Every industry is competitive. If you happen to be in a new industry with little competition, get ready. The competition will come soon enough! As an early entrant in the market you may well have the benefit of recognition, but you will have to work hard to keep that reputation.
The professional services industry is particularly competitive these days. The barrier to entry is so minimal that anyone can call themselves a consultant and start working. Large firms compete with smaller firms with low or no overhead. Small firms compete with larger firms who have larger marketing budgets and greater market influence.
When a lot of competition exists, products and services become a commodity and commodities are sold on price. This is very challenging for professional service firms who are providing valuable services to clients and yet are forced to compete on price. As a result, many firms lower their standard rates or quickly offer discounts in order to secure the client project.
How can we maintain or even increase our rates in a competitive market? This seems counter-intuitive or even impossible, but there several ways to accomplish just that. Here are five ways to increase your billing rates.
- Offer Fixed Price Projects
- Provide Standardized Services
- Create Intellectual Property
- Focus on Specific Industry Verticals
- Provide a Specialized Skill Set
Fixed Price Projects
A fixed price project is one where you offer a specific price for a set of project deliverables instead of billing by the hour. When proposing a fixed price project, the hourly rate becomes irrelevant. You immediately remove rate negotiation from the equation. So how does this help you increase your rates?
When you quote a fixed price project you will need to define the deliverables very clearly and know how much of your time is needed to provide these deliverables. Multiply the estimated hours by your standard rate and add another 10%-15% on top of that to allow for unknowns. ( I called this the fixed price factor.)
During contract negotiations, if the client feels the price is too high you can discuss changing the deliverables to allow for a decrease in price. You are not discounting, you are changing scope. This way you maintain your standard rate.
The key is to manage the project efficiently and spend less hours than planned so you increase your effective rate on the project. In addition, if you create standard processes for service, your projects will become very efficient.
Standard Services
One of the reasons you may have a low effective rate is that you are spending time reinventing the wheel when you provide service. For example, in my early consulting career I provided software training. When I offered custom training services I needed to spend a lot of non-billable time preparing for the training session. I had to learn the software functions that I was going to train on and create a training agenda specific to each project. When I took into account all the time I spent on the project my effective rate was much less than what I quoted.
I decided to offer standard training courses for the areas of the system that were in most demand and only provided custom training on a limited basis and at a premium rate. I became very efficient at providing the training and eliminated the non-billable preparatory time thereby increasing my effective rate.
Standardize your services and you will increase your rates too.
Intellectual Property
When you have a product or service that no one else has you can almost name your own price (within reason). If you are in a very competitive market, creating your own product or service process reduces the competition. You are suddenly not compared to others solely on price.
An example of this is a software consulting firm that creates their own version of software. They can provide services around this product at their standard rate (or even slightly above) and not have to discount rates to get the project.
You don’t have to be a software company to create your own intellectual property. An accounting firm, for example, can create a process that provides specialized services for managing a client’s financial records.
By creating your own intellectual property (either a product or a service) you can become very efficient at providing services and charge a premium for it.
Industry Specialization
Clients want to know that you understand their business. The last thing they want is to be billed for your time while you learn their business. By focusing on a few specific industries, you gain the knowledge you need to become the expert that your clients expect. You will also become more efficient at providing solutions because you will see the same issues pop up again and again. And when it comes time to provide proof of your capabilities you will have very relevant clients references to give to your prospects.
When it comes to billing rates, clients are more likely to pay a higher rate if they feel the consultant is knowledgeable in their business.
Specialized Skill Set
Like having an industry specialization, focusing your offering around specific skill sets is very important to being able to charge higher rates. Who would you rather have operate on you if you needed heart surgery? A general practitioner or a heart surgeon?
When you specialize in a specific set of skills you immediately differentiate yourself from the competition by showing value and can charge higher rates. You will also become very good at what you do and will become very efficient at it so that you don’t spend time that you don’t get paid for.
In Summary
These five methods are just some of the ways you can increase your billing rates (standard or effective rates) in your professional service business. The added benefit of these methods is that you will become better known for the work that you do and you will increase your client adds as well. Thereby increasing your market influence and allowing you to compete more effectively against larger firms.
Question: Are you forced to reduce your rates? How do you deal with that? You can share your answer on Facebook, Twitter, or LinkedIn.