Pricing Professional Services Without Guessing
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Start from what delivery actually costs
Most service businesses price by looking at competitors and adjusting. That tells you the market range and nothing about whether you can deliver profitably within it.
Take five recent projects, work out what they genuinely cost including rework and account management, and compare with what you charged. The results are frequently uncomfortable and always instructive.
Error one: pricing on the optimistic estimate
Estimates are produced by people imagining the project going well. Actual delivery includes the client who takes a week to answer, the requirement that changes, and the integration that turns out to be harder.
Compare your last ten estimates against actuals. If the average overrun is 30%, then pricing on estimate means pricing 30% too low, consistently, forever.
Either price on the historical multiple, or improve estimating. Doing neither is the common option and the expensive one.
Error two: absorbing scope changes
Small changes accepted without charge, repeatedly, are how a profitable project becomes a break-even one. Each is individually reasonable and cumulatively substantial.
- Agree a change process at the start, in writing
- Log every change, even the ones you absorb, so the total is visible
- Set a threshold below which changes are absorbed and above which they are quoted
- Review absorbed changes at project end — the total is usually a surprise
Error three: discounting to win
A discount granted to win work is a discount taken directly from margin, and it frequently attracts the clients who will also be most demanding in delivery.
If you must move on price, move on scope instead: the same rate for less work. That preserves your rate for future negotiations and sets a healthier expectation.
Fixed price, day rate or value
| Model | Works when | Risk |
|---|---|---|
| Day rate | Scope is uncertain | Client bears overrun risk and watches the clock |
| Fixed price | Scope is well understood | You bear overrun risk — price for it |
| Value based | Outcome is measurable and attributable | Hard to agree, excellent when it works |
| Retainer | Ongoing relationship, variable work | Scope creep unless boundaries are explicit |
Raise prices annually
Modest annual increases are far easier to land than occasional large corrections, and they keep your pricing aligned with rising costs and improving capability.
Businesses that have not raised prices in three years are almost always under-priced, and the correction they eventually need is the difficult conversation they were avoiding.
Frequently asked questions
How do we know our rate is right?
Should we publish our rates?
What about clients who only want day rates?
How do we handle a client who always negotiates?
Busy and not making money?
That is nearly always a pricing or scope-control problem rather than a volume one. Happy to talk it through.
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