Pricing Your Consulting Services

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					by: Megan Tough In case you hadnt noticed, people can react very differently when faced with
the same price for a product or service. In fact in most cases, well never actually know what is in
their minds when they consider a price and then decide to respond to it in certain way. So what
does that mean for those of us pricing and selling our services out there in the market?

Typically, people who sell services go for an hourly rate. They use a process called reverse
competition to determine what their rate should be. This is where you take a look at what your
geographical competitors are charging, and you decide where in the range you want to fit on the
spectrum of hourly rates. Inevitably, we choose a rate somewhere in the middle, so we can say
that were not the most expensive, but neither are we the cheapest!

What kind of message are we sending out to our clients with this approach?

Were showing absolutely no differentiation from any other company just sticking ourselves
straight down the line. In other words, we compete with everyone! Not a very prudent marketing
decision.

So pricing simply using an hourly rate that sits in the middle of the spectrum is, in my view, a
wasted opportunity to create a point of difference with your offering. Lets think more broadly for
a minute about what we are actually offering to your clients.

Regardless of what our specific offering is, we all offer some combination of:

       Quality
       Price and
       Service

QUALITY

Quality has become an expectation - the minimum you need to be in the game. It is similar to a
high school degree - no one cares if you have one, but watch out if you do not. Quality is no
longer an effective differentiator. So if you are going on about the exceptional quality of your
service in your promotional material and sales pitch, just realize that in your customers eyes, you
are not differentiating yourself in any way.

After all, no sane company is going to advertise the fact that the work they do is of average or
low quality. Its all high, isnt it?

PRICE

There is absolutely nothing positive about competing on price, unless you specifically position
yourself as a low-cost provider. Certainly, there is a market for the discount provider, but I
believe this only works if you have a very high volume of transactions. As a service provider, the
only sensible route is to obtain premium prices for your services.
No matter what you charge, there is always someone, somewhere, willing to perform the work
you do for less money. Customers are value conscious, not price conscious. They look to do
business with people they feel give them more than they are paying for. So the goal for the
service provider is to make sure the customer perceives the full value of the service, not simply
the price component.

Its accepted fact that many customers will equate high price with high value - especially when
there is very little else to judge your value on.

Wise consultants know that if they price their services at the low end of the market, customers do
not take their advice seriously. On the other hand, if you charge rates on the upper end of the
spectrum, the customer will hang on every word you say and has a higher probability of
implementing your suggestions. This of course has a proviso that you are offering a great
service, rather than a mediocre one.

Sometimes the biggest hurdle to get over when considering charging premium pricing is our own
attitude. Do any of these sound familiar?

I cant charge those prices my customers will all walk away!

My service isnt worth that much

As long as you stay in that mindset, youll never make the transition to high end pricing. You
must truly believe the value of what you offer - after all if you dont, why should your customers?
More on this below in a discussion about articulating the value of what you do.

If you are selling good advice, and your customers listen carefully and implement it - they will
be more successful and thus will value you that much more. It is a cycle that spirals upward: The
more you charge, the more people follow your suggestions, the more profitable they become, the
more valuable you are to them. This is a vicious circle that you definitely want to be part of.

SERVICE

The third component of your offering is service. In today's world, service is the ultimate
differentiator and separates successful companies from mediocre companies. People will pay a
premium for excellent service, and want to do business with companies who provide it. They
want to build up personal relationships, know that their needs are understood, and do business
with people who demonstrate integrity and value long term associations.

Successful businesses are in the relationship building game, and everything they do is aimed at
strengthening connections and affiliations with potential and existing clients. This is where each
of us can be different. No one can imitate our personal style and success at building and
maintaining relationships.

In the long run, excellent service providers will prevail over mediocre "competitors."
Getting Away from the Hourly Rate Mentality

Before you do business with a new customer, you hold all the leverage in the relationship. After
the services have been performed, the customer possesses the leverage. The lesson is that you
want to set all of your prices when you possess the leverage - that is, before the engagement
begins. This requires quoting fixed prices and removing yourself from the Almighty Hour
mentality.

The minute you quote an hourly rate, you put a fixed limit on your earning potential. Its hard to
increase an hourly rate once it has been set. The most successful service providers charge for the
job as a whole, and dont reveal how many hours it will take to complete the job.

One of my clients - a management consultant bemoaned the fact that he always underestimated
the hours required to complete a job, even when he added in extra time. When all the extra hours
were added in, his hourly rate worked out to less than $50 per hour. At my suggestion, he began
quoting prices by the job. After three months he conceded that on average, he was able to charge
more for the whole job than when he quoted by the hour. His customers it seems perceived
greater value when he outlined what the job consisted of, than when he simply quoted an hourly
rate for his time.

Price Resistance

If you are in business, at some stage you will encounter resistance to the price you are charging.
Your best option here is to help the customer understand the full value of your service, and the
value or benefit they will get by implementing it. If you cannot conquer price resistance through
educating the customer, then I would seriously suggest you not take the engagement.

Never decrease your price to get business from a customer suffering from price resistance. That
cheats your best customers - those who value what you provide - and subsidizes your worst
customers - those drawn to you by price considerations alone. Those will be the first customers
to defect once they find - and they will - a service provider willing to do the work for less. You
do not want to work for people who do not understand, or refuse to pay for, the value you
provide.

Stay true and stick to your guns.

In todays world it is no longer relevant to talk in terms of hourly rates when positioning the price
of your services. Its all about value you provide, and the perception of value in your customers
mind.

This article was posted on April 14, 2005

				
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