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Pondering Price: Pay by the Pound or Pay for the Promise?

The 10 Commandments for Selling Professional Services
Pondering Price: Pay by the Pound or Pay for the Promise?

Sell the way your clients want to buy

by James A. Alexander, Ed.D.

Assuming that your service offering is a good match for your clients? needs, nothing has more impact on your overall profitability than your pricing. The leaders of professional services organizations understand this?in my latest research pricing was the number one marketing critical issue. (See Figure1.)

So if pricing is such a critical factor to the success of your professional services organization, what pricing method should you use? Let?s start by taking a look at where the industry is now.

Figure 2 (from the research referenced earlier) shows that 50% of study respondents stated that time-and-materials was their most common pricing method, 45% said fixed pricing, and 5% said pay for performance pricing.*

This is a ratio that needs to change. Asking your clients to pay time-and-materials (pay by the pound) is a seller-centric pricing strategy designed to eliminate your risk and guarantee that you get the margin you desire. There is no incentive to be more efficient; in fact, the temptation is to be inefficient, tacking on hours and days to maximize project revenue, or using the project to train your ?green beans? on the client?s nickel.

Think about this from the prospect?s side of things?have you ever been in a cab and what you expected to be a $20 trip turned out to be a $50 fare? What did you think of the cabbie? Would you willingly travel with him or her again? People are conscious (and often a little nervous) of having a meter running?if you doubt me, just ask your clients!

Yes, asking customers to buy by fixed price (pay for the promise) makes your job a little more challenging, as you must couple strong discovery with solid experience to accurately estimate your costs. And yes, you are taking on some risk if you get it wrong. But well thought-out, value-based fixed pricing can deliver the double dip of higher margins and stronger client relationships by directing the conversation away from billing rates to bang-for-the-buck. Sell the way your clients want to buy, and make fixed pricing your primary pricing strategy.

* I?ll tackle this pricing strategy in a future article.

Jim Alexander is a principal with Alexander Consulting, LLP, a management consultancy that helps product companies create and implement professional services strategy. Reach him at 239-283-7400, [email protected], and find more articles and information of interest at www.alexanderconsultingsbiz.com.

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