Pricing Strategy for Professional Services

Pricing is one of the 4 Ps of the traditional marketing mix: product, price, place, and promotion. It also may be one of the most mystifying.

Price is hard to talk about in professional services because it is personal. Your time is the product. It is hard to quantify ourselves as units of financial value. It feels, icky. Like selling yourself, your education, and insights is boasting, or worse yet, a trigger for imposter syndrome.

How do you turn this taboo subject into a competitive advantage? Use these 6 tactics to reframe your thinking about pricing strategies for professional services.

It's about the customer, not you

Pricing strategy in B2B marketing has moved beyond cost plus profit. Price is the perceived value of your good or service to the buyer.

The key word is "buyer." Buyers set the market. They may weigh some features of your proposal higher than others, and those features may not be the ones you think.

So let me get right to the point. I don't pop my cork for any man I see. Hey big spender, spend a little time with me. - Sweet Charity (1966)

When setting your pricing model, you must start with the voice of the customer (VOC).* Ideally this is a formal exercise of primary research to understand pains and gains. If that isn't a possibility, rekindle conversations with some past customers and ask them why they thought your firm was the better choice.

Price as an indicator of quality

Motel 6 and the Ritz Carlton both offer lodging-as-a-service. You pay a fee and get a room for the night.

Let's say you have never heard of either brand. You were simply presented with a name and a price and the location says "Washington, DC." Ritz Carlton's rate is $700/night while Motel 6 is $100/night. What would your instinct tell you?

Likely, your mind would assume that Ritz was exponentially superior to Motel 6. There must be something of value that multiplies the price by 7.

When looking at your pricing strategies, you want to make sure your perceived value is supported by the price you set. If you feel that your services are the Rolls Royce to your competitor's Chevrolet then you need to reflect that in your pricing to attract the type of client you want.

Positioning informs your value to price ratio

Positioning is an essential, yet underutilized tool in professional services marketing. Positioning gives your firm control over what type of customer you want and what value you give them.

The key to successful positioning is narrowing your market. You only want clients that check relevant boxes and agree with your value to price ratio, value based pricing. Many professional services providers are keen to take any business that comes their way, especially when starting out. This is a mistake.

The wrong customers can devalue your brand and reduce profitability. You get one wrong customer and do a great job, you will then open yourselves up to more wrong customers that end up losing you money.

Your time is money. Don't waste it on customers who aren't right for your business.

Be flexible to fluctuating market trends

Want to lead the future? You need to embrace informed agility.

Informed Agility: Utilizing available data to make a quick, calculated risk in operational strategy

Professional service providers are often risk adverse. Informed agility is a balanced approach to taking a risk on operations, doing it quickly, and changing if it isn't working.

"Informed" recognizes the need to secure investments with relevant data that supports a risk. "Agile" takes the tenants of agile project management (or Scrum, KanBan, etc.) to implementing this risk. Agile focuses on minimum viable product per sprint or in professional services terms: making small changes in a set amount of time then building on those changes iteratively. Add in some "design thinking" and you take those small risks, test them, measure them, then reassess after a short amount of time. Fail fast, learn more.

Informed agility comes in handy with pricing, as pricing is contingent on customer perceived value which changes over time. If your sales are declining, use this method to test out whether you’re using the right pricing model, and that it is still relevant in the marketplace. Small tweaks in pricing your portfolio -- raising price of one service or lowering another -- could give you better clarity on what the market can bear.

Indexing your price to the current market

Discounting alone isn't a strategy

It is ok to be the highest price provider in your market. Own that dominance. But, there is a point when price no longer meets perceived value.

Let's say your firm is 30% above market and is doing well. You decide if the money is rolling in at a 30% premium, then maybe you are worth more? You tweak your price to 50% above market. And then, crickets.

In professional services company, you must continually index your price with the market. If competitors have figured out how to do it faster, cheaper, better, or more convenient that changes the value to price ratio for your firm. There is a point where even loyal customers can no longer justify the premium. You have now devalued your brand by reaching higher than the market will bear.

It's like the neighbors whose house has been on the market for over a year. Their price is $250K above the average sale price in the neighborhood, yet there are no upgrades or improvements to justify to a buyer the higher price. What happens then? The house sits for a longer period of time without offers. The neighbor has a choice -- align their sales price with the market or wait it out...and out. They ultimately sell for below market.

Discounting alone shouldn't be your strategy

There are providers who win with the low priced strategy. It works well for retail brands like Walmart and Dollar Tree.

It doesn't work well for most professional services providers.

Unless you are Crazy Eddie, your prices should not be insane.

If you are going to give a discount or do a promotion, make sure that it has a truly special reason behind it. And, it can only happen once in a while. For example, for your firm's 20th anniversary, you are offering repeat clients a 20% discount on additional service contracts signed in the month of May. That is rare, time boxed, and remains profitable as it drives up customer lifetime value (CLV).

There are some firms where they believe offering a perpetual discount on a high priced service is the only way to spur transactions. If you are always offering 20% off to hook a client, maybe your price should just be 20% less?

If your only pricing strategy is to discount, it's time to reassess the pricing of your services. Are you in line with the market? Are you able to charge more for some services and less for others? Can you do bundling to drive up stickiness without sacrificing profit? Is there a way to elongate service contracts with incremental incentives?