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The Psychology of Fixed Fees

Updated: Sep 4, 2022

Fixed fee

Most firms have so far been routed in timesheets and hourly rates for over six decades. With not much change to the system, this was convenient as it tolerated advisers to inadequately, and even tolerated a failure to qualify what the client truly requires without assuming much risk.

As client organisations evolved, virtually every engagement now requires a pre-approval. Budget overruns are increasingly more painful to front-up and it is embarrassing if a client contact is is left to explain internally why they could not adequately price their adviser costs, and seek higher level approvals within their organisations.

"True fixed-fee billing is a much-needed strategy. Its mutual success relies on solid commitment to align to client procurement models"

Firstly, it requires changing the way a firm manages its finances, a change many firms still find hard to embrace in 2018.

From anticipating all timesheets and hourly breakdowns from junior analysts to partners, many firms already fall behind if they do not have a deep experience in the required subject matter. For firms without deep knowledge specialisation, it would seem no different to gazing at a crystal ball to provide a detailed scope of the work a client needs.

Hence, clients can already begin to assess their advisers on proficiency if they are unable to comfortably break down the projects into individual tasks and discrete components of work for each task. For the proficient firm internally, this step is usually aided by the use of historical data from previous client work to cost individual tasks, elements of work and contingencies that are associated with the outcome.

"Fixed-fee billing requires growing to an entirely new level of client empathy in order to price correctly."

Our customer development surveys have overwhelmingly suggested clients not only want advisers to deliver on the work but also make it easier to provide justification of the “value to client”, the "why" and the "how". For example, it no longer is adequate to price a set number of hours per level of seniority and total up a quote if it completely misses the value triangle of what the client wants.

This second notion within fixed-fee billing is so fundamental that advisers who are serious about client service really need to consider where time and cost efficiencies can be achieved as a matter of continuous process rather than an annual review.

These can liberate higher margins yet benefit the clients in avoiding fee-inflation through the use of technology, automated precedents. The creation of future-focused templates and checklists can provide clients newfound flexibility in any level of involvement they have appetite for. On the other hand, some clients may want an element of contingent fees pending an outcome or sets of outcome in milestones.

"Successful Fixed-fee pricing should make feel like they want to even pay upfront"

As timing is everything, fixed-fee billing pushes firms to consider their internal architecture to assess if it can cater to every delivery schedule of projects, whether it can put adequate resources at the right time in order to meet deadlines.

Our customer development surveys also suggest clients are willing to even pay upfront if they have confidence in how diligent and time focused their advisers will be in delivering the work. Of course this is not feasible for most client organisations with procurement processes. Nonetheless this same client feeling translates into their willingness to pay a premium for advisers who they trust to deliver within deadlines and tight schedules according to our qualitative surveys.

This trust is also built through validation of assumptions that preface any scope of work in showcasing how well the adviser understands the client, before arriving at a total cost quote.

Underlying all the above, there is also the trust that emanates from clients knowing their adviser takes ownership of their work, keeps to their word and are ready to learn from minor mistakes in perfecting their fixed-fee service offerings in the price-to-value equilibrium.


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