This media page offers reviewers a quick and exciting look at our newly-released Fees and Pricing Benchmark Report: Consulting Industry 2008. We’ve highlighted a few story ideas for you that we think are interesting and have provided materials to support these. Feel free to use whatever information that you may find to be interesting and thought-provoking.
You should find these links helpful in finding more information about the report and the contents:
- View the report landing page and order information here: Fees and Pricing Benchmark Report: Consulting Industry 2008.
- Email Kelly Kerr – kkerr@raintoday.com to arrange an interview with one of the report authors.
- Read on for story ideas from the report and to view related charts and graphs, including –
- Does Brand Really Make a Difference?
- Discounting: Highly Criticized Yet Highly Used
- Client Value (and communicating it) is the Biggest Pricing Challenge to Overcome
- Prices on the Rise Despite Threats of a Recession
- Brand, Market Conditions, and Overhead Costs are Driving the Price Increases
- Premium-price firms: What do they do Differently?
- After the story ideas, you’ll find analyst comments excerpts from the report authors Mike Schultz and John Doerr, and sample verbatim comments from survey respondents
Story Ideas
1. Does Brand Really Make a Difference?
Firm marketers are always touting the value of establishing a brand…and now they can have the hard data to back it up.
In the Fees and Pricing Benchmark Report: Consulting Industry 2008, RainToday.com found that firms that are well-known in their target markets receive higher fees, see their revenue grow, and earn higher profits than their lesser-known counterparts.
Making the financial case for branding – our research shows:
- Brand leaders were more likely to price their services at a higher level than their competitors in the market (42% of brand leaders were premium-price vs. 28% of lesser-known firms). And, they were more likely to actually get higher fees by up to 35%.
The Percentage Difference in Hourly Fees Brand Leaders Actually Realize Compared to their Lesser Known Counter Parts
- 85% of brand leaders experienced revenue growth in the last two years versus 74% of lesser known firms
- 76% of brand leaders are profitable versus 68% of lesser known firms
According to the data, brand leaders have a better chance of generating premium fees, growing their business, and realizing a profit than lesser-known firms.
2. Discounting: Highly Criticized, Yet Highly Used
While most consulting firms (and consultants to consulting firms) criticize the use of discounting, 65% of consulting firms report that they do indeed discount their fees. Even the most profitable firms discount - 49% of firms, with 25% or more firm profit, report that they discount.
The average discount level: 11.7%.
Average Level of Discount vs. Published/Initially Mentioned Rates
Comment from report authors, Mike Schultz and John Doerr, “If firms held the line on discounting, the additional 11.7% could go straight to their bottom line.
“Not only are there major financial implications to discounting, the discounting discussion shifts the conversation from being about the value the firm provides to being about price. If price must come done, firms shouldn’t jump straight to cutting price. Firms should cut the deliverables first and the decrease in price will follow.”
3. Client Value (and communicating it) is the Biggest Pricing Challenge to Overcome
The top 3 challenges of consulting firms when it comes to pricing are:
1. Uncertainty about what price a particular client will accept (77% rated as at least “somewhat challenging”)
2. Pressure not to leave money on the table (77% rated as at least “somewhat challenging”)
3. Pressure to compete on price from prospects / clients (72% rated as at least “somewhat challenging”)
Top 3 Challenges in Pricing Decisions (rated as at least “somewhat challenging”)
All three of these challenges fall under the general category of client value, whereas other lesser challenges are focused internal – focused on the firm.
Comment from report authors, Mike Schultz and John Doerr, “Should a firm be able to increase its perceived and real value to clients, then:
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Clients will likely be willing to accept higher fees (though, granted, with each client you may never know the exact fees they will actually be willing to accept).
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The firm will be less concerned with leaving money on the table because it will be more confident in the fees it is charging.
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Clients will pressure the firm less because they will have confidence in that firm’s ability to deliver additional value.
Focusing on value you provide for clients, and strengthening the overall value proposition of your firm, can decrease some of the top challenges we found in pricing services.”
4. Prices on the Rise Despite Threats of a Recession
Two-thirds of consulting firms have seen their fees for services increase at least somewhat in the past two years and another 71% expect to increase their fees at least somewhat in the next one to two years.
Predictions of How Fees Will Change in Next 1-2 Years
Comment from report authors, Mike Schultz and John Doerr, “Right now, the United States economy is uncertain at best. Yet, even though the economy has slowed, the data suggests that most consultants have either not felt a pinch or are not adversely affected by downturns. It will be interesting to see how the next several quarters of U.S. economic growth (or lack thereof) will actually affect fees for consulting services.”
5. Brand, Market Conditions, and Costs are Driving the Price Increases
We asked consulting firms to write-in the top three factors that influenced their fee increase and found the top factors to be:
- Company Improvement/Experience/Reputation – or brand (18.6%)
- Competition/Market Conditions (16.6%)
- Costs/Overhead (11.2%)
- The Economy (7.6%)
- Clients' Perceived Value (5.7%)
Don’t take our word for it, the respondents themselves said:
“Our successes with existing clients proved that we were worth more than our fees.”
“As our reputation has spread among banking clients (our primary source of referrals), we have been able to raise our prices because of the uptick in our professional results-driven reputation.”
“We are becoming experts in our field; we have enough demand to allow us to be picky; we have a good client list; and we show results and report on them.”
“Reputation, competition, wrote a book which put me into a different status category.”
6. Premium-Price Firm: What Do They do Differently?
When it comes to premium-price firms and what sets them apart, it is not their size, the amount of repeat business they are able to get, nor - to a large degree - the region of the country in which they are located. As a matter of fact, these firm demographics do not correlate with a firm’s ability to charge premium fees.
What is different is their view on pricing – it’s all about value.
The factors that matter most to premium price firms are:
- How valuable their work will be to the client upon completion – 51% find this “extremely important”
- Whether or not the firm can deliver superior results versus the other providers – 36% find this “extremely important”
Pricing Decision Factors that Matter More to Premium-Price Firms By Pricing Comparison with Competition
Furthermore, premium-price firms are more likely to use value-based pricing to price their services (43% versus 24% of the bargain price firms).
These firms consider the value they can provide first and foremost and back that up with the confidence and in their ability to provide that value.
Analysis & Commentary Excerpts from Mike Schultz and John Doerr:
- You Can Know Your Cost Structures and Metrics Without Pricing According to Them
It is no surprise to anyone that consultants can be opinionated. In the verbatim comments to this survey – especially regarding hourly fees – consultants shared comments readily. While most folks shared their rate structures without much fanfare, a number of people had a visceral reaction to deducing their fees to some kind of hourly rate. Respondents said things like, “fees have no relation to time” and thus can’t be calculated.
From a purely mathematical perspective, they’re incorrect. You can calculate hourly rates. Their point (well taken by us) is that they don’t think about what they offer in terms of time for money. While we didn’t do the math on verbatim comments as to which types of firms were more likely to vent against the concept of a billable hour, we did unscientifically scan them. For the most part, they seemed to be from smaller firms and solo practitioners. Bigger firms with large projects and many people on client teams for extended periods of time – while they may use value pricing or retainers – still work to deduce hourly or daily scoped and actualized fees so they can manage themselves financially.
Indeed, when asked about standard fees versus actually realized fees, some respondents said, “I wish I knew that information!” Our point is this: while you may not price based on your labor and cost structures, it is beneficial to know the relationships between costs and revenue so you can manage to (and improve) your growth and profit.
- Premium-Price Firms: What Underlies Premium-Price Firms' Concerns?
In one word: Value. Both of the pricing factors that matter more to premium-price firms have to do with value. Premium-price firms consider the value they can provide first and foremost and back that up with confidence in their ability to provide that value.
They have greater confidence in how they price (less “uncertainty around which pricing model to use”), their ability to demonstrate value in the client’s eye (less “uncertainty about price client will accept”), and in their marketing sales (less “uncertainty about pipeline strength”). It matters less to a premium-price firm whether or not a client has worked with their firm in the past. This does not mean that premium-price firms are not concerned about relationships. They are.
A good relationship goes both ways. If, from a pricing perspective, a premium-price firm can no longer deliver high-value to the client, it is no longer a good fit for the firm. It’s less about giving people you know price concessions, and more about giving every client premium value. In terms of competitor firms, premium-price firms worry about them plenty…but they’re more concerned about delivering greater value than the competition, and less concerned about what the competition happens to be charging.
Verbatim Comments From Respondents:
Pricing Strategies:
“We do not compete on price. Ever. If we can't compete on value, ability, talent, and, frankly, if we can't create a better value proposition for the client, we don't want their business anyway.”
“We are aware of the potential need to reduce cost to gain access but also believe that the selling process should effectively focus on value and reference capability to deliver.”
Introductory Service Pricing:
“We've found that the first project creates pricing expectations for future projects, and that the work is valued more when it is priced at full rate.”
“The introductory pricing strategy is not necessarily a lower price, but a smaller or pilot project which makes it easier for the client to accept without prior experience with our work.”
Why Do They Use Value-Based Pricing? Respondents Say:
“Our work, approach and value delivered are unique enough that value-based pricing is the ONLY way in which we are compensated fairly. A time-based approach simply makes no sense for us - one intervention/coaching session often causes a change in direction that's worth millions of dollars to the client–how many hours of our billing would that be worth?”
“Part of our approach is to address the business's issues and value of any potential solution to the bottom line of the business or business unit. Our pricing is provided in relation to the benefit. We also use this approach to minimize work in low value areas of the business/org.”
“Provides income far beyond hourly billing availability.”
Standard and Realized Fees:
“Our pricing model almost always ensures that the standard hourly rates are realized, hence the zero difference in the numbers above. Sometimes we will cash in a little more on the senior levels, and provide juniors cheaper, but on average we end on the standard rates (which are not public).”
“Difference between published and realized rates is due to discounting to get the business and/or project taking more hours than estimated to complete. Often this is due to client being unable to supply content or time when needed.”
“I do not even keep track of time, nor is time a factor in establishing value to the client. I simply don't think this way. Managing capacity is about being extremely effective, not about focusing on time.”
Service Guarantees:
“It is a great source of competitive advantage. We offer to solve a specific business problem with a specific technical solution at a specific time and price (price includes expense and travel). No excuses, just deliver. Using this philosophy, we are slowly taking work away from competitors who don't know we exist. We are also charging 2 to 3x more for projects than competitors are bidding on an hourly basis.”
“We find that our consultants rise to the expectations, so the service guarantee has not cost us much but has led to a higher level of personal dedication to meeting client expectations.”
Feel free to use any data, charts, or analysis laid out on this page for your own publication. If you would like to schedule an interview with one of the report authors, contact Kelly Kerr - kkerr@raintoday.com.