Please Take Your Seats: It's Time for Value-Based Pricing Theater!

David’s note: Want to discuss any of the topics below or any issues you’re currently navigating with your consultancy? Book a time here and let’s chat!

These days, it feels like if you spend more than 5 minutes talking to any consultancy founder, there’s one word you’ll hear almost endlessly:

And it drives me real crazy, if I’m being super real with you.

We hear it all the time: clients are tired of paying high rates for our services and many of them feel like our work doesn’t deliver the expected results.

What you never hear, from literally anyone, is how exactly we should fix that from a pricing perspective.

There’s been a lot of push for “value”-based pricing models lately, especially because (as it should be obvious) AI tools have somewhat shifted the traditional labor equation in consulting.

But TBH, pricing on value for our clients is way harder than most would have you believe (and that’s coming from someone who’s actually the furthest thing from a hater of value-based models in his own work!)

Here’s my take, though:

The reason for this is actually pretty simple at face value. It’s really easy to tell your clients, friends, and the market at large that you’re excited to price based on the results of your work, but effectively pricing on value requires 2 key ingredients:

And the combination of the two is why, until someone consistently shows me otherwise, I’ll remain convinced that pricing on value is only really feasible for strong pre-existing relationships with a client (and never a new one).

Sorry if that bursts your bubble.

So if you really want to price on value, remember that you need to think about how to make each of those ingredients real:

Which is going to mean you’re gonna need some real ironclad contracts.

Look, I’m not just hating on value-based pricing for hating’s sake. I’m actually a big fan of the model and wish I could do more of it myself!

But I have yet to find a consultancy that is consistently using this type of pricing model really well at scale, and that’s not a coincidence.

It’s really hard, but it can be done. It might just require a little bit of creativity (not to mention risk appetite) on our part, and A TON of TRUST from our clients.

I don’t think anyone is getting around the fact that value-based pricing is the future for all of us consultants.

But I’m also tired of pretending that it’s working astoundingly well for every Data & AI consultant out there.

Because it’s not.

(Do you agree or disagree? Reply to this email or let me know in the comments!)

For the past three weeks, I’ve spent a lot of words trying to tell you the reality of why Big 4 consultancies are successful in an effort to convince you that these companies are as big as they are for a reason (no matter how much you might hate them).

But this week, for part 4 of my 8-part series on the reasons these giants succeed, I want to focus on the real reason many of them continue to operate at the level they do: a magic 9-letter word that explains it all:

You probably know the saying “Nobody got fired for hiring IBM”. It’s very well known in the consulting industry, and even if it’s probably no longer true about just IBM specifically, it often gets used to explain the realities of reputational risk when a large client decides what consultancy to pick to support them.

But in my opinion, there’s a waaaay more important second meaning to that phrase:

THAT BIG CONSULTANCIES CAN TAKE A PUNCH.

Remember, while you may be able to match a traditionally large consultancy on skill on some areas, you will literally never be able to match them on risk appetite.

They can absorb a $100 million lawsuit. You... uhhhh… cannot.

This is by design! Big companies have problems, which have big price tags, and big price tags and big risks, so those big risks need to be managed by companies that have the ability to pay (or fight) if everything goes badly on a project.

It should go without saying, but if you have a $20 million project as a boutique, it goes badly, and you get sued, that might be the end of the line for your company.

That matters when projects get awarded, and it matters when large enterprise clients decide how to structure who they even work with to begin with.

If you think you can overcome that by pure force of will, think again.

And, please, for your own sake: if for some weird reason you think you can absorb as much risk as big 4 shops (and the like) take on, DON’T.

You’ll thank me later.

Way back in the ZIRP golden days, there were a ton of consultancy founders that felt like they had it made, just like Susan Diaz did.

In her first six years running her shop beginning in 2014, she grew her team to ten people (including her husband), had so much great momentum, and felt unstoppable.

Then COVID happened.

Everyone around her started cutting costs and laying people off left and right, except for Susan, who strongly maintained that wasn't the type of company she wanted to run.

She and her husband stopped taking salaries. Weeks without knowing if she'd be able to get groceries. Major existential pain and a massive weight of moral responsibility to handle.

A huge mess that took a timely intervention from a therapist to realize the solution required accepting reality and firing her husband (among many other major changes about how she understood her own company’s growth):

Check out the full story of how Susan overcame this above, leave a comment to let me know what you think, and subscribe to my YouTube channel for future episodes just like this one!

One of my favorite parts of running my own consultancy is that everyone in your life is always SO EXCITED FOR YOU!

It’s always nice to have people in your corner, but it’s really hard to explain to others how their experience of what you’re going through in building your company is totally different to their perception of it.

They’re sitting there like “OMG it must be so fun and stress-free to work for yourself and run a consulting shop of your own!”

And meanwhile you’re sitting there like:

So if you’ve ever felt like this, remember: they mean well, and you’re probably more in your head about everything than you think.

Relax, enjoy the ride, and stop worrying about every little detail, dummy.

Your friends and family probably have a better perception of how you’re doing than you do!

Data projects fail because we fix in straight lines what our clients experience in circles.

I’ve seen it constantly with my clients: they build to solve individual issues instead of the entire ecosystem, then watch them fall apart as soon as they leave their clients.

And it’s all because:

What this means is that you should think about a data project as extremely circular in nature, but also in how each of its parts relates to each other.

Obviously, all disciplines of data work are different from the next, but there’s a very complex set of relationships between them where each of the six components depends on the next and happens sequentially to some degree, usually going:
Sourcing ➡️ Ingestion ➡️ Storage ➡️ Governance ➡️ Visualization ➡️ Automation (and repeat)

What I’ve learned is that this model has to be the foundation for how any consultancy thinks about data work at large.

Because clients don’t just want band-aids for each stage of the cycle. They want to know why their data keeps breaking.

And understanding why often requires a holistic understanding of all the pieces that make up their data stack (from beginning to end), and how they come together.

So if you don’t currently think of your work this way, try it out, and let me know what you think!

If you’ve enjoyed the topics I talked about today and want to learn more about my work - let’s chat!

I specialize in helping founders of boutique Data & AI consultancies that have brute-forced their growth solve existential problems in the growth of their companies.

So if you’re finding yourself stuck as your shop scales, I’m here to help!

Want to talk about a problem internal to your company? Sign up for a free therapy session with me!

Want help to expand, ideate, and scope Data & AI projects with your clients? Sign up for a demo workshop!

And if you want more details, check out my:

Otherwise, thank you so much for reading, and see you next week!

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