This month, I had the pleasure of co-leading (along with PSMJ founder Frank Stasiowski) our new seminar on Pricing and Negotiations.
Seventeen sharp A/E/C managers, principals, and/or owners participated in the workshop, and our discussion was lively and robust. It seems as though we’ve really struck a nerve with this new program and topic.
Setting fees and negotiating terms that reflect the true worth of the firm has long been a challenge for most A/E/C professionals—and for a variety of reasons. Tough competition leads many to believe their offerings are little more than commodities. Most clients have provider choices, and many are much larger organizations than the A/E/C firms servicing them—so the relationship power is strongly tilted toward the buyer. And finally, most A/E/C principals just haven’t had much formal education in the strategies and tactics of successful marketing, pricing, and contract negotiating.
Many nuggets of wisdom were uncovered in our collaborative discussion. Here are three that really resonated with me:
Price is a strategic issue, but pricing is not strategy. The idea here is that we must wrestle with the questions of strategy first, then let the answers to those questions inform the pricing solution. Too many firms set their price for a project in a sort of strategic vacuum – asking instead “what do we have to do (price) to get this work?”
What top firms do instead is decide first what they want (vision), and then determine how to set their fees to realize that objective. Is the firm a generalist or a niche specialist? Is the focus on a local clientele or wherever the right projects are? Does the organization provide basic value to clients, or super high levels of service or solution? Is the company really different, or more like everyone else?
Setting a higher price doesn’t automatically create a luxury brand. But doing the marketing work to become a desirable brand does allow you to set a higher price.
Reduce revenue and increase profit. This is a real paradigm buster for A/E/C leaders, most of whom instinctively will say yes to all new project opportunities. There’s a strong pressure to keep staff loaded up and busy, and a real fear that passing on a project will result in permanent loss of the client. Sometimes these are reasonable considerations, but not always. More A/E/C leaders need to learn how to say no – to projects, clients, and relationships that don’t fit and won’t work out. Nearly every company I’ve ever analyzed has a good chunk of clients (sometimes upwards of 50% of their total) with little to no profitability. In a market where finding and retaining professional talent is so difficult, it’s time to stop automatically taking these suboptimal projects, and instead focus on those that will result in higher fees and profits.
The secret to higher fees is courage. Sounds a bit trite, but the real impediment to improving the firm’s pricing is often fear. And again, it’s the fear of losing not only the project at hand, but also the lifetime value of the customer. But is this really true? (If competition undercuts your fee, are they really going to be able to deliver on their promises? If yes, this suggests that your competitor has a cost advantage over you – something to look into further. If no, then won’t the client be still interested in talking to you again, given their unhappiness with the other guy?)
Yes, there are some markets, clients, and project types that offer very little pricing flexibility. Many of these projects are offered essentially on a take it or leave it basis, with little room to wiggle this way or that. Whether or not to serve these markets, clients, and projects is a strategy question that must be addressed. But even given these, most organizations have at least some part of their client/project portfolio where there is an opportunity for more favorable terms, higher fees, and a better overall deal. With these, success begins with the courage to take a risk. (And frankly, if you’re not willing to lose a bad deal here and there, you’ll never make much progress on improving performance in your firm.)
There you go—three quick ideas to consider, in raising your fees and improving results. I’ve got a bunch more of these in my notes from this inaugural run of our new Pricing and Negotiations Workshop, so stay tuned for more of these to come …