The game keeps moving on. Yesterday's best practice in professional services pricing may be today's problem, and a big loser tomorrow. Pricing is an important part of keeping business and winning new work. But there is no point in searching for a pricing panacea - it doesn't exist …
Here's the way it is in many (probably most) market segments, where there are a number of sources of competent professional service advice:
- clients want predictability and controllability of price - they also want economy, but economy alone won't make up for unpredictable prices
- clients want to clearly understand the basis of your charges it follows that many clients want to use that understanding to take action to control their expenditure with you
- clients yearn for alignment between the price they pay and the value they finally derive
- mostly capped fees are losers - no possible upside, and only downside for you as a professional
- event costs or segmented fixed project fees can be winners, so long as you are clear about what is (and what is not) included in each event, project segment, or fixed fee
- blended fees continue to have some appeal to a handful of clients mostly those who already have a philosophical predisposition for "democracy" and eradication of hierarchy
- some clients who are so familiar with what standard services should ultimately cost, and who don't really mind exactly who does the work, are also fond of blended fees - but even more of these same clients are quite happy to stick with hourly rates
- many sophisticated clients only look hard at the headline rates for partners and key team members, realising that paying what's asked for other team members is the price of getting the in-demand talent of choice onto their projects, and don't care about the details so long as their work is done effectively for a total amount in the region they expect
- few clients can accurately tell researchers the full schedule of hourly rates for each team member, and many can't specifically recall any prevailing hourly rates, but most all have definite views about whether they're deriving value from their investment in your professional services
- "tiered hourly rates" can be winners because they help you to demonstrate alignment of interests with higher rates for work with an early result and a "profit penalty" for letting a matter go beyond the budgeted or targeted end point
- often, volume discounts don't work - except where they're given prospectively, without any comeback
- rebates are a nightmare for most professional service firms
- retainers can work well - which means thoughtfully constructed, carefully scoped, and accompanied by meaningful reporting and demonstration of value.
Of course, these generalisations change in the context of a market segment where you and your colleagues are truly scarce resources in a market hungry for expert input.
Intelligent pricing requires that you:
- work through specific situations
- clearly articulate your pricing objectives in each circumstance
- consider the range of possible pricing options
- realistically assess the advantages and disadvantages of each for you
- evaluate the attractiveness and drawbacks of each to the client
- select the best alternatives
- identify inherent risks and how to mitigate these
- prepare fully for each price negotiation.
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