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 © 2019 David A. Fields, all rights reserved.