Getting the price right
Clients are in a bind. All our research shows that they have little choice but to use external support, while also having less money to spend. How are they planning to square that circle? By pushing fee rates down even further.
For there to be growth in the consulting and wider professional services industry, four factors must align: Client organisations need to be able and willing to invest; they need to be short of the capacity and/or capability to implement that investment; they need to believe that their success depends on the successful use of technology; and they must be accustomed to using external support. Any one of these things without the others usually won’t result in growth.
However, for the last two years of polycrisis, despite eight out of 10 clients saying their ability to invest has been significantly reduced by economic and political uncertainty, demand for professional services has grown, albeit at a much lower rate than we saw in 2021-22. Three things have enabled the industry to confound expectations:
- The post-COVID Great Resignation left clients unusually short of people: Two thirds of clients we’ve surveyed describe their organisations as being very short-staffed, and rounds of lay-offs have exacerbated that problem.
- Technology is widely regarded as the solution to almost anything: More than 60% of clients believe their organisations must upgrade their technology as soon as possible if they’re to fend off competitive threats.
- Almost all client organisations are accustomed to using consulting support, and around 60% say they rely heavily on outside help.
The result is that 61% of clients tell us that they expect to use more consulting support in the next 12 months.
That doesn’t, however, mean that clients have the money to do all the things they want to do or buy all the outside help they need. Clearly, they’re prioritising—the rate of growth is substantially down from its post-pandemic peak; clients are delaying and cancelling some work, and they’re breaking large projects down into shorter phases. But what they’d really like is to buy more for less. Fifty percent of clients now think that consulting fee rates will or should fall—the highest it’s ever been in our research, up from 27% last year and just 5% in 2019.
Consulting and other professional services firms have two main ways to respond, to break out of what could become a vicious circle in which they can only win work by offering substantial discounts.
Firstly, they can push up their rates by doing more to make clear, ideally even quantify, the likely return on clients’ investment in external support. Our latest research suggests that articulating the incremental business value created by a firm is the factor most likely to make clients willing to pay higher prices. Emphasising the complexity involved, and the specialist expertise required will help too, as will embedding proprietary software tools and data in the consulting process.
Secondly, firms can place more emphasis on performance- or outcomes-based contracts. Twenty-nine percent of clients say that they’ve been using such arrangements more in the last year . This contrasts with the COVID years, when clients preferred more predictable and controllable payment methods, such as time and materials contracts and fixed prices, perhaps because of the extreme uncertainty at the time. Now, with the polycrisis more of a known unknown, clients may feel more able to handle this approach.
Either way, it’s clear that, in the current environment, consulting and professional services firms not only need to have a strategy around which services to focus on, but around how to price those services.