A version of this article was first published in Corporate Vision Magazine.
Setting prices is a crucial yet complex part of any business. While in B2C, it’s become an integral part of the product lifecycle, in B2B professional services it is often overlooked. Research suggests that many businesses only spend six hours focusing on pricing in the course of their life span. This has led many B2B companies to rely on a pricing system that is as inconsistent as it is problematic. This creates a whole tranche of problems for them, including everything from reduced profit to increased employee churn. So, why is this happening, and what can B2B businesses do to correct the problem?
The trouble with professional services B2B pricing
Do you know how the pricing model for your business was decided? What was the process that led to that decision? I’ll hazard a guess that it revolved heavily around the industry standard. No conversations were probably held over which model would be best for the business or its customers. The established norm was adopted because it was exactly that. Unfortunately, for many businesses, that model has created an unstable pricing structure for their brand and their customers.
How a ‘bad’ pricing model can impact a B2B business
All pricing models have their merits. However, it’s the way that they are applied in working practice that dictates their value. So, if you choose a model that is a bad fit for your brand, it can have a range of negative impacts.
For the customer
The biggest issue for the customer when it comes to B2B pricing is a lack of clarity. If your customers don’t understand what you’re offering for your price, decision-making can become impossible. Deals and special offers lose their value because how do they know what your services are really worth if your pricing is inconsistent or lacks transparency?
For the Business
The impact of the ‘wrong’ pricing model on a business is manifold. Firstly, there’s the issue of sales. Pricing is far from the only issue to influence sales, but if your prices are too high, too low, or too ambiguous, customers are unlikely to hang around to find out more.
Equally, if you use a super low margin offer to secure an opening deal, you will inevitably have to increase your prices at the point of contract renewal. When prices chop and change, or are unexpectedly hiked, customers will go elsewhere. Any chance of customer loyalty is lost, and reputational damage becomes likely.
Pricing also can impact your brand’s reputation in other ways too. Under-pricing makes your business look cheap and your services of little value. Over-pricing can make it seem like you’re trying to take advantage and it leads to distrust. The right pricing model can stop both of these issues from happening while opening the opportunity for positive brand differentiation.
With the right pricing model, you have a branding tool that allows you to promote and sell your services. In addition to that, however, it also helps you to stand apart from your competitors in a positive manner, because it allows you to change the way your business looks to the customer. Choose well, and you can invite transparency, and clarity, and you’ll have a genuine selling point.
For the team
When you’re working in sales, your job becomes demonstrably harder when you don’t have a comprehensive pricing structure to build your quotes and pitches around. It’s professionally embarrassing to promote a pseudo or misleading sale or to endlessly hack at prices to snag a low-margin customer. It’s equally demoralising to feel that your work carries little value because your company is willing to fight to the bottom simply to secure a deal. The impact of all of this on company culture can be incredibly negative, leading to high employee turnover, and a poor brand reputation.
What is the ‘right’ pricing model for B2Bs?
Short answer, there isn’t one. B2B pricing is so much more complex than B2C, meaning that many businesses will deploy multiple pricing models to suit the different areas of the company. Subscription for SaaS, time/effort for support, and deliverable/solution-based prices for services. Currently, it’s the latter that is gaining momentum.
The value of deliverable-based pricing
The idea behind deliverable-based pricing – also known as asset, solution, or outcome-based pricing – is built around the value of services delivered. By attributing a set value to each element of the services they offer, businesses can create a menu from which clients can purchase, or internal teams can build quotes and pitches. It imbues the process with clarity and value, enabling businesses to show their clients exactly what they are paying for, without reference to hours, roles and rates.
While deliverable-based pricing brings the advantage of transparency to all businesses, to those that are increasingly deploying artificial intelligence (AI) within their service offering, it carries an additional benefit. When you use AI, it inevitably reduces the time and effort that go into the completion of the task. As such, it directly impacts your billable hours. Right now, the effect of that may only be small, but AI usage is increasing. Over time, that’s going to have a dramatic impact on your profitability. With deliverable-based pricing, that issue is removed from the equation.
How can B2B businesses implement deliverable-based pricing?
The first step towards adopting deliverable-based pricing is to create your menu of services. This is a time-consuming and potentially complex process, and to do it right, it usually means the involvement of all stakeholders. Largely because it’s the only way to truly understand what your business does on a fundamental service level, and to understand what your customers need and expect. By workshopping and listening to everyone’s views from finance to business development and everyone in between– you can create the most effective menu of services. That done, you’ll need to assign prices to each service, which may call for the involvement of external professionals.
From there, you need only introduce the change to your clients. For many, that will be the most daunting part, but I’d probably start with a friendly chat. Perhaps with your most amicable or maybe even your least profitable. At a time when all companies are looking for greater transparency in their relationships, it may be an easier transition than you’re expecting.
B2B pricing needs to change. Inconsistency is no longer acceptable. The lack of transparency can be damning. And GenAI is changing the entire B2B professional services landscape, from expectations to processes and pricing. Making any change to your fundamental business processes is always going to be daunting – and I fully understand any reluctance you might have to attempt it. However, change is coming and your customers – and your teams – will need time to adjust. If you’re going to embrace this evolution, the time to act is now.
