Guerrilla pricing

Guerrilla pricing is about understanding the client and the project, but it's also about flexibility and creativity. Your approach to pricing must be as varied as the clients you serve. To avoid lengthy fee negotiations, make sure your fees reflect four criteria:

1. Agreed-on value for fees

2. Profitability for your practice

3. Simplicity of understanding

4. Fairness to both the consultant and the client

The first step in determining the price of a project is to reach agreement with the client on value for fees. If you propose to help a client reduce indirect expenses by 2 percent, then you must quantify that cost reduction and provide a way to measure it.

Some consultants argue that it's too difficult to quantify the value of a consulting project in advance. But those who take the time to nail down that value will find less price resistance, especially if the value-to-fee ratio is high.

Every project has potential measurable benefits. Of course, some values are easier to measure than others. Here is a simplified example: If a client wants to increase annual net sales by 3 percent, multiply current net sales by 3 percent to figure out the monetary gain the client will receive.

Tb orient clients in the discussion of what your services are worth, consider the possible drivers of consulting value listed in Table 17.1.

Once you have articulated project benefits, figure out, in conjunction with clients, what the proposed changes are worth. Reducing employee turnover by 20 percent might reduce recruiting, hiring, and training costs by that same percentage. The higher cost of employee benefits for longer-term workers might offset that gain by a small

Table 17.1 Drivers of Consulting Value Consultants Can Help Clients . . .

Increase

Reduce

Improve

Create

Revenue

Costs

Productivity

Strategy

Profit

Time/effort

Business process

System

Growth/market share

Complaints

Service

Process

Shareholder value

Risk

Information

Business

Employee retention

Turnover

Morale

Product

Return on assets/investment

Conflict

Image/reputation

Service

Efficiency

Paperwork

Skills

Brand

Visibility

Quality

Customer loyalty

percentage, but the client will still realize a net gain. Find out what that would be.

If you help clients improve the quality of their products, that should result in fewer complaints and returns and a lower cost of stocking merchandise. If you improve morale among a client's staff, managers could spend less time in meetings and more time running the business. What is it worth to have motivated workers instead of absences and poor work habits due to low morale?

Quantify all benefits that are relevant to a project and confirm those numbers with the client. That information provides the crucial context in which clients can assess your fees.

► Project Profitability

The heart of guerrilla pricing decisions is project profitability—the profit you must earn on a project to stay in business. Begin with an estimate of your costs for completing the project so that you can understand your financial commitment. If you don't have a true picture of your costs, you can easily end up losing money on a project.

Assess the salaries, benefits, and overhead expenses you'll incur. Include an estimate for other expenses, such as travel, interest on working capital loans, preparation time, and other business development expenses associated with the project. You don't need a fancy financial model to calculate these costs, but don't price a project without isolating these numbers. Without them, you're flying blind.

According to one consultant, "It's like the meterless cab rides I took in New Jersey. Unless I pressed the driver for the cost ahead of time, I never knew what the ride would cost until I got there."

In many cases, consultants choose not to pass all project costs along to the client. For example, only a few firms will even try to charge a client for creating a proposal. Whether you recoup them or not, you need to understand all project costs. Then, the next step is to decide the profit margin—the amount of profit—you need for the project, which will vary from firm to firm and client to client.

You can use many formulas to determine profit margin. And you may find that the same formula is not suitable for every project. The point is that a clear understanding of your costs gives you the flexibility to customize pricing to meet the client's needs while ensuring project profitability for you.

Creativity and flexibility are critical in pricing. Of the numerous pricing alternatives available, choose one that best fits the competitive

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