Pricing Consulting Services

Raintoday.com has just released a new study Fees and Pricing Benchmark Report:  Consulting Industry 2008.  645 respondents in the consulting industry completed the survey.  Among the findings:

Firms that are well-known in their target markets receive higher fees, see their revenue grow, and earn higher profits than their lesser-known counterparts.  Brand leaders were more likely to price their services at a higher level than their competitors in the market (42% of brand leaders were premium-price vs. 28% of lesser-known firms).  And, they were more likely to actually get higher fees by up to 35%.

While most consulting firms (and consultants to consulting firms) criticise the use of discounting, 65% of consulting firms report that they do indeed discount their fees.  Even the most profitable firms discount -- 49% of firms, with 25% or more firm profit, report that they discount.  The average discount level:  11.7%.

When it comes to premium-price firms and what sets them apart, it is not their size, the amount of repeat business they are able to get, or the region of the country in which they are located.  As a matter of fact, none of these had an effect on a firm's ability to charge premium fees.  The factors that matter most to premium price firms are how valuable their work will be to the client upon completion, and whether or not the firm can deliver superior results versus the other providers -- 36% find this "extremely important"

Verbatim Comments From Respondents:

Pricing Strategies:

"We do not compete on price.  Ever.  If we can't compete on value, ability, talent, and, frankly, if we can't create a better value proposition for the client, we don't want their business anyway."

"We are aware of the potential need to reduce cost to gain access but also believe that the selling process should effectively focus on value and reference capability to deliver.

Introductory Service Pricing:

"We've found that the first project creates pricing expectations for future projects, and that the work is valued more when it is priced at full rate."

"The introductory pricing strategy is not necessarily a lower price, but a smaller or pilot project which makes it easier for the client to accept without prior experience with our work."

Why Do Use Value-Based Pricing?  Respondents Say:

"Our work, approach and value delivered are unique enough that value-based pricing is the ONLY way in which we are compensated fairly.  A time-based approach simply makes no sense for us -- one intervention/coaching session often causes a change in direction that's worth millions of dollars to the client -- how many hours of our billing would that be worth?"

"Part of our approach is to address the business's issues and value of any potential solution to the bottom line of the business or business unit.  Our pricing is provided in relation to the benefit.  We also use this approach to minimise work in low value areas of the business/org."

"Provides income far beyond hourly billing availability."

Standard and Realised Fees:

"Our pricing model almost always ensures that the standard hourly rates are realised, hence the zero difference in the numbers above.  Sometimes we will cash in a little more on the senior levels, and provide juniors cheaper, but on average we end on the standard rates (which are not public)."

"Difference between published and realised rates is due to discounting to get the business and/or project taking more hours than estimated to complete.  Often this is due to client being unable to supply content or time when needed."

"I do not even keep track of time, nor is time a factor in establishing value to the client.  I simply don't think this way.  Managing capacity is about being extremely effective, not about focusing on time."

Service Guarantees:

"It is a great source of competitive advantage.  We offer to solve a specific business problem with a specific technical solution at a specific time and price (price includes expense and travel).  No excuses, just deliver.  Using this philosophy, we are slowly taking work away from competitors who don't know we exist.  We are also charging 2 to 3x more for projects than competitors are bidding on an hourly basis."

"We find that our consultants rise to the expectations, so the service guarantee has not cost us much but has led to a higher level of personal dedication to meeting client expectations."