Pricing Professional Services for Profitability and Growth

More than Calculating Your Rate

Angela Watts, M.S., ABS/OD

Anthony Moore, M.B.A., CPA

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“Please! Have a seat!

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Ever ask yourself …

How do I know if I’m charging too much or too little?

Do I charge the same fees for public and private clients?

What do I do when asked to submit a “fixed-fee” proposal when I’m not sure of all the details?

What do I do when asked: “Can you get the cost down?”

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Session Objectives

Explore the role business concepts play in determining price

Learn some key points for pricing differentiation

Review some ways to effectively answer the question: “Is there a way to get the price down?”

Become familiar with a model for calculating the price of your services

Consider pricing as more than doing calculations

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About APR

Started out as independent consultant Average contract $5,000

Studied the market, repositioned ourselves and adjusted pricing Typical contract $25K - $75K Contract values as high as $11M for

multi-year indefinite delivery / indefinite quantity projects

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BUSINESS CONCEPTS

BUSINESS CONCEPTS

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Business Concepts: Goals

Personal Financial Goals Help to train your decisions on specific

personal targets such as income, lifestyle, savings, investments, retirement

Business Goals and Objectives Help to train your decisions on specific

business targets such as profitability and growth

Revenue Goals Help to train your marketing, sales and pricing

decisions to achieve your revenue targets

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Business Concepts: Pricing Factors

Pricing Factors Scope of work Volume of work Time frame Labor rates Other direct costs and indirect costs Type of contract (time and materials; fixed

price; performance-based) Competitive or sole source bid Date of pricing and actual start time of the

project

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Business Concepts: The Market

What the “market will bear” is the maximum price you can charge for your service

Know your minimum billing rate Do research about your competitors Determine how much your potential

client has to spend

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Pricing Differentiation

“Pricing differentiation” helps one set realistic prices for a given market

2 types of differentiation: Type of client organization Type of contract

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BUSINESS CONCEPTS

PRICING DIFFERENTIATION

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Pricing Differentiation: #1 - Type of Client Organization

Not-for-profit Grass roots Medium-size Major association (e.g. AARP, ADA, Red Cross)

Government Local, state, federal

Commercial Small business Medium to large corporations

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Pricing Differentiation:#2 - Type of Contract

Time and materials Consultant paid for actual number of hours

worked on the project, and actual cost of materials/expenses

Fixed price or fixed fee Consultant paid an agreed to “fixed dollar

amount” for the entire scope of work, materials and expenses

Performance-based Consultant paid an agreed to dollar amount for

satisfactory performance (often tiered by percentage of work achieved)

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Does Your Pricing Reflect … Project prep time

Project hours

Post project time

Project management time (“glue”)

Other direct costs (e.g. participant materials, travel, long distance phone calls, supplies, rentals)

Administrative/project support time (“glue”)

Partial days (remainder of day not billable)

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Project Your Worth

If you express

“sticker shock”

they will, too!

Be confident about the worth of your services

and don’t be afraid to display a

market price tag.“I just wanted to get your reaction to that.”

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Example

Retirement community project

Client’s initial request for services and presenting budget = $5,000

Amount of actual contract = $70,000 Sticker shock Education and consequences Value add (how service will improve their

situation / help solve their problem)

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BUSINESS CONCEPTS

“CAN YOU GET THE PRICE DOWN?

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“Can You Get the Price Down?”and Other FAQs

How do I know if I’m charging too much or too little?

Do I charge the same fees for public and private clients?

What do I do when asked to submit a “fixed-fee” proposal when I’m not sure of all the details?

What do I do when asked: “Can you get the price down?”

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How do I know if I’m charging too much or too little?

Charging too much Can’t get any work at your billing rate Consistent rejection of your prices by prospective

clients Doesn’t “feel” right to you Not confident about your own rate

Charging too little Cash flow issues (can’t cover expenses) No time to develop new business because working at

too low a rate requires greater expenditure of hours to achieve revenue goal

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Do I charge the same fees for public and private clients?

It depends on various factors, such as …

Your profit goal Type of contract Client’s budget Your current level of business activity

(slow, steady, high)

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What do I do when asked to submit a “fixed-fee” proposal when I’m not sure of all the details?

Identify all cost variables (e.g. time, direct and indirect costs)

Estimate the billable time by labor category (prep, project, post project)

Estimate other direct costs (ODCs) – any cost other than labor you will incur that’s directly associated with the project (e.g. materials, supplies, phone charges, rentals, printing copies, travel)

Note: Indirect costs are part of your billing rate (e.g. administrative support, utilities, office rent, insurance)

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What do I do when asked: “Can you get the price down?”

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Getting the Price Down Without Losing Your Shirt, House and Home

Reduce the scope of work; don’t reduce your rate

Consider the volume or amount of work being performed

Consider the level of service (i.e. basic vs. bells and whistles)

Routine type of business (lower start-up costs)

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Getting the Price Down

Price the mix of labor categories and associated rates needed to perform the work

Charge the appropriate rate for the skill level of the labor provided

Knock off a give-away such as mileage reimbursement (unless the mileage is significant)

Give a discount to loyal customers / clients

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BUSINESS CONCEPTS

MODEL FOR CALCULATING PRICE

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Model for Calculating Price

Minimum billing rate for labor x hours+

Other direct costs=

Proposed Price(Least amount to charge)

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Labor Pricing Essentials

Determine your annual personal budget needed to cover living expenses, tuition, savings, childcare, vacation, taxes, etc.

Determine your business indirect expenses (overhead) What do you need to operate your business? Ex:

Supplies, travel, computer, office assistant

Estimate your annual billable hours Total working hours per year = 2080, less personal

time, marketing, administrative hours

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Model for Calculating Minimum Billing Rate for Labor

1. Calculate overhead rate (OH)

2. Calculate profit rate

3. Calculate hourly labor rate

4. Calculate minimum billing rate

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#1 Calculate Overhead (OH) Rate

= OH RateBusiness indirect expenses

Annual personal budget

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#2 Calculate Profit Rate

Profit is the desired amount which exceeds your personal annual budget.

= Profit RateAdditional desired profit

Annual personal budget

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#3 Calculate Hourly Labor Rate

= Hourly labor rateAnnual personal budget

Estimated billable hours

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#4 Calculate Minimum Billing Rate

Hourly Labor Rate x (1+ OH Rate + Profit Rate) =Minimum Billing Rate

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Example – Solo Practitioner

$215/hr (minimum billing rate for labor) x 65 hrs = $13,975+

$8,450 (other direct costs)=

$22,425 (Proposed Price)(Least amount to charge)

For details and a model for calculating your minimum billing rate, please refer to the spreadsheet included with this webinar.

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Pricing is About More Than Calculating Your Rate

Lack of focus Inexperience Lack of information Fear and anxiety Desperation Haste or delay Doubt

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BUSINESS CONCEPTS

MORE THAN CALCULATING YOUR RATE

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More Than Just Your Rate

Market

CalculationsNumbers crunching

YouExperience

FeelingsConfidence

$

Type of client

Client budget

Timing

Competitors

Volume of work

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Questions?

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www.consultapr.com

410.437.1581 Ph 410.437.1633 Fax

Thank You!