Consulting Pricing Strategies that Work

How do you set pricing for professional services consulting? With research, discipline and a whole lot of luck.

#1 Match the Market

Pricing for consulting services is complex. It’s a formula that includes dozens of factors from competition to convenience, perceived pedigree, and geography.

The hardest part of setting pricing is acknowledging that the market determines what you are worth — not you. And the market is fickle.

The first step is to find out the market rate for your service. Research the following:

1. Competitors: Start backward and determine who your competitors are. What exact services do they provide? Who is their target customer? What is their value proposition and does it add or subtract from the price? Do they use words like ‘premium’ or ‘discount’? If you can get your hands on their pricing then you can start to benchmark their consulting fees against your own..

2. Self-Assessment: If you were to draw a line with one end being ‘entry-level’ to ‘celebrity expert’ - where would you land? You can always be optimistic and set your rate higher than your position, but knowing your range is important in the long term. It helps you know what projects to pitch, bid, on, and how to outsmart the competition.

3. Geography: Location, location, location matters even in a digital world. Some professional services consultants are geographically bound such as engineers or attorneys. Others, like this DC marketing consultant, can work wherever. Price expectations do vary from location to location. I’ve found that DC, Chicago, and Dallas are similar. San Francisco is double the DC rate and Omaha is 70% of the market. Consulting firm pricing strategy can include a sliding scale based on geography.

4. Pedigree v. Price: Clients may assign an arbitrary financial value to your education, company affiliations, certifications, etc. Name brands lend a halo of trust — at first.

   You can use ‘perceived pedigree’ as part of your pricing model. Figure out what schools, companies, or experiences your customers value most.

   Would a client pay a consultant more because of this halo effect? For example, would someone pay 10% more because you went to Cornell for undergrad vs. Virginia Tech?

   Or, would it be prudent to market against pedigree? Perhaps, you can be the consultant who is ‘down to earth’ and a ‘die-hard Hokie’ ready to roll up your sleeves to do the work.

   Both schools are great. There is likely no difference in the ability to perform the work. But the Ivy halo still holds weight decades after graduation.

I once had an executive tell me that I didn’t have the ‘pedigree’ he was looking for. I acknowledged that I most likely would not win at the Westminster Kennel Club nor would ever grace the cover of Cat Fancy.

#2 Price your Value Proposition

I am an advocate for creating a realistic and targeted value proposition. Your value proposition is not who you are or the service you provide, it is how you provide it and what benefit the customer receives.

There are a few pricing strategy levers that consulting firms and consultants can use to determine how their value proposition affects price.

1. Price to Value Ratio: The service or experience provides greater economic value to the customer than what they are paying. This is a key element of value based pricing, where you align your pricing with the value you deliver. For example, my set rate includes multiple modalities for marketing — strategy, research, copywriting, design, and execution. I tend to go further than most b2b marketing consultants because I believe that I am providing the best value to a client (and I’ve been burned on the other side of the consultant fence.)

   Hence, if my rate is marginally higher than a competitor who only provides some of the above I can justify it quantitatively. You would pay $2X if you go with a competitor because you would also have to hire consultants B and C. I’m charging $X+3 and you get it all at once.

2. Convenience: Companies hire professional services consultants because they have a problem or function they don’t want to or can’t do themselves. Even when you are providing high-end consulting services you must factor in ease of doing business. That could be the ability to meet in person for coffee, being in the right time zone, or having a faster timeline. It affects how much you can charge. People will pay for ‘easy.’

3. Reward and Return: No matter what benchmarks a company may set for hiring a consultant the decision-making factor is the value of ‘reward and return.’ In simple terms, will the client be able to benefit in another way from hiring one consultant over another?

   For those DC marketing and consulting professionals, we are all too familiar with boxes to check from government contracting. These can be disadvantaged business status, ownership structure, government contracts held, past clients served, connection to other businesses or future business, sustainability, certifications, etc. Take a look at your value proposition and figure out if there are ‘hidden’ benefits that you can capitalize on.

#3 Luck plus Confidence

If you are reading this you are likely a mid-senior-level expert in consulting business services. You have the expertise, experience, and relationships. You’ve earned it.

And then your former intern appears on your LinkedIn as a ‘Top Voice’ in the field. They are charging a premium for the same service you are and have a quarter of your experience.

You start to do the math - X+3 x .25 / Y + 7... How can they charge more for less? It doesn’t make sense.

You have many feelings. But this blog is about pricing, not feelings — or is it?

Pricing strategy for consulting isn’t only quantitative. Feelings — yours, market, clients - impact what you can and should charge. Confidence sometimes brings in more cash than credibility. Luck can pay dividends.

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The takeaway is that pricing is a mix of many factors in professional services. You can’t count or discount any one element. The best approach is to continually test, try, and refine as you build your business.