How to Defend Fixed-Fee Pricing to Clients
I had a chat with a colleague recently whose firm sells a service on a flat-fee retainer basis into an industry that routinely buys time by the hour. He is hassled by the client to break down his firm’s fee into hours. I believe in his method more than a time-and-materials approach for reasons I outlined in this blog post. However, he generally caves into the client pressure and tells them what the fee works out to in an hourly rate. This hurts him because his firm’s effective rate is much higher than competitors even though they are far more effective and efficient than competition. For my colleague’s firm, hourly rate is the wrong metric.
I advised my colleague to do whatever necessary to stop getting boxed into quoting this way. The key to this is messaging.
- Hold the line on how you sell. You are the expert in the best way to sell your product or service. It makes sense that the customer wants to buy in a unit of measure that is a.) familiar to them and b.) makes it easier to compare you to competitors. What messaging makes it clear that selling time is the wrong metric?
- Example: I go through this when I sell a full-day pricing workshop and a prospect tries to sort out my rate per hour for the day. I always respond with: “You aren’t paying me for my time. You aren’t buying a day from me. You are buying 20 years of pricing experience and proven content that allow me to walk into the room with your people today and completely change their pricing paradigm. If we’re able to lift your pricing even 1% through our work together, that will earn you $2M incrementally this year. Is that worth it?” That is usually the end of the objection, but I’m also ready to help them understand everything that wraps around a workshop in terms of pre-workshop planning with the client, analysis and preparation, post-workshop recommendations, documentation, and follow-up coaching.
- (It’s important to know when to give on this. You want to be easy to buy from and never arrogant. If this is a show-stopper for the customer, you have a business decision to make. But I find it rarely is as hard a line as it appears.)
Part of my colleague’s issue is that the Director of Marketing is almost always the buyer of his services but almost never the final approver of the spend. He has to sell to Mary the Director of Marketing, but then she has to get buy-in from Sam the CEO. My colleague is an expert at selling his services and dealing with objections, but Mary is not. My colleague has to arm Mary to go into Sam’s office and deal with the question: “what is their hourly rate and how does it compare with A, B, and C?” Help Mary be effective!
For this reason, I recommend creating some digital or print version of the messaging you created and deliver verbally to provide to your internal advocates (“Why We Believe a Fixed Fee Model Serves the XYZ Industry Best” e.g.). This will allow you to arm the Director of Marketing (or whoever your internal champion is) with the messaging they need to convince other internal decision makers.