Posted , in Business model
If you want to charge more, you need to know more about how clients buy
When it comes to their ability to influence price, consulting firms might be shutting the stable door after the horse has bolted.
That’s one of the findings of our recently published research about pricing, and it’s based on data which suggests that clients are making up their own minds about how much a project should cost long before the idea of choosing—or even using—a consultant has even entered their minds.
In fact, we’ve found evidence that the buying cycle—during which ideas about price are conceived and gestated—is actually far more lengthy than most consulting firms realise, and that consulting firms need to understand what’s really going on if they’re to have any hope of influencing the price their clients are willing to pay. Needless to say, there are no hard rules here: The cycle can change from one client, and one project, to the next. But we’ve identified three broad phases that seem to play out in most cases:
First up is the prioritisation phase. This is where clients will be asking themselves which business needs they should be focusing their attention on.
At this early stage, clients don’t yet fully know how to allocate their limited resources between their organisation’s many competing priorities. Each demand needs to be carefully considered in terms of resources available and value-add, and this helps clients to quantify what they would be prepared to pay for a potential project. When we asked clients to specify when they made their first reasonable estimate of the cost of a project, nearly half said they did so during this prioritisation phase.
Once their priorities have been established, clients enter the conceptualisation phase. This is the point where the scope and broad parameters of the project begin to form in a client’s head. Vague priorities turn into more actionable requests, and if clients don’t already have a price in their head, they’ll use their estimates on time, length, and resources to come to an expectation of the price they’ll pay. Our research has highlighted that internal factors often influence these prices—more so than external ones—and a further 30% of clients make their first reasonable estimate by the end of this phase.
Clients are then able to move into the final phase: the buying phase. This is where consultants are formally brought into the cycle. Here, all estimates and expectations that a client has formed will finally be tested against the realities of the consulting market, and this is also the place where firms can have the most direct influence on pricing.
But to wait until this last phase is to miss significant opportunities not only to influence price in a less obvious way, but even to influence the likelihood that a specific business issue will outcompete others and become a consulting project in the first place. And there may be quite a prize on offer here: Previous research has suggested that for every hundred potential projects that arise during the prioritisation phase, just five become fully fledged consulting projects. Change that and you could change the whole game.