The Advisor’s Guide to Pricing (Valuing) Advisory Services

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The Advisor’s Guide to

Pricing (Valuing) Advisory Services

To receive the detailed Guide to Determining Price, please click here.

If you’re a Bruce Springsteen fan, you might enjoy his song “The Price You Pay” (also covered by country star Emmylou Harris). Roger Daltrey of the Who sings “The Price of Love” while Twisted Sister released “Pay the Price” in 1999. The Doobie Brothers contemplate life in “Too High a Price” while the Thompson Twins think back to their youth in “The Price”.

Get the idea? Price is important in song… and in life! But if you listen a little more closely, they are REALLY singing about VALUE, not price.

Price represents the VALUE we are willing to pay for something. Therefore when deciding on price, understanding value (along with other factors) is important, especially when selling advisory services. So, let’s look at a few pointers:

1. Asking Questions to Establish Value
Think of some of your own purchases. Perhaps you engaged a marketing consultant in the hope of growing sales. You may have bought some software to reduce expenses. In both cases, the VALUE is measurable. There are less tangible examples of value. Buying insurance, for example, may lead to risk reduction, more certainty and peace of mind. Some purchases may bring value through improved wellbeing or lifestyle (like a gym membership). Value may take the form of a feeling of prestige, often enabled through purchases or luxury items. Asking questions to illicit honest answers on value is an art… but, once value is established, you have a powerful indicator of price.

2. Add Value to Reduce Price Sensitivity
Think about the price sensitivity in your market. Some markets are highly price sensitive especially where you are selling a commoditized service. Why pay more for something that is readily available at a lower price? But if you are selling a highly customized, rare, sought after service, price sensitivity will be lower. What can you do to increase the perceived value of your product or service? What can you add? What can you ‘bundle’ to create more value? How can you improve the client experience? The simple fact is that premium providers can charge more.

3. Think long-term
A ‘loss leader’ refers to a sale on which you are willing to lose money because of some advantage to be secured down the line. That advantage may be revenue from future sales, enhanced reputation, increased business valuation, acquisition of new skills etc. The existence of these future opportunities will influence your view of price on the next sale. You may even consider a ‘freemium’ approach where you give something away in the hope of securing future revenue.

4. Consider Unique Aspects of the Market which Influence Demand
We are used to paying different amounts for airline tickets depending on the season. Same with Broadway tickets. That’s because demand can change based on ‘surge pricing’, ‘demand pricing’, or ‘time-based pricing’. Clients of accounting businesses may be willing to pay more because of a looming deadline or because they are under investigation by the authorities!

5. Competitor Pricing / Benchmarking
Don’t think of value / pricing in isolation. Who would your customer buy from INSTEAD OF you? And what would those competitors charge? You may not know this exactly but you are probably aware of suppliers who are considered to be ‘cheaper’ while some are considered ‘more expensive’. Consider the range of prices in the market and where you fit. Justify your position in this range.

6. Cost-Plus Method
This should not define your strategy… but it IS important to know what it costs you to provide your product / service. To get an accurate view, include ALL costs for this sale such as marketing, selling, preparing and completing the work. Include the costs of personnel, materials used and any disbursements to third parties (e.g. contractors) you bring in. This helps to understand your breakeven cost and will influence price.

7. Consider Payment Terms
Payment terms form an important part of pricing and how your client VALUES your work. Would you rather receive $100 today or $120 in three months? More importantly, would your customer rather PAY $100 today or $120 in three months? The value of cash in your business at any point in time will influence pricing strategy. Think also about performance-based payments where you are paid once certain milestones are achieved.

8. Keep it Simple
There may be a temptation to design complex price arrangements. An obvious example is to link price to future savings. But often it is difficult to track and measure future outcomes. Also, clients like transparency when it comes to payment / pricing and anything that is difficult to understand will not be well-received. The most palatable pricing approach for clients is a project (or fixed) fee because they enjoy the certainty and transparency. It also drives efficiency in your business because you strive to complete the work more efficiently resulting in a higher profit. Where the scope of work is extremely vague (because the project is exploratory or poorly defined), hourly rates may be the best way to go.

9. Discounts
Some businesses will never offer discounts while for others, this will be a normal practice. An important question is what advantage you secure by offering a discount. Does this increase the chance of closing a deal? Does it result in a more loyal customer? The same can be said for promotions or ‘specials’ (such as buy-one, get-one-free).

10. Document Your Pricing Strategy
You don’t want to think through a pricing strategy every time you price a project. Create a document which you can guide you for future projects and review it periodically because things will change.

Working out price may not get you ‘singing in the shower’ but shifting the discussion to VALUE is an important start. Take 3 minutes to evaluate your own approach to pricing and we will share some ideas on how you can improve.

To receive the detailed Guide to Determining Price, please click here.

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ABOUT THE AUTHOR

Mark Ferris
CHAIRMAN & CEO, PANALITIX

Mark Ferris is an entrepreneur who has founded, built and 'exited' numerous businesses realizing success for shareholders, employees, customers and acquirers. He has a particular interest in software, solutions and service businesses and frequently writes on related topics.

PANALITIX has developed software solutions, consulting projects and coaching programs that empower small businesses to achieve their goals. Learn more by clicking the box below.

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