Pricing your consulting firm’s projects is tricky. You’re not alone if your heartbeat elevates or your stomach clenches when it comes to talking about your consulting firm’s fees with a prospective client, or when you’re developing the “investment level” for a specific consulting engagement.
A few rules and a handful of cookies will soothe your pricing anxieties.
Ten are below. (Pricing rules, not cookies.)
By the way, the thorniest challenge in writing this particular article was paring down the list to only 10 rules.* A lot of good pricing guidance was cut out. You can add it back in, though, by contributing your ideas for pricing in the comments section.
10 Pricing Rules for Consulting Firms
If you don’t have explicit agreement from the decision-maker on the Context, you’re much too early to quote specific fees. (Though you can give a range.)
Discuss, then Offer
If you haven’t discussed fees with your prospect, don’t submit a proposal with fees.
Price the Whole Package
There’s more to pricing than the monetary figure. Price includes the fee, scope and terms.
Price on Value, not Cost
Use bottom-up costs as a minimum-margin check, not as the basis for setting fees. (Unless you’re absolutely caught in a VTM project.*)
Always propose alternatives, including at least one high-fee, large scope engagement.
You can negotiate down, if you need to; however, it’s hard to overcome low fees if you set the precedent.
Don’t discount fees with the expectation that you’ll be able to raise them later. You won’t.
Stay Within Reason
In RFP situations, you can win with pricing up to 30% more than competitors. In non-RFP, competitive situations, you can win with pricing up to 3x other consulting firms.
Keep Moving Up
If you’ve closed all 10 of your last 10 proposals, raise your fees at least 10%.
Understand the Real Issue
If consulting prospects consistently turn you down and point to your consulting firm’s high fees, you don’t have a fee problem; you have a Trust problem.
What additional pricing guidance do you have for other readers? What other guidelines do you follow?
Text and images are © 2023 David A. Fields, all rights reserved.
very helpful. Thank you! Sharing some practices we apply:
(1) By default we give a 5 to 10 % discount, to avoid additional negotiations (per se)
(2) We precisely (as much as possible) define the expected outcome (deliverable), besides the scope and detailed timings, so we know what to deliver and the customer knows what to expect
(3) When discussing the value and the context, we calculate the loss / the benefits and the impact in case they take the project vs. they don’t decide for the project
In addition, we do try to avoid counting our hours and calculating price based on “per hour” engagement.
Talking about clarity in consulting business, especially in terms of pricing is at least strange if not ambiguous. Yes, I agree not even two projects for the same customer can be compared. On the other hand, I can’t recall I saw the pricing information on any consulting website. 😉 So how can we achieve more clarity in pricing and the work we do, and consequently build trust?
Very interesting practices, Tomaž. The “by default” discount would probably be a good topic for debate in this community. Have you found it actually does head off negotiation over fees?
Good on you for making the connection between fees and trust. Trust, more than any of the “Six Pillars of Consulting Success” determines your ability to command a premium fee.
(FYI, there’s quite a lot of information on this site about determining value and setting fees. This recent article about value, for instance, and this classic article on pricing alternatives.)
I appreciate you chiming in with your best practices Tomaž!
In my experience, you build trust when you define the value of the engagement (as you do) and the benefits of (or cost of not addressing the situation) in consultation with the client. When you discuss, then offer, you establish a reasonable price range for the client. Then, what others do becomes nearly irrelevant. Compete on value, not price.
Tara, connecting Value and Trust is definitely important. Among the approaches and techniques that are effective for building Trust (the foremost of which is, of course, to be Trustworthy) are clear, candid communication about the Value and avoiding surprises around fees.
I appreciate you joining the conversation today!
Great insights. One other suggestion is to consider who you’re competing against. If the other firms at the table are top-tier consulting firms then you lose credibility if your prices are too low. I’ve actually had a client lead suggest that we increase our fees- he was worried that his leadership wouldn’t take us seriously because we were so much cheaper than other firms.
Great point, David. Competition is definitely one of the stakes in the sand to look at when determining pricing. Usually competition will drag fees down; however, if you’re under pricing your services, then competition will lift you up. Your example is great! (And bonus pints to your client for asking you to raise your fees!)
Totally FYI, we typically use the stakes in the sand depicted in the image below when we’re teaching folks how to think about fees:
Valuable article, David. Many years ago I was given this technique for allowing the wisdom in our bodies to help us intuitively arrive at pricing for a given project: start saying amounts out loud — progressing from lower to higher numbers — until you get to the one that feels right. Obviously this is not meant to occur in a vacuum relative to computing real costs or assessing value, but, insofar as it draws on a kind of knowing that is in part informed by our experience, it can help to get us into the right ball park.
What a fascinating approach, Carole. You’ve taken the idea of “trust your gut,” which I wholly subscribe to, and made it a conscious, rigorous practice. Of course, some of us would still be counting upwards long after the time we should have submitted the proposal ($3.1 million… $3.2 million…sure, why not? …. $3.3 million…)
Thank you so much for adding an unexpected practice onto the list, Carole.
Per Tomaz’s comments, we have offered discounts as incentives to pay earlier, such as more upfront funds or quicker payments like net 10/20 versus net 30/60. The buyer sometimes sees the value, but if the discount is good (greater than 2 percent), AP will frequently take advantage of it.
Terms (along with fees and scope) are part of the price. As you’ve eloquently noted, Cal, by playing with terms you can make the entire package more attractive and valuable for everyone.
Great to have your voice in the conversation, Cal.