the price is right?
I was speaking to my good friend, Verity Jackson-Grant, last week about pricing. As head of Simmons & Simmons pricing team she knows more than most about the pressures involved in getting to the right price. Dealing with increasingly well informed and sophisticated buyers and procurement teams, the need to deliver innovative pricing solutions at a healthy profit margin has never been greater.
But what is the right price and how do you get there? Another contact once told me that the right price is one that feels fair to both the service provider and the customer. Both parties need to feel like they are getting value from the transaction.
This week’s Three Things provides tips and tricks from Verity and the LINAR team on how to price effectively. Enjoy.
#1. Know what you’re pricing
- What does the pitch/mandate involve? Is it a competitive tender? What’s the size of the prize? Is the customer after a final price or just an estimate? Can the mandate/pitch be split into stages and each stage priced differently?
- If you’re pricing a matter, find out as much detail as you can and, if that’s not possible, make and state your assumptions. Otherwise, your client might compare your apples with someone else’s pears.
- Understand your client’s fee objectives and tailor your pricing accordingly – is cost a driver? Is the work BAU or strategically important? Is there an urgency? The answers may change depending on the work.
#2. Think about how you’re pricing
- Whilst it may feel like the hourly rate is dying at a snail’s pace, consider offering alternative fee arrangements. People like choice, even if they then stick to the most traditional option. Additional choice also provides you with a higher probability of success compared to the competition.
- If you can offer a choice regarding the level of service, speed or the tasks involved (such as a Bronze, Silver & Gold option) it will help the client to see how your pricing can flex to fit their fee objectives.
#3. Don’t shy away from the negotiating table
- Prepare for the possibility the client will say “We’d like to use you but the price is too high”? See it as an opportunity. In this instance, ask first why they’d like to use you and then use the answers to reaffirm why the price is reasonable.
- Don’t mindlessly knock off another 5%. You’ll have heard the rule of negotiating in 1s not 5s, but you can also explain why you have set your price at the level you have or negotiate on the scope of the work. Run through the scope with the client and work out whether there is anything that can be removed to reduce the price.
- Whilst there can be reasons for offering very low prices (buying the experience, reputational value of the work etc.), most work needs to be profitable (if you want your business to survive). Give yourself a price floor and be prepared to walk away. If you do want to offer a low price then please, please, please tell the customer why you are offering to work at that price (e.g. you’re trying to displace the incumbent and have committed your own time and resources into learning the business). Signposting this early will alert the customer early that this is a one time off and not the starting price for all future mandates of a similar nature.
