with the fees you charge, especially given the tough market many of your clients face. Still, it’s good to look at how you’re pricing your services to see if there’s room for improvement.

Your expertise (and value to clients) grows over time. Often, though, fees lag behind that growth. Most consultants I meet are pricing their services too modestly for the value they provide.

When was the last time you changed your fees? If it’s been more than a year, it’s time to consider a change. It’s a routine matter for many businesses to raise their fees each year, no matter how good or bad the economy.

You might worry that you will sink your competitive position if you change your fees in a tight market. But remember, the state of the economy won’t impact your clients’ perceived value of your services–assuming you’ve done a good job expressing that value.

To decide if you need to rethink your fee strategy, ask yourself one question: Is the value you bring to your business keeping pace with the value you’re bringing to the market?

Comments { 0 }

Special Report: 12 Experts on Pricing Your Services

By on August 25, 2008 in Pricing

Few topics inspire more curiosity than how to price professional services. Even though you can probably count the number of true pricing experts on one hand, editors at RainToday asked twelve people to weigh in on this question:

What is the one piece of advice you would give a professional service provider to maximize their fees for services?

Their answers are included in a free, 39-page report, “The One Piece of Advice You Need to Get the Fees You Deserve.”

Like any compilation, this report contains some generic stuff. But it also includes some very good advice about creating compelling value as a basis for establishing professional fees. Some of the leading thinkers in the field of professional services are represented in the report.

The report is worth a careful look. Download it here.

Comments { 1 }

How to Put the Value in Value-Based Pricing

By on November 7, 2005 in Pricing, The Guerrilla Consultant

If your consulting work generates improvement to the client’s bottom line, should you share in that good fortune? Or should consultants just be hourly guns-for-hire?

Clients and consultants alike stand to gain from value-based pricing. The client gets a consultant who stays focused on measurable results and a real partner in exposure to the risks of a project. The consultant has an opportunity to share in the financial gain the project achieves and to be more to the client than hired help.

Value-based pricing is not just a different approach to billing. It gets to the heart of your relationships with clients.

This month, the Guerrilla Consultant points out some of the ins and outs of pricing on value rather than on the hours you contribute to a project.


Comments are closed

How to Get Paid What You’re Worth

By on June 1, 2005 in Managing Your Business, Pricing

Want to know the fastest way to earn less than an entry-level consultant in a medium to large consulting firm?

Start your own consulting business and charge by the hour.

According to a recent study by Kennedy Information, Inc., the average salary offered to consultants from top business schools will hit $109,000 this year, and that will be accompanied by five-figure signing bonuses and annual bonuses ranging from $5,000 to $30,000. The total, first year compensation package for a newly-minted consultant could reach over $150,000.

An independent practitioner charging an hourly rate would have to work awfully hard to match that newbie’s salary.

Not to be tedious, but do the math: There are 261 days in a year–once you subtract the weekends. If you take a month off for vacations, holidays, and the like, you’re starting from a base of 230 billable days, give or take a few.

Research shows that firm owners will burn about 110 days a year on non-billable activities like marketing, administration, education and traveling, leaving about 120 days of billable time.

Assuming you’re able to bill for 70% of those 120 days at $2,000 a day, and your overhead is a measly 20% of revenue, your annual, pre-tax earnings would be roughly $135,000. Not a bad day’s pay, but you’re carrying all of the business risk, and making less than an inexperienced consultant.

Most books on the subject of starting a consulting business take you through a detailed exercise on establishing your billing rate. Unless you’re running a large practice with many consultants, ignore this advice.

Instead, free your practice from the tyranny and limitations of the billable hour: base your pricing on value delivered, not hours worked. Once you’ve broken the rate-per-hour syndrome, you’ll get paid what you’re worth.

Some consultants argue that it’s too difficult to quantify the value of a consulting project in advance. But every project has potential, measurable benefits. To orient clients in the discussion of value, consider the drivers of consulting value in my previous post.

Comments are closed

When Price Matters Most

By on May 19, 2005 in Pricing, Selling

I met a consultant who described her team’s first meetings with a prospective client:

“The client executives spent four hours taking us through a long, consulting to-do list. They told us that solving those problems was far more important than price. We were thrilled with the opportunity, and quickly completed a proposal.

“But the client literally showed us the door when they read the proposal and the price. I haven’t been able to get a return call from any of the executives since that fateful day.”

It’s common for clients to experience sticker shock when they see the price tag of a consulting project. With a little work, you can soften the blow.

In initial meetings, clients often say price isn’t important. They are focused on getting the problem handled–now. So, clients begin by evaluating a consultant’s expertise and ability to get the job done, and they push the issue of price to the back burner, at least temporarily.

Once the client gets close to making a decision, though, a subtle shift takes place. The price and risk of the project take center stage, and the consultant’s expertise becomes part of the background.

It makes sense. Once a client is close to a decision, the field of contenders has been winnowed to the firms most capable of handling the work, so attention naturally moves to other factors.

You need to plan for this shift by staying close to your client, particularly at the end of the sales cycle. Tweak your message to stress the value-to-cost ratio of your proposal and show how you will manage every element of project risk. Fail to shift gears with the client, and you’ll be shown the door too.

Comments are closed

How to Preserve Your Profit Margins

By on March 7, 2005 in Pricing, The Guerrilla Consultant

Clients and consultants alike usually dread fee discussions. This article in The Guerrilla Consultant gives six strategies to help you preserve your profit margins and your client relationships as you work through pricing discussions.

Comments are closed

Pricing Redux: How to Dump Hourly Rates

By on November 28, 2004 in Pricing

Stroll through the zoo and you might see a multi-ton elephant tethered by a rope to a three-foot pole. The elephant has been trained to believe that it has no choice about staying in its current position.

And so it is with the hourly rate, which consultants and clients are trained to believe is the only way to price services.

But just as that elephant could break free from the pole, one collective tug by consultants in the industry and the hourly rate would be a legacy of a bygone era.

How can that be done?

Dumping hourly rates is all about reaching agreement with clients on value. If, for instance, you propose to help a client reduce indirect expenses by 2%, then you must quantify that cost reduction and provide a way to measure it.

Some consultants argue that it’s too difficult to quantify the value of a consulting project in advance. But those who take the time to nail down that value will encounter less price resistance from clients, especially if the value-to-fee ratio is high.

Every project has potential, measurable benefits or value. Of course, some values are easier to measure than others. To orient clients in the discussion of what your services are worth, consider the possible drivers of consulting value below.

Drivers of Consulting Value

Consultants Can Help Clients…

Increase

Reduce

Improve

Create
Revenue Costs Productivity Strategy
Profit Time/effort Processes Systems
Growth Complaints Service Processes
Value Risk Information Business
Retention Turnover Morale Products
ROI or ROA Conflict Reputation Services
Efficiency Paperwork Skills Brand
Visibility Loyalty
Quality

Once you have articulated project benefits, figure out, in conjunction with your client, what the proposed changes are worth. That becomes the basis for your fee. For example, reducing employee turnover by 20% might reduce recruiting, hiring, and training costs by a similar percentage. Find out what that would be.

You might help clients improve the quality of their products, which should result in fewer complaints and returns and a lower cost of stocking merchandise. If you improve morale among a client’s staff, managers could spend less time in meetings and more time running the business. What is it worth to have motivated workers instead of absences, or to improve poor work habits that are due to low morale?

Quantify all benefits that are relevant to a project, and confirm those numbers with the client. That information provides the crucial context for you and your client to assess your proposed fees.

Once you’ve agreed with the client on value, you can use any number of pricing methods, from contingency billing to fixed fee to pure value-based billing. But most importantly, you’ll have an opportunity to shake off the shackles of the hourly rate.

Comments are closed

Hourly Rates—Confusing Effort with Results

By on October 23, 2004 in Pricing

On one of my very first consulting assignments, I neglected to regularly back up data on my computer and lost an elaborate analysis in a sudden power failure. I bemoaned my lost hours and valuable work to the project manager but, as you might expect, got little sympathy. I did get some good advice though: Never confuse effort with results.

I flashed on that advice recently as I was sitting across the table from a client who asked the inevitable question, “What’s the hourly rate for the people you are proposing for this project?” That led us to discuss if the proposed consultants were “worth” their hourly rate. Sound familiar?

Way too often, such conversations degenerate into how the client can monitor and limit hours—all in an effort to keep costs down—not on how to achieve results.

You can’t blame clients. The hourly rate is the gold standard for pricing in the industry. For decades, professional service providers have trained clients to expect it, and it’s now used extensively to compare consultants.

It’s time to dump the hourly rate once and for all.

To begin with, the hourly rate is a totally bogus number. It’s computed using very broad (and sometimes flawed) assumptions about a firm’s costs, volume and profit. And, many consultants toss those assumptions out the window and discount their hourly rates when they believe doing so will improve their chances of winning a project.

And then there’s the matter of results. You probably know the urban legend about the consultant who was asked to help a client restart a machine that had died and caused a halt in production for a manufacturing plant. The consultant eyed the machine from all angles, circled it twice, and whacked it three times with the client’s rubber hammer. The machine sprang back to life, and the consultant left after fifteen minutes of work.

But, the client was outraged with the consultant’s high-priced invoice. “We could have swatted that machine three times without you.” he yelled. The consultant’s predictable reply was, “Yes, but you didn’t know where to swat it, and that’s why you called me.”

By charging a client for time alone, you completely undermine the expertise you’ve spent years building, and you limit the profit you can justifiably earn. Dozens of pricing alternatives exist that don’t rely on the hourly rate. Look for alternatives that lead to discussions with clients about the outcomes they want to achieve.

When pricing your next project, think results, not effort.

Comments are closed