Be The Most Expensive

Pricing for market efficiency will kill your consulting business.

Several consultants loved the Dan Kennedy's quote I included in yesterday's post:

"There is no strategic benefit to being the second cheapest in the marketplace, but there is for being the most expensive."

I'll try to elaborate on this.

Most consultants are not competing on price or value. In fact, they're not actually competing on anything. Here's what their pricing process looks like:

  1. Look at their niche or marketplace.
  2. See what other consultants are offering and how much they are charging, and take the average fee as a "benchmark".
  3. Go slightly below the benchmark (to "remain competitive").
  4. Aim to provide the same offerings with small changes (to "overdeliver" and "differentiate").
  5. Market their services using this core message: "Our clients get more for less."

This is not a sustainable strategy. Heck, it's not even a conscious strategy. Alex Hormozi found the right words to explain the root of the problem:

"Pricing where the market is means you're pricing for market efficiency. Over time, in an efficient marketplace, more competitors enter offering "a little more for a little less," until eventually no one can provide any more for any less. At this point, a market reaches perfect efficiency, and the business owners participating make just enough at the end of the month to keep going."

Now, I don't believe the consulting industry as a whole comes close to an efficient marketplace - and when we talk about the small and diverse niches many boutique consulting firms operate in, it's certainly not the case. But the main point stands.

When you lower your price, here's the impact for your clients:

  • You reduce their perceived value of your services (it can't be that good if it's so cheap, or priced the same as other consultants);
  • You reduce their emotional investment (it didn't cost them much);
  • You reduce their results (since they do not value and are not fully invested, or committed to collaborate and make it work).

Now here's the impact for your consulting practice:

  • You attract the worst clients (who are self-diagnosed, hard to satisfy, and price buyers who see you as a pair of hands);
  • You reduce your margin (hurting your ability to hire and invest in good people, overdeliver to clients, and invest in growth);
  • You reduce your energy and work enjoyment (which can trigger a vicious cycle of low self-confidence and poor results).

Did you expect anything different? That's the consequence of low prices. I think these are more than enough reasons to push you away from it.

Many people and companies want to hire the expensive consultant. They just need a reason. It's up to you to provide them with one - through your narrow and clear positioning, effective marketing initiatives, winning offerings, and consultative conversations.

Thanks for reading. You can get more specialized and actionable growth insights for micro consultancies in our newsletter. Every Tuesday, you get one idea from Danilo, one quote from other experts, one number you need to hear, and one question for you to level up your consulting practice.

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