Pricing: the beginning and the end of the discussion

Every time we do some research into what clients are looking for when choosing between consulting firms, they tell us that price is fairly low down their list of considerations. Every time we tell that to a consulting firm we get laughed at: fee rates, they tell us, are crucial.

In a sense, both sides are right. The more I listen to clients, the more it becomes clear that price is something they think about upfront, when they’re considering which firm to use and what their budget is. This means that firms can certainly lose work on price, because they’re outside the ballpark of what clients expect and what they think is reasonable for the work involved. But it’s also clear that clients don’t want to spend too long on this issue: it’s more a tick-the-box-and-move-on attitude than a desire to pick over the bones. Once a firm has passed the initial price hurdle, clients are more concerned to understand what they can do well, where they’ve worked before, and so on. Price is the qualifier, not the decider.

But that’s not quite the end of the story: if it were, then consulting firms would see this too. Price turns up again, like the bad penny, at the end of the sales process, just before the contract is signed. It comes, of course, in the form of a procurement person who demands a last minute discount, something clients (the ultimate consumers of consulting service) connive at because it allows them to appear to be playing by procurement’s rules without actually allowing them to take the initiative.

All of which reminds me of some data we uncovered a couple of years ago. If a consulting firm cuts its fee rates by 5%, it makes next to no difference to clients. It’s the kind of incremental reduction that might help the procurement team get their end of year bonus, but it really won’t help the client who’s looking for support from consultants on a difficult issue. To get clients’ attention, you have to halve your prices.

In other words, don’t discount.