Pragmatic Consulting Club - Responding To Fee Pressure

Many consultants are seeing more and more fee pressure from clients and prospects. What's the best way to deal with it?

There are several things, big and small, that you can do to address or mitigate this. Here are some of those ideas you might want to look at, followed by a quick comment for each of them:

• Show your work and help the client estimate the value of the project.
• Improve your discovery process and understand what they're trying to buy.
• Check your positioning and brand strategy to build a premium reputation.
• Experiment with different pricing structures or guarantees.

Show Your Work And Help Them Estimate Value

Most fee resistance is based on clients' skepticism about the value they will receive from hiring you. But there are many ways you can show, not just assert, how you can help.

You should do that by being consultative in your conversations, sharing relevant insights and questioning the status quo or how the client thinks. Another way is to perform some free initial analysis or workshop that can uncover risks and opportunities, create urgency, and help them estimate the financial value of the project.

Instead of obsessing about how much value you're capturing, most consultants would benefit from helping their clients better quantify how much they're getting first.

Improve Your Discovery And Understand What They're After

A lot of fee resistance comes from the fact that what you're trying to sell is not what the client is looking to buy. You might be pitching a “complete solution” or “new capabilities and self-sufficiency”, while the client is actually interested in making a quick impact "going after low-hanging fruits" or a smaller project to get a taste of what working together looks like.

That's why you should adopt a solid discovery process and invest time in understanding their wants, and always present multiple alternatives when presenting recommended solutions. Start with the minimum scope of work necessary to make an impact, and then include options for “add-ons” that are available for a higher price.

The client can then pick and choose. If the client wants more frequent communication, extra analysis, or anything else that helps them mitigate risks and increase the likelihood of success, it’s their decision.

Check Your Positioning And Build A Premium Reputation

Another obvious thing you can do to reduce fee pressure is be perceived as someone being worth more than your competitors.

You can achieve that by building a strong reputation. This is done by delivering good work for current clients and stimulating them to share it publicly through testimonials, case studies, or public endorsements.

Another way of being perceived as "premium" is adopting a clear and narrow specialization, and implementing brand initiatives that increase credibility and reliability.

Experiment With Different Pricing Structures

Traditionally, consulting services are sold by the hour. But in the last decade, it seems like both clients and firms are starting to understand that this pricing structure is often the worse option for most consulting projects.

Due to concerns over productivity and the need for budgetary control, many clients are interested in “fixed-fee” pricing - and many firms have been quick to adopt it. But as this shift happens, consultants must be attentive to communicate very precisely what is and what is not included in the project. Scope creep can and does happen.

Another structure that is gaining space is performance-based pricing. While this requires more preparation and is only suited for a few engagements, it might be worth exploring this depending on your field.

Finally, a lot of fee pressure can be reduced by offering strong guarantees. Are you using any? I might write a future post sharing the most common guarantees in the consulting world, but until then feel free to drop me a line and share your own experience with them.