Pricing Erosion

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This is part three of a series of six articles focused on organic growth challenges for SME (small-medium enterprise) engineering, consulting and construction firms. Each article will focus on one challenge area and provides some high level approaches to overcome these challenges.

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Pricing Erosion

Companies mostly dependent on the traditional billable hour model will find continuous pressure on pricing. As the number of new opportunities slow down it forces competitors to find organic growth in new geographies and disciplines. If a firm doesn’t have a competitive advantage the competition will shift heavily toward price being the deciding factor. Relationships and past performance are still vital but provide the incumbent a shrinking price margin premium over their competition. The “cost of change” to the client becomes lower especially if the competitor is offering some type of introductory offer to capture their work.

As a service offering becomes more commoditized the client will also drive down the pricing because they believe everyone is the same. The digital age means your client has more information about you, your competitors and possible solutions to their problems. They are not limited to the information you share, info discovered at a conference and a few brown bag presentations from your competitors. They can always “Google” and discover new competitors and alternative approaches to their needs. They may even discover a disruptive approach you haven’t even heard of.

In larger clients, the rise of procurement driving purchasing processes means your great relationship with the operations/plant personnel is not as powerful as it was in the past. You need to expand your relationship building to the purchasing group. This is especially true with the large size commercial/industrial client segment.

If you are structured to provide the service at a lower cost than your competitor through task automation or lower overhead costs, then you may thrive, especially if you maintain tight financial controls of your operation. The flipside to this approach is it may limit your ability to hire good talent and invest in technology needed to compete in the future.

If you are not a low cost provider then you need to more creative. The creativity may include better technology, alternative delivery methods, bundled pricing and risk-reward pricing formats. The key is to be able to create real value (in the eyes of client) and to structure an offer that allows you to capture your fair share of the value while meeting your client’s needs. As you experiment with these alternative pricing formats you need to make sure you perform a good risk analysis of your approach and make sure project controls are tight to ensure successful and profitable delivery.

About the Author

Jerry Strub

Jerry Strub is the CEO and founder of Strategic Growth Consulting, Inc. Jerry has led global and domestic growth strategies for over 30+ years in the engineering, environmental consulting, environmental services and construction industries. He has over 25 years of training, coaching and mentoring engineers and scientists on improving their business development skills and improving organizational business development practices. He is an advisory board member of two Chinese environmental firms and serves as an advisor and connector of CleanTech and engineering services between North America and China.