2. Increase the Number of Overall Leads * Increase your frequency of touches to targets.
* Increase the effectiveness of touches to targets through. You can choose al or a mix of efforts such as: * Improve Brand RAMP (recognize, articulate, memorize, prefer; see Chapter 12).
* Improve message resonance, differentiation, and substantiation in value proposition (see Chapter 9).
* Increase referrals.
* Improve lead generation tactic choice, mix, and quality.
* Test and improve lead generation tactics.
* Increase lead qualification and conversion through web site and other lead capture mechanisms (e.g., trade shows).
* Increase and improve use of stepping-stone service offers and marketing-based offers.
* Increase culture of business development and effectiveness of team members in generating leads (see Chapter 7).
3. Increase the Number of Qualified Leads Preparation * Create universal definition of qualified lead (see Chapter 20.) * Budget/ability to spend.
* Authority-who?
* Need-what?
* Time frame-when?
* Fit-how?
Improvement * Improve targeting to generate more qualified versus unqualified leads.
* Improve message resonance, differentiation, and substantiation in your value proposition.
* Improve sales skil s to uncover a complete need set, establish relationship and fit, and create urgency (see Chapter 21 on RAIN sel ing).
* Improve consideration of your firm when a client establishes a short-term time frame to buy through Brand RAMP, lead nurturing, and relationship development.
4. Increase the Number of Qualified Leads Converted to Clients * Improve message resonance, differentiation, and substantiation in value proposition.
* Improve sales skil s to uncover complete need set, establish relationship and fit, create urgency, craft and communicate solutions, negotiate to win engagements, gain commitment, and close deals.
* Improve preference for working with your firm versus other options (brand preference, personal relationships).
5. Increase Revenue per Client * Improve cross-sel ing.
* Improve service packaging.
* Improve pricing model.
* Increase ability to generate higher hourly or project fees.
* Improve communication and substantiation of value and impact of engagements.
* Improve deal negotiation.
* Reduce focus on lower-revenue-generating clients (or jettison them completely).
6. Increase Revenue Retention * Improve perception of service quality.
* Strengthen perception of value of work, team, and company.
* Improve relationships with the right people, right structures, and right processes.
* Increase defense against compet.i.tor inroads.
7. Improve Growth Rate per Retained Client This lever is a combination of levers 5 and 6.
Each one of the objectives listed for the seven levers could be a part of your path to growing your revenue. But it"s a long list, and you can"t do everything al at once. Deciding which of the seven levers you need to move and which paths you wil take to move those levers aren"t easy decisions. And the "how" questions remain.
* How do I increase defenses against compet.i.tive inroads?
* How do I segment and target my market?
* How do I improve the effectiveness of my lead generation campaigns?
* How do I engage pretty much anything mentioned in the previous several pages? Where should I start?
These questions and more trip up many a service firm. Consider these questions in the light of resources that you have or that you can garner, the realities of your budget, how long it wil take for your efforts to bear fruit, and the opportunity cost of doing one thing versus another. We"l do our best to help you approach answering them throughout the rest of this book.
One final thought for you to consider: Not only do you have to make decisions on where and how to grow revenue, but you also have to know which revenue you don"t want. Some markets may have poor growth potential. You don"t want to serve industries or deliver services in which you can"t produce the highest-quality outputs or that wil distract you from your core business model. Not al revenue is profitable; for the most part you don"t want to bring in a dol ar of revenue that wil cost you a dol ar and two cents to deliver.
5.
How to Think about Fees and Pricing Time is but the stream I go a-fishing in.
-Henry David Th.o.r.eau Service providers are faced with two questions when it comes to fees and pricing: 1. What pricing structure should we use?
2. How do we maximize our fees?
How you approach your marketing and brand positioning can and wil have a strong influence on how you answer each of these questions.
The Basic Landscape of Pricing Structure Before we can begin a discussion around marketing and its relationship to your fees, we must first lay out before you the variety of pricing options.
Ultimately, there are three ways in which professional services firms charge clients for their services: 1. Time-based fees, such as hourly, daily, or monthly fees.
2. Fixed fees.
3. Contingent fees, where some or al fees are at risk until certain milestones are reached or goals are achieved.
Just the mention of these three pricing constructs engenders emotional reactions and debate from service providers.
* "I never charge by the hour."
* "I"d never leave any of my fees contingent on any possible outcome."
* "As much as some in my industry say the bil able hour is dead, it"s what we use most of the time. It doesn"t seem dead to me."12 PRICING AND PROFIT MAXIMIZATION.
Professional services firms are almost always, from a microeconomic perspective, profit-maximizing firms. Their goal, then, is to determine the price and output levels that wil maximize profit. Stated a different way, the goal is not to grab market share or pursue other objectives at the expense of profit. You might think profit maximizing is a given for any company in any industry, but there are a number of alternative objectives a firm could base its pricing approach on, such as initial market entry, market share maximization, or compet.i.tor restriction. This is important as a warning to the profit-maximizing service firm: Many pricing strategies touted for business in general don"t support the profit maximization model that service firms need to pay attention to. If you pursue those strategies, do so with your eyes wide open.
In determining prices or fees, your goal is to help the firm reach overal financial goals (a.s.suming, once again, that maximum profit is firmly planted in mind). To do this, the fee and pricing structures need to fit the positioning of the firm and must be set at a level that enough clients wil purchase the services so that the firm reaches its goals.
Whereas some of these reactions are based on the rigors of business a.n.a.lysis, many others are pure emotion. Perhaps the firm has had a bad experience as a buyer or a sel er because of a particular pricing structure; maybe it offered a contingent fee and did what it was supposed to do but the client didn"t, and as a result that big contingent fee never appeared. When something like this happens, emotions can be raw for a long time.
By and large, most firms are clear as to what pricing model to use for their particular situation. From our research on fees and pricing in various segments of professional services firms, we discovered that few find a huge chal enge as to which model to use.
Firms that find uncertainty about which pricing model to use extremely or very chalenging include: * Consulting: 34 percent * Law: 15 percent * Architecture, engineering, and construction: 14 percent * Marketing: 13 percent * Accounting: 12 percent It is worth noting that consulting firms are at the top of the list. Is it any wonder prospects look askance at fee structures so often? Over one-third of consultants aren"t certain about how to set their fees. Are you one of them?
Hourly and Daily Fees The concept of hourly and daily fees is much maligned across professional services. There"s a particular amount of fuss these days about the socal ed death of the bil able hour. Some consultants to the professional market tout the concept with missionary zeal. Because of its absoluteness, that zeal is largely misplaced. While many professionals could generate more business and profit using other pricing models, there"s nothing inherently wrong with the bil able hour. In some situations, hourly is likely the best, and sometimes the only, option.
Sorry to rain on the bilable hour death parade, but reports of the demise of the bilable hour have been greatly exaggerated.
According to our research on fees and pricing, a majority of professional services firms are just as likely to use hourly and daily fees as they are a fixed-fee arrangement. Of course, the rate of usage does vary widely based on the type of professional service.
Percentages of firms that use hourly and/or daily fees "most of the time" or "sometimes": * Architecture, engineering, and construction: 82 percent * Law: 76 percent * Accounting: 59 percent * Consulting: 55 percent * Marketing: 51 percent Percentages of firms that use fixed fees "most of the time" or "sometimes": * Consulting: 85 percent * Architecture, engineering, and construction: 75 percent * Accounting: 73 percent * Marketing: 68 percent * Law: 59 percent "I don"t think the bil able hour is dead. It"s too prevalent. But, I do think that we need to have a strategy for each client. What fee arrangement is best for the client? Earlier this year while attending a conference, I listened to an in-house lawyer describe a remarkable relationship with his law firm.
He confessed that he "paid a little more" for the services of this particular firm, and they worked under a number of fee arrangements-hourly, fixed, blended, retainer. After eight months on an annual retainer, the firm approached him suggesting they reduce the retainer amount, based on actual use. Now, al of his work is with his trusted firm. In the end, the fee structure itself matters less than the demonstration of caring, an awareness of the client"s situation, and a wil ingness to act in the best interest of the client, even if it"s against the short-term financial interests of the firm. Caring is the strategy that converts clients from satisfied to loyal."
-Kevin McMurdo, Chief Marketing Officer, Perkins Coie PROS AND CONS OF HOURLY OR DAILY FEES 13.
Fixed Fees Fixed fees-charging an overal fee for an engagement-is the most commonly used pricing construct across most professional services specialties.
PROS AND CONS OF FIXED-FEE PRICING.
VALUE-BASED PRICING DOES NOT EQUAL FIXED-FEE PRICING.
We often hear the words value-based pricing as a surrogate for fixed-fee pricing. Let us be clear: They are not the same thing. A top attorney at a business law firm might command $750 an hour. At a different firm the top attorney might command $500 an hour, or $225 an hour, or $125 an hour. Different clients wil pay the different amounts based on their perception of the value of a particular attorney and his or her ability to get the job done for them. Indeed, the client who hires the $750-an-hour attorney probably wouldn"t entertain the idea of using the $125-an-hour attorney for the same services, even if both attorneys stated that they had the same capabilities.
A technology consultant may be able to command $175 per hour where the going rate for that service might be $125. We have seen many service providers succeed with the argument that they get more done and have a higher success rate than the run-of-the-mil person in their field.
Clients regularly pay more for what is arguably the same service someone else offers. Value is a function of the perceived fairness of price or return on investment in the mind of the buyer. The pricing model you choose is a tool to help you maximize profit while also creating value in the mind of the buyer. But that value price can come in the form of hourly and daily fees as wel as fixed-fee or contingency arrangements.
So what is value-based pricing? Mention value-based pricing to 10 different people (we have), and you"l get many different reactions and definitions of what it is. Our definition: Value-based pricing is a strategy that sets sel ing prices by the perceived value to the client, rather than on the actual cost of the service, the market price, compet.i.tors" prices, or the historical price.
Contingent Fees Discussions of service firm pricing models often don"t include contingent or incentive fees. These are fees garnered by service firms for reaching project milestones or achieving goals.
PROS AND CONS OF CONTINGENT OR INCENTIVE FEE PRICING.
The three pricing models-hourly, fixed, and contingent-are not mutual y exclusive. Many firms employ al three methods, and sometimes methods are mixed inside the same engagement (e.g., a $50,000 overal project fee with service-level agreements of a $5,000 bonus if X, Y, and Z milestones are hit and $175 per hour if additional D, E, and F are needed).
Making the decision to employ one pricing model versus another takes serious a.n.a.lysis and research; understanding of your markets, buyers, and compet.i.tion; and sometimes vision for doing something new or different. Whatever models you choose, marketing and sel ing wil influence the actual fees you can realize from your efforts.
Getting the Fees You Deserve In professional services firms, pricing takes on al shapes, colors, and sizes. If we a.s.sume that the firm is in business to maximize value in the firm (versus, say, a lifestyle business), one thing is true: It wants to get the right fees for service to maximize growth, profits, and repeat business. A great way to do that, as we mentioned at the beginning of this chapter, is to maximize fees.
While there are lots of ways to skin the fee maximization cat, the firms that generate the highest fees have a number of characteristics in common.
Brand Reach and Reputation It"s clear (see the "Median Hourly Bil ing Rates" table) the firms that are wel -known in their target markets receive higher fees than firms that are not as wel -known in their target markets. This applies not only to getting higher fees, but also to getting more new client opportunities. In the Wel esley Hil s Group and RainToday.com research report What"s Working in Lead Generation,14 wel -known (branded) firms reported having a much easier time of generating leads.
MEDIAN HOURLY BILLING RATES REALIZED FOR THE HIGHEST-LEVEL PROFESSIONALS.
It"s also true that thought leaders15 and firms with excel ent reputations generate higher fees. There"s less perceived risk in working with known and wel -regarded ent.i.ties. The more important chal enges are to clients, the less they"re wil ing to risk on failure and the more they"l pay for firms they perceive wil come through for them and succeed.
Lead Generation Engine Firms rarely have just the right amount of work. Either there is not enough work to go around and it"s al hands on deck to generate new business, or the firm is flush with work and everyone is busy delivering and not sel ing. Firms with anemic pipelines are often tempted to take new business at lower fees. If you"re looking at a dry pipeline, it"s easy to see why you might be tempted to price a deal or to accept a deal at a lower rate than you"d like. If you don"t take the deal, you won"t know where your lunch money wil come from next month! If the pipeline is ful and yielding business regularly, you"d have an easier time saying no to work beneath your typical fee structure.
A firm with an established lead generation engine doesn"t have to worry about where the next sale is going to come from. It has a strong pipeline and therefore is not wil ing to do anything to win the business.
Value in Selling We asked 231 buyers of professional services, "Thinking of the last few times you selected a provider, which of the fol owing problems did you encounter during the process?" Service providers fancy themselves to be good listeners, responsive with client service, and experts on their clients"
industries and needs. Yet the problems encountered most by buyers were: * Did not listen to me: 38 percent * Did not respond to my requests in a timely manner: 30 percent * Did not understand my needs: 30 percent Perhaps you deliver excel ent service, can solve problems better than the compet.i.tion, and are, indeed, the best option for a client. But if he can"t tel that during his buying process, he won"t know this and won"t be inclined to pay a premium for you.16 Each individual sel ing moment can be an inflection point determining your ability to garner premium fees. How you position your value, deliver proposals, respond to questions and objections . . . these factors and a litany of others can be the key in generating the fees you deserve. If you"re a solo pract.i.tioner, every time you sel you have the ability to improve your fee. If you"re a large firm with hundreds or thousands of professionals and business developers, this inflection point is occurring perhaps dozens or hundreds of times a day across your firm.
Delivery Excellence The more focused a firm is on the delivery of particular services, (1) the more focused it can be on delivering that service particularly wel and thus delivering more value, and (2) the easier it is for the marketing and business development team to bring that strong service to market in terms of segmentation, targeting, messaging and differentiation, and tactical marketing outreach.
In addition, the more the firm can deliver a service wel, the more satisfied clients wil be, which in turn means more repeat business, referrals, and marketing success. Satisfied clients are much less likely to consider switching to a new service provider. (See Figure 5.1.) If clients are not considering switching to new providers, firms wil encounter less pressure from compet.i.tors and clients alike.
In other words, do what you do best, and you wil have more satisfied clients, more repeat business, higher fees, and less price pressure.
Right Focus on Compet.i.tion When thinking about the compet.i.tion, firms need to be more concerned about delivering more value than the compet.i.tion and less concerned about the compet.i.tion"s actual pricing structure. This is not to say that knowing compet.i.tor pricing isn"t valuable (it is). Indeed, 39 percent of firms engage in research to identify their compet.i.tors" pricing and fees. This is, however, only a start.
Figure 5.1 Difference in Loyalty between Satisfaction Levels: Somewhat Satisfied versus Very Satisfied Source: How Clients Buy: 2009 Benchmark Report on Marketing and Seling Professional Services from the Buyer Perspective (RainToday.com, 2009).
AVOID DISCLOSING UNDERLYING FEE STRUCTURES, RETAINERS DETAILS, AND FIXED-FEE ENGAGEMENTS.
According to our fee and pricing research, premium-price firms are less likely to break down the prices of retainers and fixed-fee engagements to their component parts, such as hourly rates, and share this information with clients. It"s natural for clients to ask, "How did you come up with the fee?" or "What are the hourly or daily rates of the team involved?" Premium-price firms are less likely to share the nitty-gritty details.
These firms have largely figured out how to set service-level agreements that specify what wil happen during the retainer period. Firms that do this have both the forethought to figure out the right service package and retainer structure and the fort.i.tude to disengage from or pa.s.s on clients that push back on the underlying hourly structure. With both fixed-fee engagements and retainers, the more the conversation focuses on the underlying components of the price and price structure, the less it focuses on value, quality, and outcomes.
The question the firm should ask is: "Given compet.i.tor pricing, what they do, and how they go about it, how can we offer more value than they offer and, thus, receive higher fees?" Premium-price firms concern themselves more with whether the firm can deliver superior value versus other providers and less with known or suspected pricing of compet.i.tors.
Employment of Value-Based Pricing Service provider reactions to the concept of value-based pricing range across a wide spectrum-even to the point of concern about gouging clients by charging more than a standard hourly or daily fee.
One fee and pricing research respondent said that when he himself buys on value versus effort, "Many times I later feel that I overpaid." However, we"ve observed service firms more often on the other end of the spectrum. Their internal consideration of value-based pricing leads to discussion about delivering more value to clients, actions focused on delivering more value to clients, and, ultimately, the actual delivery of more value to clients.
A firm considering using this strategy should answer these questions: * Can we employ the strategy? (Sel ing to government and in regulated markets sometimes hinders a firm"s ability to do this, but then again, in many cases it doesn"t.) * For which services do we deliver stronger value than the compet.i.tion or stronger value than firms can get if they sourced the services internal y?
* In what areas do we deliver strong value in the eyes of our clients?