The
best way to fight commoditization? Sit
down, look your client right in the eye and say: “Of course we cost more.”
Consider the fees that your firm has paid out to other professionals in
the last six months. How much does your accountant charge per hour? Your
outside counsel?
Maybe
you contracted for some training on your building information management
system. The trainer may cost you $200 per hour, plus another $50 per attendee
per diem; for five trainees and eight hours, that’s $1,800 for
one
day—minimum. That trainer likely charges for travel as well, and maybe
ancillaries like a print manual.
Architects
and engineers are willing to pay good money for professional services. Why,
then, is it so difficult for them to charge more for their licensed, professional services?
Design
professionals must close the gap between their fees and those of other
professionals. Fees must adequately cover training, professional development,
ample profit, and future liability. The productivity improvements from BIM, 3D
CAD or 4D CAD have tended to benefit the client, with lower price and speedier
delivery, more than they have benefited design firms. In order to stay competitive
in today’s marketplace, design professionals must price
their
design services according to value, not cost.
There
are several ways to change the way you’ve traditionally approached pricing,
including:
·
Cost pricing;
·
Parity pricing;
·
Sociopolitical pricing;
·
Strategic pricing;
·
Negotiated; and finally,
·
Value pricing
In
value pricing, price is determined partly by the value the client perceives in
the service to be delivered, and partly by your cost and profit considerations.
Ramsey
Fayad described true value pricing this way:
The concept of value pricing is relatively simple. Value
resides in the eye
of the beholder and when, in the eyes of the beholder, it is
delivered, a
premium may be charged. In essence, value pricing demands
only a better
understanding of client needs, constraints, and competitive
threats.
Why
then is value pricing not broadly accepted and practiced? Because it demands
shifts in attitudes, perspectives, and effort, all of which challenge the
natural inertia of wanting to continue doing what has always been done.
In
the professional design arena, it is typically perceived to be safer to follow
clearly defined existing procedures than to adopt new and untried ones for fear
of offending clients.
Any
proposal that makes the project easier, safer, faster, or cheaper to achieve
client objectives should include a value premium. From the client’s point of
view, the extent of the value premium in question will depend on:
•
The clarity with which the design professional defines his or her proposed
contribution.
•
The extent to which the proposal appears to reflect an understanding of current
client needs.
•
The extent to which the proposal convincingly contributes to the nominated
objectives in the judgment of the client.
• The relative
importance to the client of the nominated objective(s).
Don’t fall into the
commodity trap—value price your way out of it.
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