- Once you've defined your pricing model,
there are some simple pricing strategies
that can make you more profitable
and help you avoid issues.
Pricing consistency is important.
Clients are going to cross-check.
I worked with one client where I did some work
at a discounted rate.
A year later I was back at the same client,
pitching a new piece of work.
I sent them my pricing and the client said,
"Those aren't your rates."
I said, "Yeah, they're our rates."
He said, "No, you did this rate for this other department
"last year."
They checked.
I had a problem.
I could either say now these are my rates
or I could offer the old rate.
I ended up offering the old rate.
It cost me money.
I learned that I will be consistent from there forward.
By the way, people change employers
so understand that if you offer a rate at one company
and then that client takes you to a new company,
you're probably going to have to offer the same rate.
Be consistent in your pricing.
Be judicious about discounts.
Always list the full price in the agreement
and on the invoice.
Call out any discount as a one-time discount
so your clients don't expect it every single time.
You can use rebates and tiered pricing.
A rebate looks at how much a client has spent with you
in a given period of time and it gives them
some of that money back at the end of that time period.
Tiered pricing is where you offer one rate
for a certain amount of work and if the client
does more work with you, you can offer a lower rate
and if they do even more work, you can offer
an even lower rate.
A lot of times, clients are going to say,
"Hey give us a discount because this is
"going to be a long term relationship
"and you're going to spend a lot of time with us
"and we're going to spend a lot of money with you."
That sounds great, but I always tell the client,
"Okay, let's put that in writing."
You have to think through rebates and tiering
very carefully and make sure that they drive
the right behaviors in terms of how the client
spends money with you.
Be sure you understand the implications
for at risk or contingent or success based arrangements.
Clients are going to tell you,
"Well we want to align your incentives with our incentives,
"so we want you to put some of your fees at risk,
"because that aligns the incentives."
You know, that sounds awesome in theory.
It's difficult to pull off.
There are some big risks you're going to face.
First, back-end measurement is hard.
Clients might not agree with the impact
that you say you had on that engagement
and when they disagree with the impact,
they're disagreeing with the amount
they're going to pay you.
People you made the deal with might leave the company.
You may have had a great understanding
of what the at-risk component of your fees were
and that person leaves and a new person takes over.
Guess what?
They might have a different interpretation
of whether you should get paid or not.
Reporting and analyzing the impact after the fact
takes time.
By the way, you're not going to get paid for that analysis.
I had one client situation where a client asked me
to put some of my fees at risk.
I would get paid those fees once the client
achieved a certain milestone.
I had a great relationship with the CEO
and I said, "Okay, I'll take on that arrangement."
Well, the project ended, things were looking good
and then the client was on a trajectory
to hit that milestone.
The CEO left and when they hit that milestone
I was now negotiating with a new CFO
and the CFO disagreed with what we intended
by the original agreement.
I said, "You owe me the money."
He said, "No we don't."
I had to get attorneys involved to try and get paid
for work I had done and I didn't even get all my fees.
I had to pay an attorney in the process
and that client relationship was forever damaged.
I will never do another at-risk fee arrangement again
because of all the difficulties that came out of it.
I'm not saying not to do them.
I'm saying understand the implications of them
when you do take them on.
These pricing techniques can help you avoid problems
and hopefully they're going to enhance
the overall profitability of your firm.