It’s time for professional services firms to adopt deliverable-based pricing, says Tracey Shirtcliff.
Pricing is an integral part of any business – but it’s complicated. That’s why most B2C companies place such emphasis on it, making pricing a pivotal part of the product lifecycle. In the B2B sector however, that’s not necessarily the case, especially in professional services. While businesses with physical products have complex pricing strategies, those that deliver services are more likely to use pricing as a tool, a means of securing a deal.
This can make sense, if it leads to the acquisition of a valuable contract. However, when deals are made up on the fly, it can mean that you’re working to a very small margin. In such cases, when you’re dealing with significant value, a reduced margin can dramatically impact your overall profit. That’s bad enough, but the problem is that a poor pricing strategy can impact so many other parts of a business, from customer loyalty right down to company culture.
So, what’s the issue with B2B pricing, and what can businesses do to get it right?
The problem with professional services B2B pricing
There will be exceptions to every rule, but to make a sweeping statement, most B2B professional services companies lack a strong pricing strategy. There’s an amazing – disconcerting – statistic that many businesses only spend six hours focusing on pricing in the course of the company’s lifespan, and it shows.
In the majority of cases, a pricing model is selected because it’s what everyone else in the field is already doing. No thought is put into it because why would you when you’re taking on the established norm? All you have to do is populate your price list with the market average and adjust as the need arises, applying discounts to acquire new prospects and marking up when the potential is there. It’s a haphazard approach that can mean various things for both the business, and the customer.
The negative impact of a poor pricing model on B2B businesses
If you adopt the ‘wrong’ pricing model, it can impact your business in a number of different ways.
Sales. There are a lot of differentiators that can influence B2B sales, from customer experience and service to payment terms and reputation. Pricing also plays a significant role. If your prices are too high, too low, or too ambiguous, the conversation will end before you even have a chance to go into details because the customer will immediately feel a sense of distrust.
Loyalty. Whatever sector you’re operating in, an unexpected price hike is one of the fastest ways to damage customer loyalty. Hefty future price hikes are an almost inevitable consequence of poorly thought-out discounting at the start of the relationship. When you secure a contract through a low-margin special offer, it’s rarely sustainable to keep that pricing level in place when it comes to contract renewal, and you will pay for that through lost loyalty, lost custom, and potential reputational damage.
Brand reputation. We all know businesses that have become an industry punchline thanks to a sale that never ends. While they still gain customers through it, the power of the promotion is lost because no one really knows when a genuine discount is on offer. You also run the risk of creating the impression that your goods are cheap and cheerful, rather than something worth investing in. If you overcharge for your services, on the other hand, you become known as a chancer. The right pricing model can prevent either scenario
Company culture. Of course, your employees are just as likely to judge your company based upon the impact your pricing has on your customers – it’s as professionally embarrassing to promote a pseudo or misleading sale as it is to inflate prices. It’s demoralizing and can badly impact the way your team members feel about their work. Particularly as it can also make your sales teams job harder. When your team know that the prices they are quoting are backed up by a comprehensive pricing structure, and that their services they are selling carry value, it can change the way a company looks externally and feels internally.
Brand differentiation. How can you ever stand out when you’re doing exactly the same as everyone else? In many professional services industries, it can be difficult to distinguish between different businesses. The services are the same, the pricing is the same, even the logos are similar. When you change your pricing model, you open an opportunity to change how your business is perceived. With the right pricing model, you not only welcome transparency, but a point of distinction, and even a selling point, allowing you to change the way your business looks to the customer
How can B2B businesses find the ‘right’ pricing model?
If I’m totally honest, there’s no easy answer to that because B2B pricing is so much more complex than B2C. Every business has different needs, so there can never be a one-size-fits-all pricing solution. In fact, most businesses will end up deploying multiple pricing models to suit the different arms of the company. There’s often a place for subscription, time/effort, and deliverable/solution-based pricing. However, when you’re selling services alone, a deliverable-based pricing model has a lot to offer.
The value of deliverable-based pricing
Deliverable-based pricing – also known as asset, solution, or outcome-based pricing – is built around the end value of delivered services. If a business attributes a set value to the individual services they offer, they can then create a menu from which internal teams can easily draw up quotes and pitches. This not only brings consistency to the pricing process, but complete transparency, enabling customers to fully understand what’s going into their project and what they’re going to get out of it. This carries the additional benefit of enabling businesses to complete the work in a way that achieves the best outcome for the customer, without reference to the working hours that have gone into it. This means that the implementation of artificial intelligence (AI) can have no negative impact on the profitability of the company. The only problem most businesses will face is knowing how to move from their current pricing methodology on to a deliverable-based pricing model.
How can B2B businesses implement deliverable-based pricing?
The first step towards adopting deliverable-based pricing is to create your menu of services. This can be time-consuming and means getting all of your stakeholders on board when you begin the task of fully identifying and classifying your deliverables. In most cases, this will be a collaborative process. It will involve everyone from management to customer service, the marketing department, and business development team. Why? Because they’re the experts in what your customers want, the language that most appeals to them, and the prices they are willing to pay for your services. By workshopping and listening to everyone’s views, you can create the most effective menu of services.
When it comes to assigning prices, the process needs to be research-driven. You may need to bring in external professionals to support you with this. From there, the only challenge lies in introducing the change to your clients. For me, that journey would probably start with a light conversation with either my least profitable client or my most friendly. At a time when companies are looking for greater transparency, it may be an easier conversation than you’re expecting.
There are so many pressures on B2B pricing right now – the drive for transparency, the demand for consistency, and the concern that GenAI may mean that you’re not getting what you’re actually paying for. A strong pricing model should give you the solid profitable foundation you need to pave the way for success. Making the change can’t be hurried. Customers need time to adjust to the change and businesses need to take the time necessary to get things right. But the clock is ticking and maintaining the pricing status quo isn’t an option – the time for change is now.
Tracey Shirtcliff founder and CEO of SCOPEBetter.