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#382 : You Can Now Buy Consulting Services From The Menu

Posted By Mark Haas CMC FIMC, Tuesday, August 31, 2010
Updated: Tuesday, August 31, 2010
It seems that increasingly I am underbid by someone offering fixed rate services at rates that I can't compete with. My consulting service is impeccable and clients seem to keep coming back, but I am afraid my competitors will continue to cut into my business. Any advice?

You are not dreaming about this phenomenon. Services are increasingly being commoditized and sold off schedules. This started in force with the federal government that, along with health care, is the largest consumer of management consulting services. Want a strategic plan? Buy it off the schedule. Need to train your staff in lean manufacturing? Again, pick from a menu of vendors, some much lower priced than others.

Some consulting services are really commoditized. They are becoming undifferentiated in the eyes of the consumer, despite our feelings of how unique they are. This has become especially true of assessments and training. Need to "check out" your people? "Hire a firm to do a DISC, Harrison, MBTI, Prevue or any other one. They're all the same so just get me the cheapest one."

To see an example of this phenomenon, go to GSA Advantage, the government's procurement schedule. Search for "strategic plan" and see if your prices and offerings can compete with the 4,000 companies who will sell you one. (Note that the federal government negotiates rates that are discounted from commercial rates.)

Tip: Create a menu of your services. How would you sell a specific outcome (e.g., marketing plan, performance measurement system, process design, more effective sales force, supply chain security) for a fixed price? Not easy, is it? Put yourself in a client's shoes. Menu pricing makes it easier to see if you are providing something of value and not based on your hourly rate - you may be over or under pricing your services. With that warning in mind, the only way to compete with commoditized services offered by your competitors is through differentiation of your services in the mind of the client - the a la carte items that can't be sold as substitutes of each other.

© 2010 Institute of Management Consultants USA

Tags:  competition  market research  marketing  product development  proposals 

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James E. Kendrick CMC says...
Posted Wednesday, September 1, 2010
Here are a few more thoughts about winning management consulting in a highly competitive environment -

FOCUS ON A NICHE. If you do many engagements with the same general focus, it's possible to increase the efficiency of your consulting services--because you can do quality work in fewer billable hours. For example, I use spreadsheets templates and interview schedules that can be adapted quickly to new situations.

DEFINE SCOPE: As the Project Management Book of Knowledge (TM) likes to emphasize, having a well defined Scope of Work that the client accepts is crucial. It reduces the risk of expectations that are outside of the scope of the engagement ... and helps avoid costly re-work.

EXPLAIN CONSTRAINTS IN THE PROPOSAL: If the client wants to buy a ham, make sure he/she knows that you aren't offering to deliver a whole hog. I've found it very useful to have a section in the proposal that explains what the engagement will not do or cover. This keeps bid prices competitive, and some times a client will ask for me to expand the scope and price to encompass some of the stated exclusions.

BE READY TO SAY NO. Out of 100 potential engagements, probably only 40 will lead to quality work and reasonable compensation. Some customers don't appreciate quality and won't pay for it. These aren't worthwhile prospects, and you should just tell them "no" without wasting too much time. Save your valuable time for quality prospects, and don't chase dogs!

DO WHAT YOU'RE GOOD AT. Like anyone else, I can do some kinds of tasks with amazing speed and skill. I try to concentrate on these, because they're the most profitable, I can quote reasonable prices, and I enjoy the work. It's better to refer work where I'm not-so-good to others. It avoids misery and problems ... and makes another consultant (who is good at the work) happy.

OFFER BITE-SIZED CHUNKS. You know that the client needs a truckload of help, but don't offer it all at once, and don't try to price the whole truck load. Win the work with chunk-at-a-time pricing, make it a satisfying experience, and many clients will come back for more chunks.

EVALUATE YOUR PRICING MODEL. Suppose you can gross $450,000 a year by billing 1,000 hours at $450 or 1,500 hours at $300. You make the same annual gross. With the lower fee, you have to work more hours, but I guarantee you that you'll spend a lot fewer non-billable marketing and networking hours. Same pricing issues are involved regardless of whether your target is $1MM or $100K a year.
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James E. Kendrick CMC says...
Posted Wednesday, September 1, 2010
Several observations about the Federal market:

BEST VALUE. Many agency buys are based on "best value," meaning that lowest price can be rejected if you demonstrate better value. This could include a better methodology, better personnel, better past performance history. In such scenarios, it is imperative to make your "value added" very clear.

PAST PERFORMANCE. The Federal acquisition process often places a considerable emphasis on past performance history. Outstanding ratings by former clients is a big help. Downside: The past performance questionnaires take a lot of time for a former client to complete, and you may have to coax them to do it.

SCREENING OPPORTUNITIES. Some agencies just want full-time bodies with minimally acceptable qualifications to provide operational support. The hourly rates are dismal, and a qualified management consultant can't compete with these jobs. Don't waste your time bidding.

PRICING PRESSURE. There will likely be even more pricing pressure for Federal professional service contracts. The surge in contracting out work has created a pricing and wage bubble in Washington. The administration's cut-backs in Federal contracting will cause increased competition in pricing. Call it disinflation or deflation if you like--many service sectors will experience a downward pressure on hourly rates. Like the housing market, the Federal contract market will tend to encourage sellers to cut prices ... or accept "no sale."
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Michael E. Cohen CMC MBA says...
Posted Friday, September 3, 2010
Jim,

Why does working at a lower rate mean that you'll have fewer non billable markeing and networking hours? And is that something unique to your own situation- opr the case for all consultants?
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