Which Price is Right?
How much you charge can be a little mysterious.
A few years ago, I ran into a management consulting pricing challenge.
The board of a small historical society wanted an analysis of its operations. They didn’t have much money but also didn’t want me to do the job for free.
Aside from having decades (decades!) of consulting experience, the standard educational qualifications, and specific knowledge of historical society boards, I was in a perplexing situation.
In many respects, the length and depth of the project remained a mystery. It sounded worthy and interesting, but such qualities can sometimes apply to quagmires.
I knew they would not want to pay an hourly fee since prospective clients often (and wisely) see an hourly commitment as almost unlimited and yet if I charged a flat fee, that might scare the socks off them because I would have to nudge it high enough to reduce my own risk.
Many a project has seen very unpleasant things emerge shortly after its start.
In my first year as an independent management consultant in the 1980s, I was contacted by a fellow consultant in Minneapolis about going in together on a possible project for a local airport. He had formidable experience in one aspect of the project while my own experience neatly covered the other.
The prospective client, of course, was suitably cautious and did not set a limit in the proposal in order to keep bidders from miraculously coming up with a price just within that parameter.
We spent a sizable amount of time crafting a very impressive - if I say so myself - proposal and we purposely kept costs down since this was the sort of work which might lead to additional projects with the Minneapolis client and similarly situated others. Our total price came to around $50,000.
Shortly after we submitted The Beautiful, Comprehensive, and Outstanding Proposal, it was rejected. We were stunned. After a few weeks, my cohort in The Twin Cities revealed that he’d gotten some back-channel feedback on the proposal. It seems that they loved it, but they’d issued the Request for Proposals with a rigid internal ceiling of $10,000.
There was no way we could have done a decent job for $10,000. In fact, the ceiling was so low, prolonged laughter was our best therapy and there was an odd benefit to the experience. If we’d missed the chance because of a failure to tweak this item or adjust that one, that gap would have haunted us. As it was, our inability to meet a standard which was impossible for us to meet under any circumstances was comforting.
Close calls can be disturbing and that was not a close call.
I still smile at the memory but lose no sleep over it.
Flash now to the possible project with the small historical society. I decided to get creative, which is always a risky option.
Rather than my setting a price for a project that I was inclined to do for free (and remember, they didn’t want a freebie), I asked them to tell me how much they’d be willing to spend and then I’d tell them if I was willing to take on the project.
We’d save a lot of time by being open and above board. It would be a win-win.
Well, some of them liked that innovative approach, but others didn’t care for it at all. They wanted me to set a price.
I honestly had no idea how to do so because if I set one too low, they’d be wondering what type of bargain basement consultant they were dealing with. If I set it too high, I’d lose a project I was willing to do for free.
Rather than triggering a discussion of the pricing details, the clever proposal just met a quiet death.
Live and learn.
And that strange little story brings up a recent conversation with an attorney who is an old law school classmate. Later on, we were fellow Army officers separately assigned to the headquarters of two unusual, and fascinating, commands in the Washington, D.C. area. [I suspect that an assignment officer in the Pentagon had an eye for eccentrics.]
My old friend mentioned his experience with Artificial Intelligence and the impressive amount of time A.I. could save in the realm of legal research. That produced an exploration of how attorneys might have to shift from hourly billing to a set, and somewhat arbitrary, fee related to their experience.
I noted that I’d encountered some consulting projects in which it was made clear from the beginning that low fees would be frowned upon while high fees were signs of brilliance and status; the sort of thing clients like to grouse about on the golf course.
In other words, a reasonable fee is poetry and prose, logic and magic. You can get too logical. Put down that calculator and consider feelings and status.
A criminal defense attorney during the Seventies memorably described his practice as dedicated to saving clients from having to “experience some local prosecutor’s home cooking.” When an inquisitive reporter asked about a vague item on one of the attorney’s legal bills, the old lawyer said, “That’s a goddamned flat fee.”
In other words, if you wanted the quality of his work, you paid it, because you were paying for judgment, not hours spent. He had a monopoly on himself.
We may be seeing much more of that in the future.