Many A&E firms lack strategic pricing. If you look at proposals from architects and engineers of all disciplines, most firms calculate and present their pricing in a similar way. Focusing solely on acquiring new clients or projects puts them at a disadvantage. Often, fee estimates are recycled from previous proposals, regardless of their success. This approach leads to lower fees and commoditization and overlooks the true needs of your ideal clients. Effective pricing can set a firm apart, not just through lower costs but by highlighting a unique winning advantage that compels clients to thoroughly consider their offerings. 

Why It Is Actually Better to be High Priced 

Numerous business owners and leaders hesitate to increase their prices, primarily due to the fear of encountering rejection. Opting to become a high-priced consulting firm can significantly transform your business, although it may not suit everyone. Nevertheless, the benefits of raising prices and targeting higher-quality clients are substantial. 

Setting premium prices naturally conveys a sense of heightened value

Being the top-priced provider in your industry distinguishes you from commodity offerings, eliminating competition and enhancing client desire, regardless of their financial capacity to engage with your services. 

Being the pricier choice will draw a distinct set of clients to you

Your clientele will gain a sense of elevated status from engaging your services and perceive your product as superior. By establishing a specialized market with clients capable of paying premium fees, you can effectively remove the majority of competitors and become more discerning in the projects you choose to undertake.

Clients are less worried about costs and prioritize achieving their desired outcomes

They’re willing to invest in quality, which becomes particularly crucial if your firm places a strong value on delivering high-quality services.

To achieve higher revenue levels, you’ll require fewer clients and projects

This means your firm can grow more rapidly with less hassle, and you won’t need to expand your team as much to attain the same level of income. Consequently, your profits will also increase substantially. 

You’ll be in a position to draw top-tier talent who want to work for a prestigious, successful company

Many employees seek opportunities with firms that are known for excellence and financial stability. Your brand will shine brighter, bolstered by an impressive client roster, giving you a significant edge in both hiring and retaining exceptional team members.

Your company culture will improve

Enhancing your company’s culture becomes possible when you embrace a strong value message. Rather than solely emphasizing technical or aesthetic skills, your team can unite around the central message of achieving excellent results and outcomes. This shift will foster a sense of pride among your employees, as they become part of a top-tier firm that excels in your industry. 

You won’t need to make major changes in how you provide your services

The gap between what you offer at lower prices and what you should provide to attract wealthier clients is quite narrow. By grasping your Unique Value Proposition and Proprietary Process, you can actually reduce business expenses by developing a consistent, efficient method for selling and delivering your services.

The 3 Main Pricing Methods Used In A&E Firms 

The majority of professionals bill for their services using a mix of the following three primary billing methods: 

1. Time and Materials (T&M) or Hourly

T&M or Hourly pricing charges services by the hour, with rates often negotiated in competitive proposals or agreements. Many A&E firms consider T&M pricing safe, but it can be problematic when rates don’t account for rising costs, potentially leading to minimal profits or losses. Over the past five years, we have done a detailed analysis with our clients and found that T&M projects were not as profitable as lump sum. Hourly billing limits your earnings to your rate multiplied by hours worked, without the chance to charge more based on added value or project management skills.

2. Fixed Fee or Lump Sum

Fixed fee or lump sum contracts are common in A&E projects when the service provider is relatively certain about the project’s effort level. Consultants typically outline services within the fixed fee, and scope changes require an approved change order. These contracts benefit both the provider and client, offering budget predictability. However, complications can arise if the scope lacks detail, omits essential components, lacks profit, misunderstands client needs, doesn’t set clear expectations for change orders, or faces unexpected issues like natural disasters, project delays, or unrealistic client requirements. Problems can also occur if consultants underestimate project duration or fail to manage it within budget and schedule, or if employees are unaware of scope, schedule, or budget. 

3. Cost Plus Profit Percentage (Cost Plus Fixed Fee for Government Contractors)

Cost Plus or Cost-Plus Fixed Fee (CPFF) contracts are commonly used in government work. They’re like T&M, but they bill hours at the employee’s labor cost plus benefits, overhead, and a fixed profit percentage. These contracts often get checked to make sure the government is charged fairly and that overhead rates are correct. They can be tricky for consulting firms, requiring more accounting, better cost tracking, and careful timesheets, potentially reducing profits if overhead is low or some costs aren’t billable. Government agencies usually cap profits at 8% to 10%, so you may need many projects with dedicated resources to make a profit. 

Alternative Pricing Strategies 

Most consulting firms stick to the same pricing methods and use standard templates. However, tailoring services to clients willing to pay more for specific outcomes can significantly boost revenue and satisfaction. Many seller-doers don’t explore alternative pricing strategies. But experimenting with different methods on new and existing clients can be advantageous.  

Here are some pricing strategies to consider that can significantly increase your project contract amount:  

Offers

Think about adding optional services tailored to specific client needs in your proposal, even if only a few clients might be interested. These extra services can have a special lump sum price. You can also diversify your proposal by including unrelated services, especially if you have other departments offering complementary services.

Bundles

Boost your revenue and stand out from competitors by offering clients bundles of services that align with their desires. You can package extra services with your core offerings to ensure client satisfaction. Experiment with different bundle options, like the Good, Better, Best strategy mentioned below, to determine which combinations resonate most with your clients. 

Upsell & Cross-Sell

An upsell involves selling extra services during or after a sale, which can be combined with a cross-sell from another department. To succeed with upselling, you need to understand your client’s real needs and their business. You can include various service options in your proposal, helping clients consider additional services they might need. This also clarifies that these services are not included in the scope and can prompt discussions to educate clients about your offerings. 

Good, Better, Best Packages

To boost revenue and create new service options for clients, consider the Good, Better, Best pricing package. Start with the “Good” option, a minimum scope for successful results while maintaining quality. The “Better” option adds more services at a higher price, appealing to most clients. The “Best” option is considerably more expensive and comprehensive, tailored for exclusive clients and prime contractors. Naming each package helps convey the promised results. This strategy can have a significant impact on revenue per client and is particularly effective when combined with subscriptions. It’s also valuable for A&E firms offering unique technology as part of the “Best” package. While it may seem unusual, tastefully presenting this approach can lead to increased average fees. 

Productized Services

To attract a different group of cost-conscious clients seeking solutions, consider productizing your expertise. This can involve creating books, workshops, coaching programs, or software apps tailored to industry-specific issues. For instance, Aerosol Monitoring used their expertise to develop training courses, a significant revenue source. Offering these productized services differs from traditional consulting, requiring distinct marketing strategies. Productized services are easier to implement, guarantee results, and can even include technology-based services as a lucrative revenue stream. Developing mobile apps to address client problems is another option, but proper planning and management are vital. 

Subscriptions

Subscriptions are an excellent way to establish steady income sources and can apply to various services like productized and bundled services. These typically involve weekly or monthly offerings with clear scopes and promised outcomes. Clients have developed separate income streams through subscriptions in fields like environmental monitoring and facility management, while design firms have expanded into new areas, including branding and communication design services. To succeed with subscriptions, you need effective processes that deliver consistent and impressive results, leading to annual renewals and new sign-ups. This approach can significantly increase your firm’s value, promote growth without increasing staff, and enhance the potential sale price if you consider selling your business in the future. 

Adding Guarantees

A full money-back guarantee is the ultimate differentiator, shifting risk from clients to you. To offer a guarantee, choose clients committed to results, and ensure you can deliver what you promise. Guarantees can be creatively designed and need not be unconditional; they should be strategically crafted based on conditions you can control. If you’re confident in your ability to deliver results, guarantees can work, but the A&E industry often prohibits performance or quality guarantees. Instead, use language that inspires client confidence in your ability through case studies and performance data. 

Implementing Price Increases

Raising billing rates is vital for business sustainability. Many professionals fear increasing their fees, but it’s a powerful way to boost revenue and profits without losing customers. Sales professionals often dread selling price increases, but when done effectively, customers accept them and remain loyal. Overcoming this fear is crucial for implementing business strategies. As costs rise, fees should increase accordingly, planned in advance for multi-year projects with client awareness. When price increases are a regular part of your process, your employees can confidently address client rate questions. 

Clients Don’t Read Your Proposals

Working extensively on client proposals consumes valuable firm resources and non-billable time. Many A&E professionals express concerns about investing too much time in proposal work when it could be spent on project completion. Clients often skim through proposals and may not read them thoroughly due to various reasons, including excessive technical language, a lack of focus on desired outcomes, generic language, self-centered content, lack of evidence, and similarity to other proposals. Consequently, they often turn to the pricing page or have more questions than answers after going through the documents, potentially due to time constraints. 

In conclusion, effective pricing strategies are paramount for A&E firms aiming to stand out and thrive in today’s competitive landscape. The fear of rejection should not deter you from becoming a high-priced consulting firm, as the benefits are substantial. By positioning yourself as a premium provider, you not only communicate elevated value but also attract a distinct clientele willing to invest in quality, enabling your firm to work with fewer clients while achieving higher revenue levels.