I recently read an interesting article about pricing in the consultation business and, although I did not agree with everything within the article, I thought it raised an interesting question. A question that both sellers and buyers are very often confronted with: I am paying (or charging) the right rate?
The easy answer to that question would be that it depends on the expected value generated by the outcome, combined with the scarcity of the skill. Sometimes, the value of the skill is higher and sometimes, it is the opposite. This equation seems simple enough to understand. However, how many times did buyers believe they did not get their money’s worth, and how many times sellers believed that they submitted rate is well below the value of the work?
There are no easy answers to this question, as every situation is unique, but there are some guidelines to keep in mind when determining or accepting a consulting rate.
On the buyer’s side, it is important to underline that the buyer is usually not the requester. IT consultants are considered a commodity nowadays and are processed as such. Procurement organisation will try to get the lowest possible rate, without necessarily considering the value pursued by the requester. One thing we all learn to know, as buyers as well as sellers: cheap is expensive, very expensive. Spending the time to get the right numbers to justify the investment such as in a business case, market rate benchmarks, sample RFP(s) does not take as long as it used to. Pricing information are widely available online. Getting involved in the procurement process and putting the effort into the RFP is fundamental to determine what the rate should be. IT is not always easy to get involved with the procurement process because of policies and governance, but chances are the rates that you get will be aligned to the value you are looking for.
The seller’s goal is not necessarily to get the highest possible rate at all cost. Consulting is a large and diverse market which ranges from resource placement firms to large strategic oriented firms servicing the fortune 500. It makes sense, after all, that our economy is mostly driven by services. The IT consulting market has evolved quite a bit in the last five years and the changes go beyond trend of considering IT as a commodity. I am not a behavioral scientist but I, along with other colleagues, have witnessed a change in the sales process of our clients. Clients are much more informed than before. They understand the impact of the technology in their business, they expect more and faster. So how do you offer the right rate in these conditions?
Be aware of your market. A consulting business selling e-commerce services rates do not compare to a recruitment company which goal is mainly to place resources. Technology and skills still make a difference. Always keep in mind that the long term value of the service being delivered even when the delivery cycle is short.
At the end of the day and however creative a pricing model can be, a good rate should be perceived as fair by both the seller and the buyer.