Can There Really be 29 Alternatives to Hourly Rates?

Clients want more innovative pricing models. We hear this all the time. But it’s not their job to come up with alternatives: it’s us, the professionals.

Again and again in post matter reviews and tender debriefs, people complain about price and advisors exceeding budgets. Sometimes it’s criticism of overrunning a quoted fixed fee, often the value for money.

So, what does an innovative pricing model look like? Here’s a compendium of pricing models. Not all are necessarily professional services ‘ready’ but I’ve thrown them in because maybe they’ll spark an idea, an adaptation you can use. Take a deep breath, here goes:

0. Hourly rates for time spent, plus expenses

1. Flat, fixed service/product prices

2. Monthly membership or subscription

3. Percentage of value generated

4. Percentage of another item (sale price, asset value etc as per real estate)

5. All-inclusive bundled service

6. Quantity discounted (3 for the price of 2)

7. Standard auction (bids rise upwards)

8. Dutch auction (prices fall until there’s a purchase)

9. Equity participation (exchange equity rather than cash)

10. Penetration pricing (staying below a competitor’s rate to win market share)

11. Piecework pricing (by the word, by the report etc)

12. Annual contract with inflation increases

13. Base price plus optional add-ons

14. Pay what you think it’s worth

15. Surge pricing (dynamic, demand-based)

16. Advertising subsidised

17. Interest charges (the profit comes from giving the credit rather than the service)

18. Freemium (free for most, subsidised by those paying for premium features)

19. Penalty fees (overdraft, late fees)

20. Second-price auction (à la eBay)

21. Consumables maker (cheap razor/printer, expensive blades/ink)

22. Income-based (price depends on client’s revenue bracket)

23. Random fluctuations (spin the wheel – could be free, could be double)

24. Cost plus percentage mark-up

25. All-you-can-eat buffet (e.g. unlimited access to contract templates)

26. Peace of mind (like insurance, pay up front for services you might call off later)

27. Outcome based (no-win no-fee)

28. Competitive price matched (like John Lewis – ‘Never knowingly undersold’)

29. Retainers (fixed periods)

I know there’s a bit of overlap on some of these. But plenty of options, you’ll grant me.

Some of the ones I thought wholly inappropriate for professional services, on second-look, actually seem more feasible now. For example, surge pricing; I thought that’s never going to work. But then think about how busy accountants get before tax deadlines when demand for their services skyrockets.

Share the risk, and the spoils

An example from Nisus: last year we took a chance with a client who really wanted to work with us but was struggling to get budget signed-off. We offered them a ‘pay what you think it’s worth’ option based on results. We took a risk: if we underperformed they might pay us peanuts. That made the internal sale much easier for our contact.

When it came to it, on a five-figure job, they asked us to invoice within a few hundred quid of what we’d have priced it at otherwise. That left plenty of goodwill on both sides.

Pricing as a brand differentiator

The point here is that there are more alternative approaches out there than you might first imagine. It’s worth some thought and experimentation. Being open to doing things differently shows some courage and confidence in what you offer.

There’s another added benefit too. If you choose a pricing model that’s different from all your competitors it can serve to protect you from commoditisation of offering – it’s hard to compare your service like for like against others. Doing so positions you as different from the rest of the market.

Win-Win

Clients might not always articulate what they mean by ‘alternative pricing’ but the chances are, if you have a menu of options, it’ll be the one that minimises risk that’s going to appeal the most. When that’s not necessarily the cheapest option, both sides come away with a ‘win’.

About the author: Graham Archbold

With Nisus since 2007, Graham has been involved in more than 50 client research projects for 22 different professional services firms.

Pioneering the use of RATER in professional services, most recently he has led client insight studies in legal, accountancy and property. See Bio…