Expert: Alex J. Caffarini - 3/8/2009

Question
Alex thanks in advance I hope this helps.

BACKGROUND
I am the President of a small strategic marketing/ planning firm based in Atlanta, GA. We basically write strategic marketing plans for companies who need insight on reaching their targets and would have the ability to allocate dollars to see to it that the plan is properly implemented. We would like to do two things for our clients which are produce winning plans that are both compelling and visually appealing as well as provide them with the manpower to execute their plans which may require street team promotion, media buys, conducting surveys, etc. Our trademark is... 'we put plans into action'.
THE QUESTION
I would like to set a reasonable fee for my company's offering which includes strategic marketing plan development and strategic marketing plan implementation. How should I price both?
MY ASSUMPTION
I assume that a reasonable price for a strategic marketing plan would be $15,000 with half being due upfront and the other half due upon completion.
I assume that a reasonable way to charge a client for strategic plan implementation would be to take a 10% project management fee from the total amount of the client's budget, I.e., budget of $100,000 would yield a $10,000 project management fee. Assuming that the implementation phase lasts two months I would invoice the client $5,000 upon the start of project implementation and the remaining $5,000 would be billed upon project completion.
How on or off am I with these prices and my thinking of how getting compensated works? Please help me.
THINGS TO CONSIDER
1. Assume the potential client is considering hiring an outside service provider.
2. Assume the client is a fortune 500 company in the insurance industry.

Thanks,

Mike

Answer
Mike,

There is not one "right" way to price consulting services.  Typically, your consulting services are priced right if: 1) the services you provide the client create value above and beyond the amount you assessed, and 2) you're able to provide those services to the client profitably.

I do not recommend a flat fee of $15,000 for a strategic marketing plan, because each company will have different strategic planning needs.  A strategic plan for Coca Cola Enterprises is going to require very different amounts of research, analysis, resources, and recommendations than a strategic plan for for Aflac.  Their products are very different, and their target customers are very different.  Even within Coca Cola, a strategic plan for Diet Coke will differ from one for Dasani water.

On the implementation side, basing a project management fee as a percentage of the client's budget can be problematic, especially at times like these when budgets are being cut.  And many companies may not be willing to share the total amount of their budget with an outside party.

MY RECOMMENDATION

1. Think through all the elements you provide in your strategic plan and implementation processes.  How much time, money, and resources does each element consume?  Generate an hourly fee that incorporates the cost, plus some margin of profit for you.

2. Based on the definition of the prospective client's problem (either through a request for proposal or after an initial consulting meeting), determine the scope of the project, assess the elements your marketing plan will need to address that business problem, and generate an estimate of how much of those elements will be required.  Carefully estimate how many hours this would take you, and multiply it by your hourly fee.

3. Do not quote your hourly price to the client; instead quote the total bid for the project.  As a safety measure for both of you, add in a 15% margin on the top.  If in step 2, you come up with $20,000, quote your client a "not to exceed" fee of $23,000.  That $3,000 cushion will protect you from unforseen expenses and/or problems, and will give the client peace of mind in a set fee.

4. I like your idea of billing up front for half; although I also like the idea of billing one-third up front, another third in the middle, and then the final third at the end.  This way, the client has a greater disincentive to kill the engagement at a late stage.

5. Only after you have developed the plan for your client will you truly know what is required to implement the recommendations.  After you present the plan to the client, ask how well-equipped they are to implement the plan on their own.  If the client is very limited, offer to get a proposal to him/her NEXT DAY, whose bid will a flat implementation fee or retainer, based on the hourly fee you generated in step 1.

Mike, please let me know if there is anything else I can answer for you.

Good luck!