Professional Service Consulting - Pricing Models

Part
01
of two
Part
01

Professional Service Consulting - Pricing Models

Examples of case studies of professional service firms that generated higher profits because they transitioned from hourly pricing to another pricing model such as value, performance, or project-based pricing include the Bongiovi Law Firm, Counsel for Creators, and LegalAdvice.com.

BONGIOVI LAW FIRM

  • The Bongiovi Law Firm's change from hourly pricing to a subscription pricing model led to a "fair balance." The entity chose the subscription model because it aids small business owners by offering more financial predictability.
  • Bongiovi used different pricing models in the past for clients to access services and to get discounts off the firm’s flat fee services. However, customers like the subscription because there is no secret as to how much they are expected to pay for a service. Given that payment is made upfront reduces any chance (i.e., hassle) of chasing receivables.
  • The company is comfortable with the model because it serves as an incentive for the law firm to unearth ways through which the company can help its clients.
  • The transition from the previous pricing model was necessitated by the existence of downsides that needed to be corrected.

COUNSEL FOR CREATORS

  • Counsel for Creators is a professional service firm that transitioned to a subscription model in 2015. This took place after realizing that most people had basic legal issues that they wanted attorneys to handle at affordable prices.
  • In its subscription model, members sign up for memberships periodically or month-to-month. The implementation of this model at Counsel for Creators was successful because it focused on scale and the abilities to manage many clients.
  • This pricing model also brings the need for the organization to stay oriented towards the provision of ongoing value instead of billing for time. The change in the model was also motivated by the firm's focus on scale while the hourly pricing model was at odds with all aspects of scalability.
  • The new model is suitable for the entity because it can be scaled even if the firm grows to be a large one.
  • It is also convenient for customers and makes it possible to budget expenses which leave room for working towards increasing revenues and consequently profits.

LEGALADVICE.COM

  • The leadership at LegalAdvice.com changed from an hourly pricing model to a subscription model in 2012. Customers who register for the service commit for six months.
  • The marketing expense incurred by the firm is in the form of the cost of keywords needed to get a new client. However, the business is faced by aspects of unpredictability regarding the pricing of keywords and revenue from subscription clients.
  • The firm focuses on maintaining a low rate at which customers stop their subscriptions and on gaining new clients.
  • As a result, keeping a customer for extended periods, the firm benefits from the subscription pricing model because it translates into keeping the firm into operations and aiding the slower entities to continue providing services to their clients.
  • The transition to the subscription model saved the online service from the adverse effects of an hourly pricing model such as misaligning customer interests and shifting focus away from value to hours which increased the chance of losing the customer.

RESEARCH STRATEGY

To identify the examples of the professional service firms, we consulted journals and scoured sites such as ABA Journal, Klipfolio, Inc., Remarking Law Firms and Theory Biz. We focused on firms that have revenue between $4 million and $5 million. Based on these resources we identified case studies of professional service firms that generated higher profits because they transitioned from hourly pricing to another pricing model are Bongiovi Law Firm, Counsel for Creators and LegalAdvice.com.
Part
02
of two
Part
02

Professional Service Consulting - Best Practices

One of the practices that should be considered when creating a pricing strategy for professional service consulting firm is the development of appropriate price and buyer fences. Additionally, firms should strategically unbundle value when necessary.

Develop Appropriate Price and Buyer Fences


Strategically Unbundle Value When Necessary

  • It is important to provide clients with room to customize their own offers.
  • It is prudent to unbundle a service if a particular bundle is hurting the profits generated rather than enhancing it.
  • Unbundling can improve a firm's profit and also its consumer’s surplus.
  • Unbundling is most effective when:
    • "the variance of the reservation price for the basic service is low".
    • "the mean of the reservation price for the basic service is high".
    • "the demand intensity is low".
    • "the capacity of the basic service is high".
    • "the incremental cost of the basic service is low".

Other Notable Practices


Research Strategy:

The research team leveraged scholarly articles, leading publication and expert blogs to curate best practices for creating pricing models/structures for professional service consulting firms. We started by searching for information on the topic of articles that are written by business experts and other relevant industry leaders. We also referred to information from multiple business magazines, business websites, and scholarly articles. We then corroborated the information across multiple sources. Since the articles were written by experts, we were able to conclude that the practices that we have used for this research are the "best practices" for creating pricing models/structures for professional service consulting firms.

Sources
Sources

From Part 02
Quotes
  • "For other segments, you may have to strategically unbundle value if a bundle in a particular segment is undermining rather than enhancing profits. To do this, determine the right offer and price for the offer based on detailed competitive and customer intelligence. Then configure a new price-offer structure and test like crazy. Remember: Leave room for customers to customise their own offers and which features and services to bundle into packages. As you refine and add to your pricing structure, you’ll find there are many different configurations you’ll need to consider to customise your price structure."
  • "Think about fences in your pricing structure as fixed criteria that customers must meet to qualify for a lower price or offer. Consider using (as appropriate): time of purchase fences,purchase quantity fences as discount tactics (i.e., volume discounts, order discounts, step discounts, two-part prices). Remember: You’ll need fences in your price structure to allow you to charge different customers different price levels for the same products and services using the same metrics. Fences actually give your pricing structure flexibility and sophistication (even though the term ‘fence’ suggests rigidity and restrictions). Test different offers or options for select customer groups"
Quotes
  • "Finally, unbundling can improve the firm's expected profit and the consumers’ surplus at the same time."
  • "t is further revealed that given the non‐negativity of dependence, unbundling is worth practicing under the following situations: (i) the variance of the reservation price for the basic service (add‐on) is low (high); (ii) the mean of the reservation price for the basic service (add‐on) is high (low); (iii) the demand intensity is low; (iv) the capacity of the basic service is high; and (v) the incremental cost of the basic service (add‐on) is low (high)."
Quotes
  • "There are many factors to consider when developing your pricing strategy, both short- and long-term. For example, your pricing needs to: Reflect the value you provide versus your competitors Match what the market will truly pay for your offering"
Quotes
  • "In short, a pricing strategy refers to all of the various methods that small businesses use to price their goods or services. It’s an all-encompassing term that can account for things like: Market conditions Actions that competitors take"