Quantum, fee type and strategy
- James Markham
- Jul 5
- 2 min read
One of the updates we made to the live Pricing session in this term's Mini-MBA, was to be more explicit around these three components
(1) Quantum
What is the price? Do we want it to go up, down or stay the same?
(2) Fee Type
Is it hours x rate and the traditional billable hour. A fixed fee. A capped fee. A subscription etc
(3) Strategy
How are we calculating the price? Is it with reference to:
cost plus margin (traditional billable hour sits here)
competition or market rate
value to the client
The sector carries a lot of baggage around the hourly rate, such that keeping or getting rid of it becomes the end, rather than the means to (say) increasing the price or reinforcing the broader market strategy and positioning
Fixed fees are the clearest example of why separating out these components is important
You can fix a fee with reference to cost. e.g. historic hours x rate = price and we'll agree and fix that up front with the client
You can also fix a fee with reference to the market rate. If you know all your competitors charge £1,500 - £2,000 for a piece of work, you can fix your fee with reference that (typically top or bottom of the range)
Finally, you can assess the value to the client and fix the fee
In any of those scenarios, you can price high, low or somewhere in the middle (quantum). To a simple value based pricing example - say you want to price based on % of projected deal value (e.g. corporate M&A). 1% will give a lower price than 2%, and you can fix that up front
None of these are better or worse in some principled/ideological sense, but some are certainly better than others in achieving a particular aim, or taking into account particular contexts
In practical terms, if you are involved in pricing, I think it's important to be well versed across the full range of options open to you
From that range, you can then take a context-informed view around if (and how) you want to make any changes
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