How to Price Professional Services

How to Price Professional Services

Last week, a good friend and client asked for my advice about how to price a new project that she was about to undertake. In doing so, I said that it was difficult for me to do that since there are some subjective criteria involved, some of which she acknowledged.

Pricing professional services is a very tricky enterprise indeed. Below are some tips that come from a British blog called ReInvent Law. While the tips refer to legal pricing, the points apply to any professional service.

  • The fee is the result of a collaborative and “upfront” conversation with the client. 

  • The fee is the result of the client, not the lawyer, choosing the most appropriate pricing methodology for the circumstances – but one that nevertheless ”works” for the lawyer.

  • The client has been closely involved with scoping the job from the outset.

  • The selected pricing methodology addresses the client’s unique value drivers (which can change from job to job even with the same client).

  • There is an attempt to achieve a measure of alignment between the result and the fee, and not just the effort and the fee.

  • The fee strategy reflects a demonstrable alignment of both the lawyers’ and the clients’ interests.

  • Just as importantly as all the foregoing client-centric issues, the lawyer must be fully rewarded to their satisfaction for the effort expended, the results achieved, the value delivered and the risk assumed in undertaking the work.

Pricing is not simply a knew jerk calculation of time multiplied by hourly rate plus what ever costs may be incurred. Indeed, one of the reasons why so many people look at legal fees or other professional fees with a great deal of skepticism is the fact that the prices seem inflated to many consumers and small business owners.

One of the most important aspects of pricing professional services may indeed be alignment of the result and the fee, not just the effort and the fee. Many professional contracts are essentially a “time and materials” type contract, one in which the expenditure of effort is the key metric. But if a service provider is looking at the value of the end product, including its impact on costs in the future, then a better case can be made for a fee. For example, an attorney asked to draft a services agreement may spend only six hours actually writing the contract. But the advice that comes with the drafting project as well as the savings to the business going forward makes the service something more than just a drafting exercise. If the conversation before the project begins includes a discussion of the longer term cost benefits to the client, the result of the project makes its value more readily apparent.

If you are professional service provider, spending more time scoping the project and getting client buy-in to the project may result in a fee that may be higher, but is perceived by the client as fair.