Do you lose consulting projects to low-fee competitors? How do you handle that threat to your business? Below are (almost) seven strategies to thrive when fees are taking a dive.
Paella Consulting Associates is an advisor to the world’s crustacean industry. (True story, though the name and market have been changed.) For over 20 years they’ve offered their expert services at a premium and the firm steadily brings in around $8-10 million per year. Not a bad haul.
But this year, a shrimpy, upstart company from Singapore started offering similar solutions and similar quality for about 70% lower fees. Yikes.
How can Paella respond to this international incursion that’s threatening their entire business?
7 Responses to Low-Price Competition in Consulting
Strategy #1: Recommit
(a.k.a. ”Don’t Change, Don’t Blink”)
With 20 years of reputation and relationships in the market, Paella could stick with their premium fees and ignore the bottom feeders.
Some prospects equate higher fees with higher quality, and Paella’s not in immediate danger of losing all their clients. This strategy works if you’re a little fish in a big pond. However, if there’s only enough room for a few players in your pool and your prospects are price-sensitive, Recommitting is a short term play.
Strategy #2: Release
(a.k.a. “Throw Back the Little Fish”)
Paella could politely walk away when a prospect makes it clear there’s a bidding situation and the Singaporians are in the mix. Why bother chasing low-margin projects?
Releasing is a viable long-term strategy if you’re a small fry swimming in a sea of opportunities.
Strategy #3: Retrench
(a.k.a. “Give In”)
In the face of a cost-focused prospect and aggressive competition, Paella could react by lowering fees. While this strategy is called Retrench, it could just as easily be named “Regret” since that’s where it invariably leads.
Retrenching is necessary at times if you’re facing cash flow struggles; however, it can cause a vicious cycle of more work for less reward.
Strategy #4: Refocus
(a.k.a. “Try the Shiny Lure”)
Many consulting gurus would admonish Paella to point their prospects to outcomes and value rather than inputs and costs. This would be sound advice if it frequently worked. But it doesn’t. Good luck refocusing prospects who immediately flip to the fee section of proposals.
For Paella, whose fees may be three times as high as an offshore competitor promising equivalent quality, simply stressing value is a fool’s errand.
Strategy #5: Reframe
(a.k.a. “Change the Game”)
If the Paella consultants are clever, they’ll fundamentally alter their prospect’s view of the problem and/or the necessary solution, so that competitive offerings no longer fit the bill.
Reframing is a sophisticated technique that takes preparation and practice. It requires consultants to smoothly wield compelling, epiphany-inducing models. Well-designed diagnostics help by encouraging prospects to reframe themselves into a world where low-fee solutions no longer make sense.
Consultants who are excellent at reframing can save about 30-40% of projects that low-fee competitors otherwise would have hooked. It’s not a panacea, but it’s one of the two best strategies available.
Strategy #6: Rethink
(a.k.a. Wake Up!)
Frankly, Paella had been asleep at the wheel. Since no firms had been able to match their quality for a couple of decades, they stopped innovating. Big mistake.
If you consistently dish up sizeable earnings, eventually a consultant is going to figure out how to match your quality (or exceed it) at a fraction of the cost.
The question Paella has to answer is, “How do we deliver the same quality as always, but cut our costs by 80%?” I’ve been around long enough to stop scoffing at that challenge because there’s always an answer.
Once the “impossible” efficiency challenge has been established, a determined team of bright consultants can find a way to meet it. Does it mean challenging assumptions? Absolutely.
In the long run, Rethinking your offering, your approach and your delivery is always the best, long-term strategy. Combined with Recommitting or Reframing, it also can deliver a hypodermic of adrenaline to your margins.
Strategy #7: ?
(a.k.a. “My Request to You”)
Is there a strategy I’ve missed? The six strategies above —or some subset—are what I usually present to clients facing Paella’s situation. I’m interested in your additions, though.
How else do you respond to low fee competitors?
Text and images are © 2023 David A. Fields, all rights reserved.
We did a “Release” in Q4 for a follow-on project after working a miracle for a client in the initial project. We parted ways quite amicably. When the competing firm failed, we were already positioned in the client’s mind as “premium but can work miracles” so we won the cleanup of the follow-on project at our premium rates.
Outstanding point, Jaime. Recommitting and Releasing can both lead to high-margin revenue down the road if the lower-fee alternatives (including doing the work in house) don’t pan out. Thank you for adding your case study.
David, when it comes to strategy #4, are you suggesting that outcome and value have no bearing on price-conscious prospects, or are you just referring to those difficult prospects who are so price obsessed they will only buy from the lowest bidder no matter what? I think an important distinction needs to be made here, and if there isn’t, could you explain how we can quickly identify those prospects who we have no hope of influencing with our value argument as that would save us all a lot of grief and heartache.
Wouldn’t it be great if prospects would self-identify into neat groups like “price conscious” and “brand loyal” and “easily swayed by puns”? Alas, prospects are neither so helpful nor so separable. Price sensitivity falls on a spectrum.
The average, fairly cost-focused client looks for a reasonable median fee to guide them, then they’ll look for the best quality consulting solution within about 15-30% of that median. That’s why they issue RFPs and get bunches of bids. To answer your question: yes, value has a bearing, but that type of buyer can rarely be persuaded to spend 50% more, regardless of the supposed value. In Paella’s case, their fees are now 3x a viable competitor’s, which is problematic.
When buyers proactively bring up budget or cost in the first Context Discussion conversation, that’s an indication there’s at least some price sensitivity. It’s a good time to ask about any budget parameters. You can even ask how much of a role budget will play in their decision. “It definitely plays a role, but it’s not the main criteria” is a common response and is a decent indication that the buyer is an average, cost-focused prospect.
Thanks for the insightful question, Jonathan.
Hi, David… as always, great topic! In my opinion fees should not be considered a cost; they should be positioned as an investment. I guarantee a minimum R.O.I. of 15:1 and have never delivered less than 24:1. It’s not what a Client spends that counts; it’s what the Client gets back for what the Client invests that really counts. Looking forward to your book! Tris Coffin CMC
Tris, I agree that fees should be considered an investment. Unfortunately, clients often don’t look at it that way regardless of how we would like them to think. There are consulting firms I work with that literally do not charge a dime until their clients realize the promised benefit–and even in those cases, many of their clients view the consultant’s fees as a cost, not an investment.
There’s a way the world should be, and there’s the way the world is. I figure our best bet is to find strategies to succeed with the world as it is, while making it what it should be.
I’m glad you raised your point about value, Tris.
20 years without competition may destroy the core of a true consulting company – ability to deliver unique innovative value. If Paela is still live and kicking I envision the following strategies:
– Differentiate by highlighting valuable features that competition can’t deliver and clients currently take for granted, such as long-term guarantees backed on long-term track record (low risk), ease of communications (known format of documents, multi-level existing contacts, speed of response, etc)
– Create new value beyond contracts, such as annual (future and current) client conference, online forum, knowledge database, showcases of results
– Diversify service offering by creating a bare-bone low price offer. This offer will help to Differentiate.
Finding new ways to create value and diversifying your offerings are both excellent strategies, Anatoli. Paella does, in fact offer most of the features you mentioned, including conferences, etc. That’s an area we’re stepping up even more.
I’d suggest that the core of a consulting company is not the “ability to deliver unique, innovative value.” In fact, most clients aren’t looking for unique and innovative at all when they’re hiring outside experts.
Think of it like going out to a restaurant for dinner (a.k.a. visiting the offices of a culinary consultant): 99% of the time, people who are heading out for dinner choose a familiar restaurant that offers satisfying fare at a reasonable price. Infrequently they’ll head out to the fancy eatery established by the Michelin-star chef who is combining ingredients in innovative ways. Consulting follows a similar pattern. Most of the time, clients want a reliable solution at a reasonable price, not innovative or unique value.
I appreciate your thoughtful contribution to the discussion, Anatoli.