In my discussion of business-to-business pricing strategies a while ago I discussed a variety of ways to satisfy both your company’s and your customer’s needs through fair prices and price discrimination. Since then–I can’t believe it’s been 10 months already!–I’ve discovered and have successfully applied two additional pricing methods: equal monthly payment and customized pricing.
Equal monthly payment
Equal monthly payment is a combination of hourly rate, fixed fee, and retainer. It works for long-term contracts or big projects.
For a steady client who budgets a certain amount for my marketing communications services each year, I used to bill monthly based on the number of hours performed working on their various projects (adding a fixed number of pro bono hours on top). As of this year, I have divided the annual amount into equal monthly payments. Over the years, we’ve figured out seasonal, even monthly, fluctuations of work and how much it takes to complete projects. With equal monthly payments, the client doesn’t have to worry about big hits in busy months, and I don’t have to worry about small billings in slow months. We both can plan our cash flow.
For another client with a laundry list of projects, rather than billing as we go based on the amount of work (number of hours) performed, we spread out the total amount over a 6-month period. The client doesn’t have to worry about front-loaded project costs, and we’re both happy knowing what each monthly invoice will total. With this alternative, you have the option–provided the client agrees–of charging a bit more per month to reflect the deferral of payment for your front-loaded services (I don’t, for this client).
Contrast equal monthly payments with a retainer, which also includes a flat monthly or annual fee and a defined scope of work. While with retainers work may or may not be performed, depending on client need, equal monthly payment simply distributes project costs over time.
An extreme version of the equal monthly payment method is NetRaising’s model. NetRaising, a Portland, Oregon-based company, designs and develops websites, primarily for nonprofits. Instead of using the usual 50% down-50% upon-completion, or third-third-third models common in the industry, the company distributes the cost of the website design, build, training, and support over a 2-year period. The model eliminates the heavy front load for clients. The engagement is essentially a subscription.
For clients, the biggest benefit of the monthly payment pricing method is cash flow management, while getting all the projects completed within desired timelines. For me, the method combines the predictability of a paycheck with the flexibility of working on multiple client accounts and diverse projects.
Customized pricing
Each client pays a different price. When I first started, I discriminated based on client size (3 revenue tiers) and tax status (business vs. nonprofit), which was a bit too complex. After a while, I dropped nonprofit pricing. Now, I negotiate the price with each client individually depending on the client’s circumstances (budget, revenue cycle, need, project type, timeline).
There are no hard rules for customizing prices. Customized pricing can be a matter of research and subsequent mathematical expression; a gut-driven process; random (“pulling out of air” or other areas); or any combination of the above. While it robs your pricing of predictability and portability, which some organizations may not like, it allows for adjusting your price to each client’s specific need and prevent them from comparison-shopping solely on price. Needless to say, it may only work with B2B professional services, and I don’t recommend customizing downward in a price war.
How do you charge for your professional services? What novel or unique pricing methods have you seen in the marketplace?
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Image credit: kevindooley (both)
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