Bill On Business

Value Based Consultancy – Fixed Cost Consultancy

As the recession swings in, more clients are looking to fix their costs, especially in areas such as legal and consultancy, where huge costs can be ran up.

The benefits to the client are clear, but few lawyers or business consultants are keen to embrace Fixed-Time, Fixed Price Consultancy models.

The demand for flat fee consultancy will not go away and can be very successful in attracting new business. It is also playing with fire.

How to Run Fixed Price Consultancy Projects (Just a short top level review, books are dedicated to such things)

1. Protect Your Brand. Ensure offering fixed price services does not diminish your brand by appearing to be discounting. Some people like reassuringly expensive, that’s one reason why Magic Circle Lawyers and McKinsey Consulting do well (apart from they are also very good).

2. Watch for canibalisation. Calculate revenue canibalisation from existing clients demanding a move to a Flat Fee Model

3. Look Ahead. Introduce Flat Fee models only in areas where you have very accurate knowledge of time/resource costs for the next 12 months. I recently bought US contractors in Dollars and then saw the £ drop 15% below my currency hedge. Nasty.

4. Resist scope creep at all costs, make it clear up front that the project will needs to be very well scoped/planned and that creep will be proactively managed.

5. Stick to what you know. Favour Fixed Price Consulting where “We’ve done this thing a million times before”, NEVER when “I think my estimates look ok, it’s a bit like what we did last time, I guess we can do this”. Make sure there is clear start point, clear process and clear sign off, use time and materials for everything else.

6. Be realistic. Fortune favours the brave, Fixed Cost favours the very realistic. Count all the time it takes to do a project including client management.

7. Add a safety margin: Calculate the hourly rate to carry out the project and then add 15%.

8. Look for time savings: Calculate how much time can be saved on time tracking and complicated billing that is removed by a flat fee. Treat that saving like it’s VAT and save it in a project fund called “Oh My God – I looked away for 5 minutes and now have a huge overrun on a fixed cost project”

9. Focus on efficiency: Introduce new equipment and efficient processes wherever possible in relation to fixed price projects. Efficiency has to be invested in.

10. Delegate. Now the client is not paying for a named individuals time, offload the simple tasks to a junior staff member who should enjoy a more varied workload

11. Talk to customers: Is there a demand for fixed price services in your industry, if demand is weak then consider shelving the idea until demand grows. If you do run with a Flat Fee service offering, get as much feedback from those trialing the model (staff and clients) and modify as needed. Openly say to happy fixed price clients “This pricing model is quite new for us, we’d like to try it out with more clients, is there anyone you know open to trialing this model. It’s a direct request for a referral, but there clearly a benefit for the new prospective client.

12. Try it out: Once you have a plan, start small and try it with a single client. A few weeks later you will almost certainly have made a few tweaks. Continue to roll out the pricing model slowly and make sure your financial backers such as banks understand what is happening so they understand the benefits as well as the risks.

The aim should be to maintain or grow revenue and profit whilst differentiating yourself in the market. Win win for clients peace of mind and consultants finances.