What should you charge? 10 factors that should determine your pricing
For professional services firms, working out your fees can be a balancing act between charging enough that you’re not leaving money on the table, but not so much that you’re pricing yourself out of work. (Unless, of course, that’s your conscious plan.)
So if you’re scratching your head about pricing here are 10 factors that should go some way to determining your fees. (I borrowed these examples from a presentation by global law firm Clifford Chance way back in 2003 – you can add your own to build a pricing/value checklist).
1. How important are you to your client’s business?
If your advice will have a material effect on, or provide a competitive advantage to, the client’s business then you can go higher on price compared to more routine work.
2. What level of resources will you need?
Next think about how complex the matter is and which staff you’ll need to allocate to the project. If it’s something you could put more junior resources on you probably shouldn’t try to charge as much as you would when the senior partner will need to take a hands on role.
3. What capacity do you have to take on the work?
Ask yourself how badly you need the work. For instance, will it be a capacity killer (ie something you’re taking on so that your staff don’t have to sit around twiddling their thumbs?). Or will the work stretch your resources? If you do decide to go in cheap on this ground, you’ll need to think about the long-term implications of reducing your price. Will the client see that as the rate they should always be getting?
4. How easily can you leverage your resources?
Generally, the more experienced you are in a particular field, the less time and resources you’ll need to throw at it. If you can use existing IP, systems and in-house knowledge, then you may also be able to get away with not having to allocate your most expensive resources onto the matter.
5. Do you have an existing agreement?
Some firms I’ve seen like to wheel the cheap pricing in the door for new clients as some kind of financial Trojan horse. When the client likes the result, they find that the next matter comes in with a much higher quote. Generally, I think a better approach is to reward client loyalty by giving your long-standing clients the better deal. There’s also something to be said for pricing yourself for long-term clients in a way that keeps others off your turf.
6. Will you get more work?
If this project is likely to lead to a lot more work, there’s a strong case for going softer on price - or ‘value discounting’. Conversely, if it’s a one-off the same reasoning says that you should probably afford to go in a little higher.
7. How big is the matter?
How big is the matter and how big is the client? Remember, it often takes a similar number of hours to ‘onboard’ a new client, regardless of the size of the project. So, the bigger the matter, the less of your fees will be chewed up in the admin of getting set up and getting to know each other.
8. What timescale are you looking at?
How long will the matter take and how urgent is it? If it’s one of those big commercial cases that’s likely to drag on for years, you may be able to afford to be softer on price than if it’s a short-sharp M&A matter (although, of course, you’ll have to consider this very carefully in light of factor 2.)
9. What’s your competitive position?
Be realistic: how close is your firm to being in the client’s best ‘competitive set’ ? The further away you are from even being considered then the lower you’re going to have to price yourself to be competitive: at least until you build a track record of your capabilities. In other words, the stronger your recognition or specialisation, the higher you can price.
10. What’s the reputational value of the client?
Finally, a firm can get a lot of kudos - and future work - from being able to say that they work for a particular brand. It’s like the old saying that ‘no one got fired for buying IBM’: nobody got fired for using the same advisers as Telstra or Qantas or Macquarie Bank. If you need a brand in your stable to set the tone for others, think about going lower on your cost.
These 10 factors should give you some guide to setting your fees. But then, of course, there’s the question of how you weight each of them too. And that’s something really only you can decide.
If you'd like to find out more about how to set your pricing, I'll be covering this very topic in September's Practice Reboot workshop I'm hosting with Joel Barolsky.