Consulting firm reduces risk for its customers while it increases profits.
Situation: The most valuable consultants were delivering the lowest margins.
Our client is a large professional services firm that offers a range of management consulting, systems integration, and IT services to corporate clients in Europe. They had realized that their most profitable people were the junior level consultants. The main reason was because junior consultants were far less expensive than the senior consultants. The firms senior consultants delivered a lot more value per billable hour but their hourly rates were not much higher than those for junior people. Senior staff members were also involved in pitching new clients and managing the firm’s business which lead to a relatively low yield. Even though the senior people added tremendous value to their projects, the firm was not seeing this on their bottom line.
Solution: Change from an hourly pricing to project-based pricing.
PriceGain analyzed historical sales records, interviewed key clients, as well as both junior and senior staff members, and reviewed the firms pricing policies. We realized that clients were willing to pay for the value delivered by senior consultants but the basic hourly pricing model used by the firm was the problem. We recommended that the firm change its basic offering so that it bills clients on a project basis with progress payments linked to project milestones and deliverables. We helped them develop a new pricing strategy they can apply to new proposals to ensure they are pricing their projects correctly.
Results: Bottom line profit margins are substantially improved.
The client is now using project-based pricing and has discovered that their proposals are easier to sell and that customers appreciate knowing exactly how much a project will cost. Since years of experience helps when estimating how much time a particular project will take, the client firm is comfortable with the risks involved in the new pricing strategy. In addition, the client is free to incentivize all of their people including junior consultants to be as effective and efficient as possible. Both the firm and the firms customers benefit when projects are completed on time or ahead of schedule. The clients overall margins have improved substantially and the firms senior staff is delivering higher contributions to the bottom line.