If you run a professional services firm, you’d have seen many articles telling you that you must move to fixed fees or value-based pricing. However, they often major on why and neglect how. At FirmChecker, we collect and analyse ratings and reviews of a range of professional services business models, leaving us well-placed to say what works and why. In this post, we’ll briefly look at the “how” of quoting fixed or value-based fees to your clients.
The QLS offers this useful guide for quoting fixed fees. It’s common sense but is a good checklist of the key things you need to consider when offering fixed fees.
They outline key stages in providing fixed fees as follows:
It’s useful to make each of these stages habitual – in particular; driving efficiency and keeping an accurate database of internal costs. Note, you should constantly update your estimates for given matter types, particularly after you’ve transitioned from hourly rates – with a change in incentive structures, improving tech and a learning curve – you may find that your internal costs go down over time, and you ought to consider this when pricing.
Joel Barolsky, the creator of the Price High or Low app, advocates a simple, memorable heuristic for pricing he calls the 2-5-3 Method. It can be summarised as two objectives, 5 factors and 3 decisions.
This is quite simple – your two objectives should be for your client to perceive great value and accept your proposal, and for you to make a handsome profit. Both are equally important – making a profit without a happy client is a short-term view and will stunt your organic growth.
When you’re clear on your objectives, you ought to be considering cost, value, competition, capacity (i.e. opportunity cost) and connection (i.e. to what extent can you price this in such a way you’ll get repeat business).
You should then consider pricing structures (fixed, retainer, success etc), pricing level and how to best communicate your pitch with your prospect.
This approach should help ensure any client relationships you enter are mutually beneficial.
There’s a lot to take in here and all of these steps and strategies are important. Our key take-outs (i.e. those that go beyond common sense) from these two expert articles are:
Increasingly, particularly as fees become more transparent with developments in IT, clients will accept nothing less than fixed fees. In a buyer’s market, effective scoping and quoting is a skill every professional should master.
Ben Farrow is the Managing Director of FirmChecker and consults with Beaton Research + Consulting, the leading management consultants to professional services firms in Asia-Pacific. He holds commerce and law degrees from the University of Melbourne and digital marketing certifications from Northwestern University.