The Craft of Pricing
Welcome to this month's article of Let’s Be Frank, a monthly newsletter series hosted on LinkedIn and authored by our founder Digby. If you are interested in following along pop over to the Let’s Be Frank LinkedIn page here and hit the subscribe button to have these articles sent straight to your inbox.
Our firm moved away from hourly billing in September, 2020. We even gave it a name - “Frank Fee” - as we were so determined to jump into the deep end and go for it. For this article, I want to tell you about how we price, as this is a major step in moving away from hourly billing.
PRICING IS A CRAFT!
There are so many things to consider when determining the price of a project, you can’t just pull a number out of the air. With time out of the equation, we had to come up with a plan for how we could price that would work for our clients, work for us, and make sense in the market. This is where the “crafting” starts.
To begin with, we are a “we”, which means that we were collaborating with each other to come up with pricing. This is very important, as different perspectives can provide critical insights.
We got started by giving ourselves a foundation. We broke our work into 40+ project types and created factors for each type of project. This gave a clear picture of how extensive a particular project is, and in turn what value we might create.
An example of this is when comparing a drafting project and reviewing a shareholders agreement project. In drafting we have 12 different factors, as this is generally a much for extensive type of project; whereas, when we are just reviewing a shareholders agreement, there are only seven factors. If you go back to my August 21, 2021 article, I discuss factors in more detail.
Building on our foundation, we took the approach of using market prices or ranges to establish “base fees.” Once we had base fees, we added value based and input based factors to the equation.
In October, 2021, we added technology. We shifted from our manual pricing system, over to AltFee, a SaaS solution. AltFee provides a one-stop-shop, where all our pricing is developed, collaborated on, housed, and used for continuous learning and improvement.
So now, as we near two years of not billing by the hour, it is time to reflect on the highlights of what we have learned about pricing:
There is a lot of information out there. By listening to others who are not billing by the hour (no matter what the industry), reading, and collaborating with advisors in the area, we continue to learn more about pricing.
It is trite to say, but scope is key. It is vital to be detailed enough in your description so there are boundaries on your deliverables. How many turns of an agreement are expected? Is there a project completion date? This also gives you the opportunity to convey the value you are delivering.
Be patient in pricing. When someone asks you the price for “x”, you don’t have to answer the question at that moment. This is not as easy as it seems, as we are all generally responsive. I like to turn the conversation by saying, “let’s step back for a moment; it is important that I understand what is really important for you, so we can make sure we get there. Why don’t you give me the three most important concerns you have.” This immediately shifts the pricing conversation to a collaborative one, and instantly demonstrates the value of your services.
Get your prospective client thinking about why they want to hire you to do the project. It could be a warm referral from someone who has worked with you a lot, or it could be what they have heard or read about you. There is likely some reason they have arrived at your door.
Give options (all of which are acceptable to you). This is a benefit for the client, but also gets the conversation away from yes or no, and onto which option is a better choice for the client. You can adjust scope and/or fee type to create options. I often unbundle the initial planning stage, as it gives us a great opportunity to get to know each other, with only a relatively minimal financial commitment on both sides. This allows trust to be built before the meatier part of the project is priced.
On more complex matters, collaborate internally. Others may have critical input. This was important when we got started. We now rely primarily on the collaborative aspects of AltFee to facilitate this as part of pricing every new project.
As a craft, pricing is to be honed by trying, learning and recalibrating. It takes time, in which each small step of learning should be celebrated.
As I talked about in my last article, Burn the Timesheets?, we measure our efficiencies by billing realization rates. We know overall we are in a good place pricing-wise, as our efficiencies have grown significantly. That said, pricing is a craft, which we continue to work at as we go along.
I hope this spurs others to jump in on the topic of pricing by posting their ideas.
Until next time,
