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June 25, 2008

When to raise rates for service consulting

One of the things that I find puzzling is when I see consultancies raising rates seemingly without any justification or without any strategy for taking it into the marketplace.

Sometimes the result was increased revenue and profit, other times it actually acted as a deterrent to revenue – creating an additional barrier to the initial engagement.

Economically, there are several reasons for you to raise rates.

  1. To keep up with the devaluation of money
  2. To preserve profit margins if your overheads have been increasing, or to reduce the impact of changes in taxation law
  3. To increase profitability with overheads staying level

But there are also a range of other reasons to raise costs. These rises fall into the Business Development area of what it is that we do:

  1. To place your services out of the reach of less profitable engagements
  2. To raise the market price of the value you offer, appealing to more a profitable client base
  3. Because you have created unique and sought after Intellectual Property

Regardless of the reason it is probably the case that you will need to raise rates at least once a year, to cover currency devaluation if nothing else. In doing so you are going to need a strategy to take it into the marketplace.

Here are some tips that I have used and seen that have been very successful:

  1. Contact everyone personally. (In person or on the telephone, but not by email)
  2. You must tell clients, you cannot just surprise them with it when they ask for a quote.
  3. Give them a way out. If they will take a set quantity of days upfront, say 100, then they can have close to the original rate. This way you get some reliability built into your pipeline.

Rate rises are something you should give at least annual attention to. So right now you should be planning next years rate increase. Think of real estate, how do you raise the rental rates on a rental property? Add a pool, Jacuzzi or something else that will raise the perceived value of the property.

Consulting should be approached in a similar fashion. How are you going to justify raising the rates next year? What are the additional values that you are going to be able to offer that will make a rate rise easy to swallow?

This challenges most consultancy owners. If you do not have any real value built into your service offerings, or an appreciating brand, then you need to start thinking about how to tie this into your offerings quickly.

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