An old man walks into a second-hand car dealership. “Could you give me a price for my car”.
“Certainly”, says the dealer. “What type of car is it?”
The old man replies, “I think it’s European!”
This is the challenge that many professionals face on a regular basis. Clients – not unreasonably – wanting to know what a project is going to cost, but unable to provide guidance on the details, beyond “I think it’s European”.
I was recently approached by a client with this specific challenge. They had been asked to provide a “life of matter budget”, for a project that had the potential to run for years.
Common approaches for dealing with this challenge include declining to provide a price, but rather offer up a rate card (not really what the client was after), or alternatively providing a fee, but with so many caveats that it alienates the client.
How to provide price certainty?
It’s understandable the client want’s price certainty, even though the details of what needs to be done is quite uncertain. As the professional advisors, it’s our role to provide the client with something to buy (an offer and a price), while not taking on undue risk for the firm. Some techniques for doing this include:
• Reducing the uncertainty. Asking the clients questions to clarify the approach. (e.g. In the car example, “What’s the make? What’s the model? What’s the year?”)
• Tightly scoping the project. Having discussed the project in detail with the client the proposal should focus on their goals and our proposed approach to address those goals. If the approach changes during the matter, this provides a context for discussing variations.
• A few key assumptions. While it’s tempting to include a long list of assumptions, this works against you and the client. Clients hate long lists of assumptions, but more importantly, it’s hard to claim against changes if the list is too long. The only reason for including assumptions is the ability to claim against breaches. If you can limit the list to no more than three key assumptions, the client will be happy, and you will have the moral high ground to claim against changes.
• Hybrid fee structures. Some aspects of the project may be completely uncertain (e.g. negotiations with third-parties). It may be acceptable to the client to exclude these from the price and simply charge a daily rate for support in these areas.
How to ensure the price isn’t a barrier to selection
Having discussed how to provide price certainty, we then turned our attention to winning the job, even if we were more expensive. While the firm (sensibly) was not trying to win the project based on price, they also wanted to avoid losing the opportunity based on price. Some techniques for doing this include:
a) Engaging with the client – Ideally pricing should be done with the client, rather than to the client.
b) Avoiding sticker shock or being an outlier – To ensure the price does not come as a surprise, it should be heard before it is seen. The client should have tacitly accepted the price before receipt of the proposal.
c) Avoiding over-scoping – Given it was a contested bid, it’s essential not to over-scope the job. Sometimes it appears our price is higher, when in reality, our scope is broader.
d) Ensuring the price is proportional to what’s at stake – To shift the focus from our price relative to competitors, we need to remind the client – in our proposal – of what’s at stake.
e) Highlighting the price is fair relative to other similar projects – We should highlight a successful track record with similar projects, and show that the proposed price is comparable to those other projects.
f) Providing options – If we can provide the client with options (alternative ways to progress the project), it changes the decision in the client’s mind from should they use you, to how should they use you.
The above is relatively generic advice about a) reducing uncertainty and b) pricing tactics to win work. Not all of the above will be relevant or even possible with all clients or all projects. However, in the absence of these techniques, firms risk losing opportunities, damaging client relationships and perhaps worst of all (from a pricing perspective), behaving like a commodity.
And with these techniques, it’s possible to provide a price for a “European car”, in a manner that strengthens client relationships and maintains integrity.
About the Author
Colin Jasper has over 20 years experience in pricing professional services. He is the co-founder of Positive Pricing, a firm dedicated to assisting professional service firms to create greater value for their clients and capture a fair share of that value for themselves.