Fee Handling


Price versus valuehandling fees

In most competitive situations the fee will be a key element in the prospect’s decision to buy.  However, unless our service is a pure commodity, where the only difference between competitors is price, the prospect will be making a judgement concerning price and value. While the price needs to be competitive, our real efforts need to go into building value in the eyes of the client.


When to present the price

Timing is important.  All of our selling efforts will have been focused on increasing the prospect’s motivation to buy and building her perceived value of what we do.  If we are tempted – or forced – into presenting our fees before this motivation is built, the prospect may immediately dismiss us as ‘too expensive’. If, however, the prospect has been so impressed by our approach, our solution and the benefits of our proposals that she starts to believe she ‘cannot live without our services’ before we discuss fees she will be looking for ways of justifying the price. The message is: delay presenting the price until the prospect wants to buy.

It is important to note the difference between price and budget.  Price comes towards the end of the process.  Budget is a factor we need to find out as early as possible so that we can tailor our solution to meet the prospect’s pocket.

Determining value

The value the client puts on our solution will depend on:

  • The importance of the ‘problem’
  • The benefits which derive from the solution
  • The urgency of the need
  • The number and quality of potential alternative suppliers
  • The corporate and personal implications of getting the project right or wrong

How we price our work should take these factors into account.  We need to establish the answers to these questions (and influence the prospective client’s views) during the A and C phases of the PACES process.

Believing our pricing

The price we get will also be determined by how much we believe we, or our solution, are worth.  One week before an important pitch we were observing a team of consultants preparing their presentations.  When it got to discussing the fees one said: ‘That looks expensive, don’t you remember we lost the last one at this rate.’  There was a general murmur of agreement but the partner present said: ‘No – we need this fee to make this project worthwhile.’  It was obvious that no one was convinced.  This was not only obvious to us but also to the prospect the week after.

At the pitch the team were totally confident in their delivery up to the point they had to present the price itself.  Then, for the first time, the team member responsible hesitated, shuffled, mumbled a little and lost eye contact with the audience.  The decision-makers, consciously or subconsciously noted these signals and one immediately commented, ‘That sounds expensive.’  It was a classic ‘self-fulfilling prophecy’.

This attitude is central to the profitable success of a professional who has a ‘product’ which may be invisible and where there is no set price.  In this situation we have noticed that a major factor in deciding the rate which can be achieved is the professional’s own confidence in what the solution is ‘worth’.  This confidence must be built.  The seller needs to be convinced before the buyer can be.

Handling fee resistance

We know professionals who send in proposals to prospective clients and then wait to hear whether they have won or lost.  In some selling environments there is no alternative to this.  In many others, however, it is possible to have some contact with the prospect after she has examined the proposals and before she has made the decision.  This gives the seller the chance to explore and handle any issues which are not exactly right.  One of these issues might be the fees.

We would suggest that if it is possible to have some discussion before the decision is made then this chance must be grasped.  That is not to say that we will automatically reduce the price but it does mean that if there is a ‘deal’ which is acceptable to both sides it can be found.

However, this situation must be handled well.  It is probably the part of the process where instinct is the poorest guide.  When someone says ‘You’re too expensive!’ there are two instinctive reactions: either we start to mumble and reduce the rate easily, or we defend our rates mightily.

The latter of these sounds more productive but not if it is done like this:

Prospect:              You’re too expensive!

Professional:        Well Ms Prospect, not when you consider what you are
                               getting for your money.  We are providing top quality staff
                               and an excellent project manager.  The technology we are
                               using is state of the art and our people will be providing
                               very detailed reports at each stage. 

                               I have asked our Director to take a personal interest and I
                               will be involved on a day-to-day basis.  Also…

The danger here is that the professional has started to include features which are not relevant to the client, certainly are not valuable and are only included now to defend the fee.  In effect the professional is confirming the prospect’s views – these unwanted features explain why he is too expensive.  This is absolutely the wrong way to handle fee resistance.

When the prospect states we are too expensive we need to find out more:

  • What is she comparing us to?
  • What are the details of the competitive offers (as known by the prospect)?  In particular have they scoped the project in the same way or built in more reliance on scarce client resources?
  • What are the competing rates?

This information may be hard to ascertain but:

  • The more the prospect wants us to win the more open she will be
  • The more allies we have in the prospect organisation the more sources of information we have
  • The more we gather and share competitor information the better we are able to estimate their rates – if necessary
  • There is much less risk in asking than in not asking

Once we have some idea of the difference in price and the difference in solutions between us and each of the variable solutions we can do the only thing possible – sell our extra benefits for the extra price we are asking.  We should not resell benefits that are common to a number of alternatives – the prospect’s response will be: ‘I can get all that elsewhere and spend less.’  We must focus on the difference.

If the extra benefits we are offering are not worth the extra price then the prospect should buy from the competition!  There is no magic wand!

However, we should consider two factors:

  1. We do not have to be better – the prospect just needs to think we are.  For instance if we know the competitor has everything we have to offer but their professional is poor at selling, we may still be able to convince the client of the added advantages in choosing us – and also achieve a fee premium.
  2. Our extra benefits may not be worth all of the proposed difference to the client but they may be worth a proportion.  In this instance it may be necessary for us to negotiate a reduction in rates but not right down to the competitor’s rate.  As all business managers know, the small percentages saved here add up.

Summary

Price is always likely to be an important factor in the client’s decision.  Our challenge is to build the value of our solution in the prospect’s mind so that the potential cost of not using us outweighs any premium we can charge.  This value derives from using every skill and tactic described in this book so far.  If a professional is effective at selling in a consultative fashion he will not only generate more business – he will also achieve higher fee rates than others in the same profession who are less skilful or less confident.

And if we can achieve higher rates we don’t have to work so hard for the same return!

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