We live in an age when many providers of professional services are pressured both by prospective and existing clients to lower their fees. How can you better deal with this challenge?
I think pressure from clients is not a problem because if they fail to recognise the value of your contribution after creating some results together, you should get rid of those clients anyway.
Prospective clients, however, cannot see your value yet, for you have never worked with them before. They can only compare your fees. If you are a value-based advisor, they cannot even compare you. So, what can you do in this situation?
There are several both big and small things you can do to better explain the value you offer to these prospects.
First, you can achieve significant reputation through your existing work. Make sure it is your clients who say great things about you, not just you. So, as part of your promotional efforts (the third P of your marketing program) it is important to get strong endorsements from clients.
Second, you can improve your selling – trust-building – skills. I think you should work on your selling skills on an ongoing basis. Some of you may protest: “I’m a professional, not a salesperson”. Realistically we all are marketing and salespeople first and only then we can practise our professions.
Most fee-resistance is based on scepticism about the value clients receive as a result of our intervention, and there are many opportunities to be persuasive on value if you can find ways to demonstrate it.
For example, if during the selling process you look for ways to be substantively useful to the prospect (sharing ideas, performing some free initial analyses, providing education, industry-specific insights), then you will be more convincing on value.
The challenge is to find ways that prove, before the project starts, that you are worth what you charge.
Third, you must understand what exactly the client wants to buy in the first place. As an objective outsider you may want to sell the full solution to the problem, but the buyer may only want to retouch the symptom and move on. What to do then? If the retouch is too superficial, and you truly believe it wouldn’t solve the client’s problem, then the best bet is to abandon the assignment. In his book, Quality is free, Phil Crosby puts it this way: “Quality is conformance with customer requirements”, meaning that quality is whatever the client asks for. Well, to a certain extent. If the client needs a double hip replacement, but demands the cheapest (and most likely useless) painkillers, the best bet is to refuse to do anything. Yes, the client wants only painkillers, but you know that it won’t improve the client’s condition. And the interesting thing is, if the client doesn’t let you do proper work to properly solve the problem, and you are willing to walk away from the assignment, you gain respect.
So make sure that you have “bare bone” quick fixes for clients’ problems, and optionally they may choose more thorough solutions. Always give clients options, so they can choose the one they prefer with different investment options.
Always explain to your clients how you have calculated your fees, and make sure they understand it. That will eliminate future fee objections during assignments.
Also, guarantee that no activity will be performed without the client’s approval.
According to David Maister, the author of “True Professionalism”, one of the main reasons for fee pressure is that clients know that professional service firms are notoriously ineffective when it comes to their own operations. What is the problem here?
Let’s take a normal Per Diem-based firm. Many firms have internal contest on how many billable hours each consultant puts in. That goes against clients’ objectives who want to receive effective and speedy solutions to their problem. However, the longer the solution can be delayed, the more the client can be ripped off.
As you can see, Per Diem fees actually reward internal inefficiencies in the advising firm, and since clients are more sophisticated than they were 20 years ago, they can clearly see what the cricket is going on. They can se that the advising firm is actually working against them. Are we are surprised that they are sceptical? It is only the logical consequence of what we have created.
Due to this conflict of interest more and more clients expect to hire firms that can give them fixed-fee pricing.
Fixed fees encourage firms to clear up their own internal wastage and inefficiencies. Fixed fees also require firms to be more careful at crafting their “Terms and conditions” sections in their agreements, otherwise serious “scope creep” can take place.
Another type of fee pressure is performance-based pricing, meaning that “If you increase our sales by $100,000, we’ll give you a percentage of that.” However, this payment is misleading because it forces the advisor to give preference to short-term gain but overlook long-term prosperity. Also, as the saying goes, it takes two to tango, meaning that the outcome is not in the advisor’s hands, but in the client’s. Consulting is just like a university course. You plunk down your money, but nobody guarantees that you ever graduate, let alone getting a good job. For your money they give you the tools and an opportunity which you can use for whatever you want to. As an advisor you can only give tools to your clients, but if they don’t use them, then there is nothing you can do. You can give a state of the art laptop computer to a client but if he only uses is to stabilise his typewriter on the patio table, then he will have a hard time to do desktop publishing.
Performance-based payment also distorts the advisor’s greatest benefit: objectivity.
I think the only situation in which you may decide to reduce your fees is if that particular assignment will move you forward on your path as a professional. As a result of learning from that assignment, you can take on similar assignments as an experienced advisor for your full fees since you’ve already done it.
I think any other type of fee-cutting can only work against you, so be very careful with it.