Pricing-by-Design:
Getting professional service providers to price productively
Pricing-by-Design: from tyranny to freedom
As a professional service provider on needs to move away from the tyranny of the billable hour and rate card to embrace the freedom of the pricing curve. Pricing by design!
Pricing can be a source of strength rather than angst: for the provider as well as client. Yet it falls to the provider to understand the effect of pricing with regard to building and maintaining client relationships, with improvements to revenues and even margins.
The reality is that few professionals appreciate, and fewer still utilise, the power of productive pricing strategies to maintain and even grow their business. Productive pricing uses a palette of skills and capabilities to retain/win clients; in turn being rewarded with loyalty, growing revenues and even margins.
There are 5 requirements to productive pricing for professionals.
Attitude (and mutually agreed objective)
Choosing the correct pricing strategy (there are at least 5 to choose from: all can be mutually rewarding)
Being transparent and clear
Good communications
Ensuring that the delivered services/products match the contracted price
These seemingly ‘motherhood’ statements are in reality rarely followed – even by the most erudite lawyer, attentive accountant, empathetic doctor or aware consultant. Analysis reveals that between 30-70% of pricing negotiations fail. Of those that succeed, many remain suboptimal - often leaving value to the buyer.
Why is that?
We at Raktas have been engaged in thousands of pricing negotiations and worked with hundreds of professional service providers. Our observations are the following.
It all starts with the first requirement: attitude; which is reflected in behaviours. Research consistently shows that many professionals, despite by their nature a proactive posture, remain their own worst enemies when it comes to pricing. This contrarian effect is often caused by a combination of: personality traits reinforced by subject matter training and practices. ‘Cognitive dissonance’ abounds.
A mixture of hubris, arrogance, and fear coupled with a discomfort in dealing with commercial matters accentuates what may already be weak communications skills, beyond the narrow and specific scope of the task at hand.
The professional may be good at what s/he has been trained to do; but this technical skill may impinge on one’s ability to successful negotiate productive pricing for services rendered.
Studies show that business “success” is tied to one’s use of skills: The best mix is 85% “soft”, 15% “hard”. Pricing relies of soft skills.
These observation with regard to attitude/behaviours is reflected in data that consistently show in the Legal profession that “pricing” is a Top-5 source of complaint.
Business experience reveals that it is much more productive to retain an existing client than win a new one. Yet inept pricing actions and associated behaviours make the already formidable challenge of business development that much more difficult.
Explore the pricing curve for full mutual benefit: buyer and seller
Also, too many service providers just assume there is one price point for their service: a source of challenge as well as a reflection of hubris from the ‘get-go’. The price-point is wher one ends, not begins the pricing process!
Experience shows that Pricing exists on a curve, except for very rare occasions. Is your offering unique? There are at least 5 different strategies that can deliver a mutually beneficial, negotiated price point; regardless of strategy chosen. One needs to utilise an understanding of the client’s needs, context and confidence to explore these alternatives to arrive at the most appropriate strategy for the given situation.
There is relatively easy fix to this dilemma. Namely, to treat Pricing as the basis of an ongoing dialogue with the client. This approach ensures clarity at the start, during and end of any client engagement. Also, such a dialogue provides the service provider with an objective and easy to manage frame of reference beyond the confines of the technical task-at-hand. A satisfied client is the basis for a relatively smooth follow-on/future engagement (if appropriate) as well as any referral to a new client.
Putting theory into practice.
Engage in targeted and practical training. Prepare well. Role play and review. Trial and see what happens. Review again. Modify accordingly.
Growing demand for your services along with associated revenues and margin will reflect that healthier client relationship.
We at Raktas have found that good preparation and practice increase the probabilities of a successful pricing negotiation. Role-playing is essential, best with an informed 3rd-party, providg dynamic and real-time feedback to build in improvements.
Give it a go!
Explore the curve
Call us at Raktas if you wish to know more or would like some assistance.