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Nuts + Bolts: Mission Possible: Increase Your Value Without Lowering Your Fees

Fact or fiction: Lowering your fees makes you competitive? You decide.

By Steve Whitehorn
January 24, 2013

Editor’s note: This is the first installment of Nuts+Bolts, an exclusive ArchNewsNow monthly series to provide A/E professionals with practical tips for a more successful, profitable practice.


In this economic climate – or even in a good market – it may be tempting to lower your fees to stay competitive. However, lowering your price is not something you should immediately consider when faced with reduced revenue. As an alternative, you should seek to inject as much value into your services as possible. This will allow you to increase the intrinsic worth of your services, encouraging your clients to pay an appropriate fee for quality, not just quantity.


But if you’re convinced that lowering your fees is a solid strategy that will boost your bottom line, think again. Here are a few reasons not to.


When a firm cuts its prices, it needs to significantly increase sales just to maintain the same level of profitability it previously enjoyed.

For example: Firm A is making around 25% net profit. After a prolonged sales slump, it decides to lower its prices by 10% as a strategy to bring in new business. The firm then finds that it needs to substantially increase its revenue to stay as profitable as it was before the price cut. If the firm cuts its prices by two or three times that much, it can create an unattainable revenue goal and make a bad situation even worse.


Clients know that when prices drop, quality almost certainly follows.

When a firm cuts its prices, clients tend to pay closer attention to the quality of the products and services received. By lowering prices, a firm can often attract far more scrutiny and receive more client complaints than when it offered the same services at a higher price. Do you want to take this risk?


Sudden price drops are often seen as a desperate measure.

Your clients and prospective clients are aware that the economy is still in a slow state of recovery. They are also aware that many companies have gone out of business in the last few years. Many of these ill-fated firms cut their prices in a last-ditch effort to increase revenue, just before they went under. If a company is planning a price cut, it needs to market the cuts effectively in order to reassure existing clients and its network that it is stable.


It’s easy to cut prices, but it’s difficult to raise them again.

Once a business cuts its prices, its clients get used to the new, lower prices very quickly. In fact, clients rapidly become anesthetized to the discount and very soon perceive the lowered fees as the “normal price.” Price amnesia can cause serious problems when the firm needs to raise fees back to previous levels. Although the firm may regard the higher price as a return to its formerly established fee structure, the client invariably perceives the move as a fee hike.


So, the bottom line is: if you want your services to maintain their value, then don’t reduce your fees. Instead, find ways to increase the value of your services by offering more for the same price. Here are some questions to help you determine if your firm’s services provide added value to your clients.


Do your services produce a direct economic benefit for your clients?

If so, prove it. Money earned or money saved is perhaps the easiest way for clients to understand value. It's also a compelling way to market your services. Do a client survey that illustrates the savings or increased profits that result from your services. The more specific you can be with your metrics, the better. If your current services do not produce an economic impact for your clients, offer services that do.


Do your services clearly enhance your client’s experience?

In addition to saving money or helping make money for your clients, do you save them time, worry, or inconvenience? Are your services easier to use, faster, or more flexible than your competitors? This is an important consideration for firms that charge premium fees. Client testimonials and case studies are helpful to demonstrate your track record to potential clients.


Do your services address issues that are important to clients and potential clients?

For most firms, this is the essential “value question.” While the intrinsic benefits of your services may seem obvious to you, are you addressing your clients’ key concerns? With a little education, you can help a client understand the importance of an overlooked issue. However, you will probably have a hard time getting potential clients interested in an issue that they don’t perceive to be a priority. Instead, retool your service offerings to address problems that your clients care about.


Do you communicate the value of your services in a clear and compelling way?

Be clear about the specific benefits you bring to your clients. Use client case studies and testimonials to help you articulate your firm's benefits. If you are having trouble communicating the basic value of your services, it may be because you don't have a strong value proposition to start with. If so, you will need to reassess and revise your service offerings so you can clearly quantify and communicate their intrinsic value.


In a slow economy, enriching your firm’s value to clients is not only more effective than lowering your fees, it’s essential to building a successful business over the long term.


Steve Whitehorn is managing principal of Whitehorn Financial Group, Inc., which provides architects and engineers with strategies that minimize risk, increase profitability, and speed up cash flow. The firm created The A/E Empowerment Program®.

(click on pictures to enlarge)

Johnathan Ward