From Hourly Billing To Deliverables – Pricing Professional Services In The AI Era
- Nov 28, 2024
- 5 min read
Written by Mark Sephton, Business Mentor
Mark Sephton is a personal mentor to entrepreneurs. His mission to help others has seen him break into global markets while working with startups and millionaire entrepreneurs around the world. Mark's love for entrepreneurship has been expressed through serving as TV host of the show “One More Round.”
In today's rapidly evolving business landscape, artificial intelligence (AI) is revolutionising how professional services are delivered. For many, this is prompting a necessary reevaluation of traditional pricing models. As AI streamlines and accelerates tasks, the once-standard time-based billing approach is losing relevance. Firms are challenged to find new ways to accurately reflect the value they deliver to clients, while ensuring that pricing structures align with the quality and impact of their services.
To delve deeper into these changes, I wanted to pick the brain of Tracey Shirtcliff, CEO of SCOPE Better, a pricing platform and business tool that helps Professional Services businesses to solve ‘The Pricing Problem’ in their businesses. With the dawn of GenAI, Tracey and her team are supporting businesses in the creation of robust new pricing structures, shifting from hourly rates of pay to deliverable-based pricing.
How is AI impacting the companies you work with in their approach to project deliverables and pricing, and what steps should companies be taking to stay ahead of the curve in this rapidly evolving landscape?
The main issue with AI and pricing is that AI pretty much eliminates all the time-hungry tasks – the research, the data analysis, reconciling transactions. Even some of the more creative processes, such as brainstorming, copywriting, image creation, are being supported by generative AI.
As AI dramatically cuts the time required for tasks from hours to mere minutes, it poses a challenge to traditional time-based billing models, undermining the value of your work. When AI not only speeds up processes but also enhances the quality of your output, charging less for reduced hours devalues the results you're delivering. Given that generative AI can improve performance by up to 40%, the only practical solution is to switch to a deliverable-based pricing model that accurately reflects the increased value of your services.
With AI reducing those “time-hungry tasks,” can you further explain what deliverable-based pricing is? How can this be utilised to stay competitive and accurately reflect the value delivered to clients?
With the changes that AI is driving in the professional services space, the emphasis for firms has to be on a shift away from time/effort-based pricing. The time that goes into a project is becoming increasingly irrelevant in the age of AI, so businesses really need to be looking at deliverable-based pricing or subscriptions based upon a fixed set of deliverables. Either way, you’re charging for tangible items or services, things your customers can understand and appreciate, putting emphasis on the quality of the work without reference to how the work is completed.
To make this switch to a deliverable-based pricing model, you have to begin with productisation turning each of the services you offer into a product with a clearly defined price. Once you’ve done that, you can start building out a catalogue of services. So, your clients no longer pay you for the time you put into each project, but a tailored selection of clearly defined services or deliverables.
Assuming that a client might consider how AI reduces the time required to complete tasks, how can one maintain transparency with their clients about the value they are receiving?
The simple answer here is to tell the truth. There’s an impulse to hide the use of AI, almost as an admission of cheating. But AI can be really beneficial for a business and their clients, not just reducing man hours but adding value as well. Honestly, pretty soon there’s going to be an expectation that your business is using AI. So, own it.
Make it clear that you use AI and what you use it for, show how it enhances the work you do, and helps you to get the job done more quickly. But also make it clear that while you could do the work without AI, AI couldn’t do it without your team. It’s a balancing act that isn’t yet fully appreciated, but AI augments business processes, it doesn’t replace highly skilled people.
How would you advise businesses to communicate this shift from hourly billing to deliverable-based pricing to their clients, and how should they manage expectations regarding the value and results of their services?
Communication is integral to any core business change, both internally and with clients, and that’s really the only way to build trust in what you are doing. For us, when we’re supporting clients as they make the change, we focus on identifying key competencies and defining those as their superpower, which can then be repackaged with a detailed narrative.
Before rolling out a new pricing model, it's really important that teams are educated on the rationale behind the shift. This means that every team member understands not only the mechanics of the model but also how to effectively communicate its value to clients. This shift in mindset from selling time to selling value is crucial for the success of the new pricing strategy.
Once your team are fully on board, it’s important to showcase your new model to your clients and get their buy-in. It’s important to be open with them and identify why it’s a better way of working, communicate the continued value you’re bringing to the table, and answer any questions and concerns they might have.
You then need to trial it with a couple of carefully selected clients before a full rollout – just to ensure that it fits and it works for everyone, giving you the opportunity to change prices or offer more packages tailored to client needs.
If any of your clients have doubts, you can be open, even sharing timesheets in the initial stages, if necessary, just to reassure that you’re delivering the same value as before.
What innovations or trends, beyond AI, do you think will most significantly influence the future of pricing in professional services?
Services are changing, product offerings are changing, and job roles are changing, all of which are likely to have an impact on the pricing of professional services. The sector now is not the same as it was in 2010, so who knows what it’s going to look like in 2040.
Right now, a whole range of innovations are helping to drive value and avoid waste – data-driven decision-making, ultra-personalisation, modularisation, but AI and automation are really the only developments that hold the power to influence pricing models and deliverable-based pricing future-proofs against those.
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Mark Sephton, Business Mentor Mark Sephton is a personal mentor to entrepreneurs. His mission to help others has seen him break into global markets while working with startups and millionaire entrepreneurs around the world. Mark's love for entrepreneurship has been expressed through serving as TV host of the show “One More Round.” When not on the big screen Mark is a regular contributor to Entrepreneur Magazine and a speaker for corporate events, entrepreneurship summits, and major conferences worldwide. His expertise in personal and professional development has positioned him as an expert in the industry, resulting in transformational experiences for audiences, clients, and businesses alike. Drawing from personal experiences, Mark has taken the essence of what he has experienced and built a business that helps draw out the magnificent potential that every person beholds using his GPS system to highlight blind spots, efficiencies and deficiencies . He is also the author of two personal development books “Inside Job” and “Plot Twist,” and is elated at the opportunity to continue to teach and influence through writing for brainz magazine.
