Positioning for Professionals: How Professional Knowledge Firms Can Differentiate Their Way to Success

Chapter 10. A New and Better Way to Price Professional Services

As discussed in Chapter 9, professional knowledge firms must come to the realization that clients are not buying their costs, but rather the value their firm creates. While there's a formula for cost-based billing (usually salary plus overhead plus desired profit), value-based pricing can take an almost endless variety of forms.

FORMS OF VALUE-BASED PRICING

To get started with this approach, there are three basic forms to consider: the straight fee, the usage fee, and the results fee.

Straight Fee

The simplest form of a value price is a straight fixed price based on the mutually agreed-upon value of an assignment. This is different from a traditional estimate of hours multiplied by the hourly rate, because the value associated with the price isn't correlated directly with time.

One of the best examples of a professional firm using a straight fixed price associated with value is the public affairs firm that brings tremendous value to an assignment by virtue of its contacts and relationships in government. Sometimes a single phone call can create the desired value for the client. It's really irrelevant that the firm invested only a few hours in the assignment. What's relevant—and valuable—is that the client's objective was accomplished.

Usage Fee

This option is best understood in the context of creative service firms. More and more, the best solution to a marketing problem is not a conventional advertising campaign, but rather ...