There’s no excuse for the professional services lament: “Why haven’t we done something about our pricing sooner?” Delegates from all over Australia and New Zealand left the recent Validatum–Beaton pricing conference resolved to ensure smarter pricing by their firms would be good for their clients and good for their firms. Read why. The conference reviewed the evidence; here’s some of what everyone learned:
- One of the biggest profit-increasing opportunities for law and other professional services firms is to improve their performance in clients’ eyes on cost consciousness.
- A price within what’s known as the zone of tolerance adds to the level of value perceived by clients.
- Discounting is more often than not a symptom of desperation, ignorance, and naivety on the part of the provider.
Consider this extract from an excellent white paper by Deloitte: “Pricing has two to four times the potential to influence profitability relative to other business levers…Companies that actively pursue pricing as an important part of their strategy typically outperform industry peers on several financial metrics”
The easiest way to increase profit is to improve pricing
In professional services Beaton would paraphrase this quote and say the easiest way to increase profit is to improve pricing. The title of the Deloitte paper says it all: ‘The price of pricing effectiveness.Is the view worth the climb?’
Beaton’s research says: Yes. Consider just two of the many pieces of evidence we have researched directly, independently, and quantitatively from more than 100,000 clients of professional services firms in Australia.
Chart 1 shows that when we analyse what drives clients’ perceptions of value and their overall experience of firms, price plays a small, positive part. In assessing an incumbent, price is positively correlated with the clients’ perceptions of what they receive.
In these days of enormous price-down pressure on every firm in every profession, this finding – that perceived price is positively correlated with perceived value – warrants repeating. And testing. And learning to use in practice. That’s because it’s seems at odds with everyday experience of firms.
Beaton’s own research shows that the average price levels as clients perceive them have been falling for at least the last five years. This link shows our data for law firms; it is available and very similar for other professions too (to receive details, all you have to do is write to me at the email below).
Chart 2 is more complex. It shows the subtle, crucial interplay between perceived value, overall performance, price level and degree of cost consciousness. On an indexed basis, the perfect score of 100 for value is found when the scores for overall performance, degree of cost consciousness AND price are highest.
Here’s an example of how to read this table:
- When price falls (into the 0–7 range), but overall performance and cost consciousness remain high (stay in the 8–10 range), value falls to 97, i.e. by 3.
- When cost consciousness falls (into the 0–7 range), but overall performance and price remain high (stay in the 8–10 range), value falls to 92, i.e. by 8.
Work your way through the table on this basis. Discover for yourself the power of being cost consciousness.
This analysis by William Wong is drawn from our 2014 research into law firm clients. The original PhD published in 1994 on which our Beaton Benchmarks are based showed exactly the same dynamics when the concept of cost consciousness was first reported. And we also show the same patterns in accountancy, consulting engineering, and MCS. Beaton has no doubt of the validity and reliability of these findings and their applicability in all the professions we measure.
This post covers just some of the data available from Beaton Benchmarks studies. We hope readers are now asking themselves: “Why haven’t we done something about our pricing sooner?”
More insights from Beaton
+ The vital role of pricing in law firm marketing and BD efforts by Richard Burcher
+ Selling professional services: Damned if you do – Damned if you don’t by Warren Riddell
+ Grow your firm by helping clients to switch to you by George Beaton
This post was written by George Beaton, a partner in Beaton. George is also on LinkedIn and tweets at @grbeaton_law, @grbeaton_cee, @grbeaton_psf, and @NewLawNewRules.
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