Professional services firms all too often underprice their offerings.  Whether it be legal, consulting, marketing, or any other professional service firm, they’re leaving money on the table. As one example, a study of 257 finance executives at large legal firms in the US and UK found they were underpricing by 37%. There are a variety of reasons, but generally speaking, it’s because they don’t understand or price for their value.

These are bold statements and I think it’s safe to say that no one is actively seeking to be underpaid.  So why are otherwise well-intentioned professional services firms underpricing themselves?

What are the most common issues with pricing for professional services?

The most common issues encountered include:

• client-facing hourly rates
• not quantifying your value
• cost-plus pricing

Do you hear yourself saying the following?

“I’m only in front of the client for a short period of time.” 

“We offer a lot of great services for our clients (features and benefits), but I’m not sure how helpful they are in the end."

“The people working on the project only cost $X so I should charge $X + 20%."

How to overcome those pitfalls and start getting paid what you’re worth?

Stop charging for only client-facing activities. 

Before you educate them about your value, it’s easy for clients to think that the only value they receive is when you’re sitting across from them (virtually or in-person).  However, that’s only the tip of the iceberg.  Consider the education that goes into becoming a lawyer or the experience required to be a top-notch consultant.  The client should pay their fair share of all the credentials that made them consider hiring you in the first place.  Think about it:  Do you really want to pay 10% less for the doctor that didn’t go to medical school?  Packaging a service that includes non-client-facing time can change the way your clients think about your service and what they should be paying for it.  For more on billable vs. non-billable hours, here are some tips.

Quantify your value. 

Too often, professional services firms and their sellers communicate only about the features and benefits they provide their clients.  Example features may include 24/7 availability or providing the best reporting in the industry.  Those attributes are great, but they don’t help your clients see the true value of your service.  What does being available 24/7 do for your client?  Does it keep them from losing customers during off hours?  If so, what are those customer transactions worth?  Does your in-depth reporting enable your client to identify new customers and market opportunities?  What are those new opportunities worth monetarily?  Quantifying and monetizing your value, in terms your client will understand, is critical to getting paid what you’re worth.  “Terms your client will understand,” is an important phrase.  That means staying away from technical jargon that only you understand.  Instead, think in terms of how your client runs their business, their key performance indicators, and their goals.

If you’re uncertain how to quantify your value in terms that will resonate with your client, please contact the author for some best practices.

Price for your value. 

When selling a product, it’s easy to look at the cost of making the product and then add a mark up to the end consumer.  In professional services, it should be different.  When you’ve quantified your value (building upon #2 above), you also need to price for it.  As an example, if you’ve found that, on average, your clients earn another $100K per month from your reporting and analysis, they should be paying you for that value.  Depending on the circumstances, I recommend professional services firms capture 10-30% of the value they provide.  Value-based pricing also enables you more opportunity to increase prices in the future as your value increases.  Cost-plus pricing keeps your prices and revenue low and may even suggest a price reduction if you become more operationally efficient.

Almost all the people I know who lead and staff professional services firms entered their line of work because they wanted to help their clients with their expertise.  That’s admirable.  Helping others, though, does not preclude you from being paid a fair amount for your work.  By truly understanding the experience and value you bring to your clients and then pricing for that value, you’ll earn the revenue you deserve while still helping your clients achieve their goals.