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#214: Pricing Consulting Services

Posted By Mark Haas CMC FIMC, Thursday, January 7, 2010
Updated: Thursday, January 7, 2010
I am at a loss to know how to price consulting services these days. Some of our markets support healthy rates and in others we are experiencing heavy resistance. We have clients who are, for the first time, using rather sophisticated pricing models and challenging us on almost every value point. And we are using value billing, not daily rates, so this is a new one for us. What's going on?

Other than a generational disruption of the economy, an influx of new "consultants" from the ranks of business, the commoditization of professional services and a greater client emphasis on squeezing value from every expenditure, nothing comes to mind. It is a cliché to say that good consultants will command higher fees and lesser mortals may not be able to charge high enough rates to remain in business. However,, in either good markets or bad, whether your industry or specialty is ascendant or in decline, there are several fundamentals of pricing consulting services to which we should attend.

The very first piece of advice is to recognize that you are trading something valuable (skills, experience, connections) for something else valuable (cash or equity). Where you can make the case that your contribution can generate more than the value from which you are paid, the client is eager to make the transaction. A good client expects to pay fairly, if not well, for superior service. If you are in discussions with a client who wants something for nothing, it's time to consider another client. Second, if you tie your fees to the volume of effort you contribute, you have commoditized your skills into a relatively undifferentiated element of time, for which you will compete with the lowest bidder. If you cannot define the timeless value you are bringing to a client, then maybe all you are bringing is hours, which means you are not ready to have the fee discussion. Third, the manner and timing of fee discussions impacts tremendously your ability to be compensated for the value you bring. The general rule in fee negotiations is that the person who mentions money first, loses.

Tip: The process of estimating and negotiating price requires some serious skills and attention to detail. The better books on the subject emphasize understanding the client mindset and present a clear pricing model, while deemphasizing issues like calculating how many hours you need to cover costs. One of the best is Pricing Consulting Services: How to Set Fees For the Value You Deliver by Michael Shays. Shays is a veteran of consulting in a broad range of industries, countries, consulting firm types and economic environments. Learning the nuances of his pricing triangle of Client Perceived Value, Market Perceived Value and Consultant Perceived Value will provide the insight and courage you need to master the pricing of your work.

© 2010 Institute of Management Consultants USA

Tags:  customer understanding  fees  market research  marketing  proposals  sales  your consulting practice 

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Shangke Wu says...
Posted Saturday, January 9, 2010
I think it is how to differentiate your services to others, loses will occur at both side, is there some tips on how to make the client feel that we provide a better and different services or what kind of loses are more likely compensated by the client? Thank you
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