Why the Ferrari Strategy May Beat Your Consulting Firm’s Current New Business Strategy
Your consulting firm has a hot lead with California-based, Death Valley Electrical (a.k.a. DVE), a surprisingly large company you’ve never worked with before. The project scope is modest, but you sense that a small engagement could lead to a long, profitable relationship. How should you proceed?
You could discount your fees on the first project to get your foot in the door at DVE. Is this a good strategy, or is it the exact opposite of what you should do?
Many consulting firms are quick to offer a low fee on an initial project, particularly if competition is sniffing around. I call it the Shopify strategy since ecommerce firms frequently offer massive discounts on your first purchase. Consulting firms that endorse the Shopify strategy point to their long-term, profitable clients as proof the gambit pays off.
Personally, I tend to take the opposite approach. Small, first-time engagements with my consulting firm are often super-premium priced. It’s the Ferrari strategy—the cost to sample a Ferrari 812 via a one-day rental is roughly ten times the daily cost of leasing that car.
The Shopify strategy will win you more consulting clients. That’s the strategy’s huge advantage. However, the strategy also carries drawbacks:
- Many of those consulting clients won’t sign on for repeat business. They’re transactional buyers.
- If you don’t explicitly explain up front that the first project’s fees were discounted, then consulting clients will balk at the higher prices for follow-on work.
- Ironically, if you do explain that you’re lowering fees on the initial project in hopes of proving your value and winning full-fee follow-on work down the road, you risk setting a counter-intention: the client doesn’t want to appreciate your work too much, lest he feel obligated in some way to buy more at a high price.
- Clients sense that you’ll drop fees under pressure—especially if your first win was openly competitive.
- Discounting first projects becomes habitual—you offer a discount to all new consulting prospects, even if the long-term opportunities are not high.
The Ferrari strategy will turn away many prospects. That’s the strategy’s clear disadvantage. However, the strategy delivers attractive benefits:
- The repeat rate is extremely high. The high, initial fee clarifies which prospects are focused on long-term investments and relationships.
- Due to the high investment, your clients are as committed to your project’s success as you are. As a result, your projects are more likely to succeed and your clients are likely to be happier.
- Prospects associate high fees with high quality, and you may win more projects than you’d expect.
- When your fees for follow-on work drop to a more normal, premium level, clients are pleasantly surprised.
- There’s rarely a strong push to lower your fees on future projects—you’ve already established that you’re premium priced.
The Ferrari strategy can be scary. Every time you submit a proposal to a new prospect, you know the high fees may chase them away. On the other hand, you know that the clients who dive in with you are serious and that you’re commencing a powerful, long-term relationship.
To apply the Ferrari strategy and propose a high fee to first-time consulting clients like DVE, you need:
- A strong offering that naturally leads to follow-on consulting projects.
- An outstanding reputation.
- The ability to deliver value, even when fees are super-premium.
- A steady stream of consulting opportunities.
- The courage to turn away prospects.
The Ferrari strategy isn’t for everyone and, depending on the type of consulting you do, your reputation (or lack thereof) in the market, your repeat rates, and the cost of onboarding new clients, the Shopify strategy may work better for your consulting firm.
However, if you’ve been habitually following the Shopify strategy, give the Ferrari approach a serious look.
Have you ever discounted a first project? Have you ever tried a super-premium first offering? Please share your experience below.
Text and images are © 2023 David A. Fields, all rights reserved.
Every time I’ve ever given a discount or deal to a prospect, they turn out to be the most difficult, demanding, and unappreciative clients. So now I don’t discount my fees, but if a client has a particular budget I will negotiate cutting out some of the deliverables. This way, I don’t feel trapped and taken advantage of, and the client still gets what they need.
Also, and this took me 10 years to do, I post my fee schedule on my website and send the link to prospects when they ask for my fees. I was so worried that the phone would never ring again. But you know what? I have saved so much time because, as you noted, only the serious prospects with the money to pay for my services call me now (for the most part). And the phone does ring because I am the best at the work I do for the money I deserve. and having the fee schedule on my website assures clients that they are getting the same rates as everyone else and I am not taking advantage of them somehow. Win/Win!
Love your articles and your humor!
Kudos to you for no longer discounting your fees, Elaine. I’m sure that took some courage and I’m glad it’s paid off. Your experience with clients who did demand a discount is very telling–other consultants would be wise to take note.
The published fee schedule is an interesting approach. If you bill clients based on time, that may be a bit easier than if you’re billing, as I prefer, based on value. Either way, the faster you can “get to No” with prospects who are just kicking tires, the better. That’s what you’re doing, and you’re seeing the results.
Thank you for sharing your perspective, Elaine. It’s very helpful.
You nailed it. Each strategy has it’s merits and you have to be very careful as to which you use. Early in my career I used the Shopify strategy, but, in addition to telling them I was lowering my fees, on the invoice, I’d put the actual fees and then on the next line I’d put “Special one-time 15% discount”. That really made it explicit and they would not ask for it again.
I now exclusively use the Ferrari strategy because for me it’s part of qualifying the opportunity. I am looking for clients who think of the engagement as an INVESTMENT, not a COST. Nickle and dimeing at the onset says to me that they are looking at this as an expense. And, that’s not the right client for me.
Elegantly said, Bob. Also, you’ve provided an informative illustration of how a consultant can evolve his fee approach over time. Thank you for that! The Ferrari strategy’s ability to pre-qualify candidates is definitely one of its strongest features. Thanks for joining the conversation, Bob.
A discount? You said the project was small in scope – there’s a gulf in fees between Ferrari and Shopify. If small project is 1/xth the normal scope, you price at 1/xth, plus a premium related to setup and focus. Not Ferrari priced. You let them know your normal engagement is x, and the following 3 recent clients have this to say about the x job. You are more than capable of delivering the same results, but you have avail within certain dates, only, to delivery only the 1/x services, and your price is 1/ + premium.
Establish trust, rapport, and results. If you came to me with Feadship premium while providing me a rib tender, I’d laugh, say you must be really good at rib tenders, and move on, and never consider you an option for anything. Goose that laid the golden egg syndrome.
We’re in total agreement that the initial, small project can be priced at a premium. My rationale doesn’t have much to do with “setup and focus;” however, if your onboarding costs for a new client are substantial, then that should certainly play a role.
Keep in mind the Ferrari strategy is based on the relative price for a project of small size. Hence, the article above references the cost of renting a Ferrari for a day and the two illustrations–one showing the relative fees and the other showing absolute fees. With that in mind, you’re absolutely right that you wouldn’t charge the price of a full Ferrari for a project that’s only one-wheel! You would charge substantially more than 1/xth of the Ferrari, though, for the wheel.
I’m glad you chimed in with your point of view, Skip.