As a buyer of professional services, I can’t stand not knowing what I am going to pay. Hourly billing has actually deterred me from talking to one of my professional advisors on certain occasions.
That is probably not the best strategy for a business owner. I believe that I am not alone in this. I talk to buyers of my services every day and find that they want the same things. So why is it that the same buyers that want to buy on fixed-fees or results-based work don’t want to sell their services that way?
I believe that fixed pricing and value pricing are going to become more prevalent. While the two pricing strategies are very different, I do believe this will begin to become more commonplace—mostly because the buyers of professional services will start demanding it. However, more importantly, I believe that these pricing strategies will also help firms connect with the buyers of their services more effectively, generate higher profit and help build better relationships over time with their clients that are built on transparency around their services.
Fixed pricing and value pricing are different:
“Fixed price is any price given to a buyer that is adhered to for a certain scope of work. A fixed price may or may not be based on time (inputs). A value price is never based on inputs. A fixed price can be arrived at unilaterally (by the seller). A value price cannot.” —Michelle Golden
Changes in pricing don’t happen overnight and aren’t something we do on a whim. If this is something you are thinking about, here a few pieces of advice our esteemed panel of experts shared on the topic:
1. Start small. While the firm should have an overall commitment to this approach, going cold turkey can be very difficult. Consider moving from an hourly billing to fixed pricing can be a good interim step. You can also begin with a practice area or service area. As the firm becomes more comfortable and educated, this is something that can then be rolled out across the whole firm.
2. Training is key. Moving to a value pricing or fixed-fee pricing strategy requires training across the whole organization on scoping and project management skills. As you begin to explore this idea, there are key requirements to developing the right prices and managing your profitability.
3. Measure your results. Just like with any change, you need to measure your progress. Develop some key KPIs to measure the impact of these pricing strategies.
Looking for more information on this topic? Check out Ron Baker’s book Implementing Value Pricing.
Sarah Johnson is the chief growth strategist with Inovautus Consulting, a firm that works with CPA, law and professional service firms to help them grow more effectively, and author of “Practical Ideas for Growth,” a blog dedicated to growing professional firms. Her counsel and strategies have helped move firms to the next level in their marketing and sales efforts. Connect with Sarah at 773-208-7170, firstname.lastname@example.org, or www.linkedin.com/in/sjjohnson.