By Tracey Shirtcliff, founder and CEO of SCOPE Better, the Pricing Platform designed for professional services.
If anyone in a business understands the importance of a strong pricing strategy, it’s the CFO. You’re acutely aware of the impact that emerging technology, such as AI, ML, and automation is having on billable hours. You’ve seen that they’ve been dropping off for a while and addressing that fact is high on your agenda. But while there’s pressure on you to ensure a sustainable profit and margin, you’re not totally in control of pricing. It’s a frustrating scenario that I’m very familiar with from my conversations with CFOs. And it’s why so many are now advocating a move to a new pricing model.
The reasons CFOs have been reassessing pricing
In B2B professional services, pricing frequently receives less focus than it should. There’s the terrifying statistic that many spend only six hours on pricing in their lifespan, and that’s often fairly apparent. With pricing used as a tool to secure sales, it’s the CFO who has to balance the falling profit and reduced margins that come as a result of a fight to the bottom to secure what would otherwise be valuable contracts. This happens because most B2B professional services companies lack a strong pricing strategy. Pricing models are selected because they’re the industry standard, rather than because they provide a strong and transparent foundation for the business to work with. That’s never an ideal scenario, but when external pressures mean that a pricing model is no longer even remotely fit for purpose, something has to change.
The growing impact of AI
There have long been multiple reasons for B2B professional services businesses to reassess their pricing model. Right now, however, AI is forcing their hand. As AI and other emerging tech are beginning to change core business processes – how research is carried out, data is handled,and even how some key creative tasks, such as ideation, are now being managed – companies that rely on the established time/effort-based pricing model are finding their billable hours falling away. For many, this will inevitably mean a drop in income – unless a new pricing model is adopted.
Implementing the ‘right’ pricing model
There can never be one single ‘right’ pricing model in B2B. Pricing for professional services work is complex. Consequently, most businesses will deploy multiple pricing models to suit the different arms of the company. This may include subscription, time/effort, and deliverable/solution-based pricing. It’s the latter option that many professional services companies are turning towards now.
Based upon the end value of delivered services, deliverable-based pricing – also known as asset, solution, or outcome-based pricing – not only enables businesses to complete their work without reference to the method of completion. It allows them to showcase exactly what they can do, by attributing a set value to the individual elements of the services they offer. This allows clients to really understand what they’re paying for while supporting sales teams in their work to draw up quotes and pitches. It also produces fundamental and transformative benefits for the company as a whole.
Selling the benefits of a strong pricing model
Pricing impacts almost every area of a business. It’s not just profit, although it clearly plays an important part here, through supporting sales and brand reputation. After all, pricing tends to reflect the quality of a service. It also has an impact on loyalty, because fluctuating prices can lead customers to shop around. When a contract is secured through a ridiculously low opening offer, it will rarely be maintained when it comes to contract renewal if the margin is too low.
Then there’s the impact on company culture. A poor pricing strategy makes the work of your sales team harder. It also damages morale if your pricing appears to devalue the work that your teams are doing. While a strong pricing structure removes those problems by providing adequate support and resources to take the stress out of your employees’ jobs.
Lastly, there’s the issue of brand differentiation. Pricing isn’t often a point of differentiation in B2B because all the businesses within a set sector typically look the same. When you adopt a new pricing model, however, you gain the potential to adjust the way your business is perceived. With deliverable-based pricing, you have the opportunity to change the way your customers see your business.
How to begin the process of implementing deliverable-based pricing
Deliverable-based pricing requires that each service a business offers be assigned an individual price. This should always be research-driven, and you may benefit from bringing in external professionals to support the process. However, the initial steps should always be carried out in-house, by the people who know the business best. By using the knowledge and insights of all company stakeholders, you can create a service proposition that genuinely answers the needs of your customers. It’s not going to be a fast process, but the potential dividends are significant, and the businesses that move first will reap the greatest rewards.
Once that’s done, all that remains is to introduce the change to your clients. Admittedly, that’s no small thing either, but you may well find a receptive audience. For me, that process would probably start with my friendliest client, and I’d refine the conversation from there. Either way, there’s never been a better time to start.
CFOs are in a difficult position, being held responsible for profit but not being given the power to directly manage all of the elements that influence it. With GenAI forcing change in business operations, that position is becoming increasingly more difficult. That’s why many professional services CFOs are now advocating for deliverable-based pricing. It holds the potential to address the challenges of the contemporary business landscape. It will also provide a sustainable foundation for the business to grow and succeed in a highly competitive market.
