A change to your pricing strategy is perhaps the quickest way to scale. It does not require an investment to implement and the benefits are immediate.
TRANSCRIPT
Sean Magennis [00:00:15] Welcome to the Boutique with Capital 54, a podcast for owners of professional services firms. My goal with this show is to help you grow scale and sell your firm at the right time for the right price and on the right terms. I’m Sean Magennis, CEO of Capital 54 and your host on this episode. I will make the case a change to your pricing strategy is the quickest way to scale. I’ll try to prove this theory by interviewing Greg Alexander, Capital 54’s founder and chief investment officer. Greg is truly an expert in the pricing of professional services. Greg, great to see you and welcome.
Greg Alexander [00:01:03] Sean, it’s good to be with you. I look forward to helping our listeners pick some low hanging fruit today.
Sean Magennis [00:01:08] Excellent. And in this instance, I would say the fruit is not low hanging. It’s on the ground. So our listeners just need to bend over and pick it up. Greg, why is a change in pricing strategy the quickest way to scale?
Greg Alexander [00:01:24] Because it does not require an investment to implement. There is not staff to add or service offering to develop, and the benefits are immediate. Charge more today than you did yesterday.
Sean Magennis [00:01:34] And you feel most owners of boutiques mess up their pricing strategy and get this wrong. Why do you feel this way?
Greg Alexander [00:01:41] So there are several reasons. So boutiques often do not know what their services are worth to their clients, and they are often unaware of what clients are willing to pay for the services. Many firms cannot even logically explain to prospects why they charge what they charge. And worse, they cannot quantify the amount of value the prospect receives from an engagement. Too often, the pricing strategy is in without it’s based on intent, internal costs, worse boutiques rely too heavily on what their competitors charge for similar services. And lastly, the BD team are often awful at overcoming sales objections, and they come up in the sales campaigns.
Sean Magennis [00:02:25] You know, wow Greg, I counted seven mistakes firms are making in your response. It appears pricing strategy is a real obstacle, preventing boutiques from scaling. Is there a solution to this problem?
Greg Alexander [00:02:38] Yes. The good news is, is that this problem is simply salt. It takes some sound judgment, but the pricing best practices are readily available.
Sean Magennis [00:02:48] Can you give our listeners a few to get them going?
Greg Alexander [00:02:51] Sure. So the first recommendation is to develop a pricing strategy that matches your business strategy. So, for example, if a firm sells to small businesses, the high volume, low price model makes sense. If you sell complex solutions to large companies, a high cost, low volume approach is best. Another recommendation is to focus on price positioning as it affects perception. And in this context, perception is reality. The price you charge sends a signal to the client. If you price too low, your work will be considered low quality. If you price too high, you will be perceived as being difficult to engage. If you price the same as your competitors, you’ll be perceived as undifferentiated. And one more might be to understand what clients value at the attribute level. A mistake owners of pro serve firms make is they think in the aggregate. When it comes to pricing, be sure to understand what attributes of your offering are valued most in influence to perception of your performance in this specific area. This will result in the ability to charge more. There is more perceived value here.
Sean Magennis [00:04:12] Greg, that’s really fantastic advice. So three specific takeaways that I’m seeing is match the pricing strategy to the business strategy, your price positioning and price at the attribute level, not in the aggregate. Greg, you have an incredible track record and the story of SBI’s pricing strategy has become legendary in some circles. Can you briefly share it with the audience as a way to bring these ideas to life?
Greg Alexander [00:04:43] Yeah, I think calling it legendary is a bit much, but I can say it was a key to our scaling quickly. So my firm was a management consulting firm and the management consulting industry is structured into three tiers. Tier one of the mega firms think McKinsey and Bain, etc. Tier two are the midsized boutiques and tier three other small startups. So my firm, SBI, was a Tier two management consulting firm, a mid-sized boutique highly specialized in the niche of B2B sales effectiveness.
Greg Alexander [00:05:22] My price positioning approach was to price below tier one, but above tier two. And what signal does this send? It sent the signal that we were the best of the tier two boutiques and this had the good fortune of being true. Thank goodness. The practical impact this had on us was a top one percent profitability. Our prices were compared to the mega firms. They were not compared to the Tier two firms.
Greg Alexander [00:05:54] In essence, we created a new tier like a Tier 1A and the scale benefits of this were huge. We threw off loads of free cash flow, which we plowed right back into the business. And this resulted in scaling much faster than otherwise would have been accomplished.
Sean Magennis [00:06:14] Greg, that’s a great real life example. Thank you.
Sean Magennis [00:06:20] And now a word from our sponsor. Collective 54, Collective 54 is a membership organization for owners of professional services firms. Members join to work with their industry peers to grow scale and someday sell live firms at the right time for the right price and on the right terms. Let us meet one of the collective 54 members.
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Sean Magennis [00:07:39] If you are trying to grow scale or sell your firm and feel you would benefit from being a part of a community of peers, visit collective54.com.
Sean Magennis [00:07:56] This takes us to the end of this episode. And as is customary, we end each show with a tool. We do so because this allows a listener to apply the lessons to his or her for our preferred tools, a checklist. And our style of checklist is a yes-no questionnaire. We aim to keep it simple by asking only 10 questions in this instance, if you answer yes to eight or more of these questions, your pricing strategy is working for you. If you answer no too many times, pricing is more than likely getting in the way of your attempts to scale. So let’s begin.
Sean Magennis [00:08:36] Question number one, do you know what your offering is worth to clients? Number two, can you quantify the value of your work in hard dollars? Number three, do you know what clients are willing to pay for your services? Number four, can you explain the logic of your pricing in a way that makes sense to clients? Number five, does your price illustrate to the client the link between price and value? Number six, do you charge the most for the service features that your clients want the most? Number seven, do you charge the least for the service features that your clients do not care much about? Number eight, do you allow for clients to choose their price by presenting options? Number nine, is your sales team skilled at overcoming price objections? And number ten, have you built into your system an annual price increase?
Sean Magennis [00:10:03] In summary, know your worth. Do not undervalue yourself. What you do is exceptional. Price accordingly and scale quickly.
Sean Magennis [00:10:15] If you enjoyed the show and want to learn more, pick up a copy of Greg Alexander’s book titled The Boutique How to Start Scale and Sell a Professional Services Firm. I’m Sean Magennis. Thank you for listening.