I recently read an excellent article describing some tactical approaches for law firms in dealing with the current pricing challenges
the legal industry is facing. It is an excellent article that looks at the pricing issue from a number of different perspectives. Given my IT Consulting / part-time Director of IT practice
has seen healthy growth over the last four years, with incredible opportunities presenting themselves in the last six months this article got me thinking about issues around pricing and how I should consider these through the eyes of an independent Senior IT Consultant. The article identified seven tactics, all of which apply to a forward looking IT consulting practice. This is my take on these seven tactics.
- Understand the Value of Your Services
Determining your value is a challenge, it is like the value of a house; it is determined by what you can sell it for. The value of services comes as a hierarchy, ranging from those where you have a specialty that is hard to come by in your geographic location; to those services that are a commodity and easily found. What are your specialties? and what services do you offer that are unique? Some important advice from the article was to "Develop a communication and invoicing system that ensures clients understand the value in your services".
- Proactively Introduce Alternative Billing
The idea of billing in different ways for IT services is a practice already in place. I see four different approaches to billing;
- Fixed Fees - this is a set fee for an agreed upon amount of work. This is good for work that has a reasonable amount of certainty and a very well defined scope.
- Hourly Fees - This is the most common when the work has a number of unknowns and is without certainty in the what is being delivered. It is a good way to begin a project when in the discovery phase.
- Percentage Fees - this can be based on the overall cost of the project once it is done. Or as a bonus system for completion and staying to schedule and budget.
- Value Added Fees - this is for when the work you are doing has a high value and occurs at a time with some urgency. Disaster recovery fits well here...
- Rebuild Your Cost Structure
Take the time to review your cost structures and optimize, this will not only benefit your own consulting practice it will also benefit your clients. IT has continuous innovation and improvements which restructure the costs of getting things done. The most recent major trend in IT is the cloud and the cost benefit of leveraging the cloud can be significant. Also look at your operational costs; are there new (less expensive) ways to renew your software licenses? could you use open source? What about office space - could more office sharing occur in concert with remote working? Do you want to consider commute time as a part of cost structure - I use public transit and have increased my R&D and writing time my using my netbook and a mobile connection.
- Segment Your Client Base
Balancing quality and capability with price is the challenge.With commodity services people are going to be looking at price, when you have a unique capability with good quality the price can be set at a premium. Reviewing your customers based on their price sensitivity and their willingness to pay the premium for the high capability / quality work is a good review to perform. Price your services accordingly while staying mindful of loyalty.
- Dump Margin Busters
Some organizations are always squeezing the most for the least cost. These customers are hard to work with and disrupt doing good work. The interesting attribute is you often get this sense when first meeting with a new customer. Stay aware of your senses, if you feel a customer is going to be squeezing you on price, compare this to your other customers and ask where is best for you to be spending time. Getting work with your good customers, looking for new ones, or servicing those who are going to be squeezing you on price.
- Create a Loyalty Program
Find ways to reward loyalty. And every year end assess your client list and compared to the revenue generated from each client and do a gut check on your experience with the client.Who do you want to continue to do business with? Who is better at paying bills on time? Who has provided you with longevity in work? Show thanks through discounts for continuous work? Consider providing free workshops that assist your customers understanding of IT while opening other opportunities. Provide discounts to customers who use your services for all their IT needs.
- Do Some Cost Accounting
Figuring out what the break even rate is (with some profit) is important as you engage and re-engage clients. This is important to consider in relation to your billing approaches and is good to have some published practices around cost accounting and rate setting so project managers and consultants can make good decisions as related to costs.
All these tactics should be considered together and need to realize the current market conditions for IT consultancy and where your firm sits with regards to reputation and capability. These tactics should be reviewed frequently and stay aware of the changes occurring within your client base.