The Ecosystem of Pricing Professional Services
Many firms struggle with the concept of pricing. This leads to difficulty with firms then developing the competency of pricing as well. As a follow up to the heavily attended webinar on pricing I did with Bill.com, in this article I’ll touch on the differences between the concept and competency of pricing. Conceptually, pricing is very simple. You simply give a client a price. The price isn’t wrong or right, it just is the price you both agree to in the work you are doing together.
The reason I say the concept of pricing is so simple is because you are already very familiar with pricing. You know the price of shoes, milk, and cars. You don’t struggle with these tangible items having a price, but we struggle with professional services having a price. Yet the same economic concepts hold true for professional services that hold true for tangible goods. In fact, anything of value exchanged between two willing parties must have a price for the exchange and delivery to benefit both parties. It’s simply an economic truth and one you live within every day.
While the concept of pricing may be easy to grasp, the competency is more difficult to practice. You can watch me describe the difference between the conceptual and competency part of pricing in this video (we’ll cover the competency of pricing in our next article on pricing). If you missed the first webinar on pricing with Bill.com (now on-demand) in their Automating Success Masterclass series, I’ll lay out the conceptual pricing principles we discussed in that webinar here in this article.
To do that, we’ll explore the Ecosystem of Pricing Professional Services:
Note that this is not the full ecosystem of pricing. The remaining part of the ecosystem will be discussed in the next Bill.com Automating Success Masterclass webinar series on Pricing Practices.
First, let’s focus on the bottom part of the ecosystem in the above image.
Pricing: The Transition Point
Pricing is a key transition point in a client’s journey into your firm. It is a transition of the client’s perception of value and it greatly affects your successful service to clients and them remaining long term clients with your firm. Before a client is priced, they are effectively in a state of desiring the value with which they are expecting from your firm. Though a client won’t verbalize this, there is an anticipation of what it will look like to work with your firm. This anticipation is a perfect place for you to do the work of influencing the lead and helping them embrace your value. All clients come with a ‘context filter’ when they are seeking services from your firm. This filter is where they have some context from their past, from their friends, or what the market is telling them as to the value of professional services and what you can or will do for them. The ‘context filter’ heavily influences a client, and you have to understand the concept of pricing so that you know what a client is thinking as they journey through being served by your firm.
Before a client is priced, they are being asked to have faith in your services before they have seen any real evidence of what you can do for them. The phase of anticipation is where they exhibit faith. As professionals, we may want to alleviate this uncomfortable feeling of faith the client is being forced to live within. But allowing the client to grapple with our value and to listen to us as we explain our value can be one of the greatest ways to overcome their ‘context filter’ and begin to help them see what we believe as a firm. The preparatory phase of pricing is where you let the lead struggle with your value. After a client has received the price for their services and then begins to experience the value of your services first hand, they begin to match up what they assumed would be true about your firm with what actually is true about your firm. There is a lot of ambiguity to the value a client expects from your service with the value that the client actually receives from your service. Because of the ambiguity, we need a price to lead the client to actually perceive and receive the value accurately. Failing to price for your services allows the client to live in ambiguity with what they hoped for and what they actually received from your firm. In a sense, you do your client a disservice when you don’t price them for your services.
Now, let’s focus on the top part of the ecosystem.
The Ecosystem of Pricing
First, I want you to notice that there are activities that come before the act of Pricing and there are activities that come after the act of Pricing. As mentioned in the previous section, pricing is simply a transition point between the anticipation a client feels in your value proposition and the actual delivery of your value after pricing. As a concept, pricing is simple in its purpose. But the practice, or competency, of pricing is an entirely different matter.
Here are the steps in the journey the client walks as you price them:
Leads - a lead is someone who is not only anticipating your services but still in the assessment phase. They may not fully intend to purchase from you. So it’s your responsibility as the firm owner to influence the lead to increase in their desire to work with your firm (if you are pricing them).
Preparation - as you walk a client through the assessment phase of their journey with your firm, you will next want them to move into a Preparation phase of being priced. This is where they are more eager to consider your services and have already tasted what it’s like to be cared for by your firm, and to experience your firm’s processes. The Preparation phase is meant to get them ready for what they will see when you share a price with them.
Pricing - this is the transitionary point at which they perceive value and you get to capture some of that perceived value in the form of money. For pricing firms, there is some understanding that value is a heavy consideration in your services, so most clients expect a higher price than the rest of what the client’s ‘context filter’ tells them your price should be. Since you will have a higher price, it’s important to prepare the client to be priced. You will present the client with their options in this step along with the price you would like to get paid.
Project Management - this is the first step after the pricing and involves scoping the services promised in the pricing phase. A Project Manager is a new role in a larger firm (with team sizes starting at 8 and above) that handles the movement of the services for all clients through the entire firm. It’s a huge role and involves keeping the team on task to perform the priority of services within the contract, manage the project management or workflow system where all of the tasks reside, and aid the team in working efficiently on services. A Project Manager in your firm can be promoted from a technical role and truly understand how the services move through your firm in a valuable way. A project manager begins to ensure the rails on which the value delivery happens in your firm.
Delivery - the last phase in Pricing is the technical team’s responsibility to produce the actual value that was promised to the client in the Pricing step. Note that since services are not tangible (they are invisible as we say), there is some subjectivity as to how the client feels about their value as compared to what the firm believes they have delivered in value. It is true that the client’s perception of value will never match the reality of what the firm delivers. Firms must always manage this disparity as it is a part of leading a creative services firm.
How do you manage all of this?
This is a good question. As we explore the concepts of pricing in the ecosystem, we see that this can get pretty complicated. To manage this complexity, our firm has been developing a Client Onboarding Process for many years that walks the lead through the preparation phases of pricing. Then, after the pricing is finalized and the lead decides to become a client, we then implement Feedback Loop Processes that have us go back to the client to verify that what we are providing is in fact what they expected. This feedback loop ensures the actual value is what we say it is, and not leave that value determination up to the whims and subjectivity of the client.
Leading a services company is a complex endeavor, but can be done successfully when you commit to the process that humans must go through to assess and receive their value. Humans need time to understand what they are buying and time to assess that they are in fact receiving the value they believe they purchased. Caring firms will spend time with their clients through the ecosystem of pricing phases so that their clients remain healthy and loyal to the firm for many years to come.
Don’t miss our next webinar on pricing to wrap up the explanation of the Ecosystem of Pricing.
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