Pricing for business services has been hit less directly by the most recent geopolitical upheaval such as the continued supply chain disruptions from the conflicts in Israel and the Ukraine. Instead, economic forces such as inflation and the push to digitalization during the pandemic are more of an ongoing pressure on companies in business services. Our pricing experts and data analysts examined broader economic and geopolitical factors and the challenges seen by our clients directly to uncover the four main trends and their impact on pricing for business services. Based on those challenges, we have data-driven recommendations designed to help you adjust your pricing strategy going forward.
Contents | Business Services Pricing Trends
Managing Increasing Cost Complexity and Tighter Margins
Cost complexity and upward pressure continues to pose significant challenges in managing and introduces additional pricing complexity. One significant threat comes from a tight talent market, where employees often still hold the upper hand and are pushing for increased wages using the ongoing disparity between wages and the cost of living as a negotiating tactic. Companies are now exploring several options to manage the increasing costs from labour through offshoring work, extending worker productivity through instituting GenAI for rote work, and increasing prices.
Using Hidden Fees to Offset Costs
Increasing prices is becoming more difficult to implement with the capacity for price increases is nearing its limits. Some strategies include switching to new monetization models or simply adding hidden fees also known as stealth inflation such as invoice-level admin fees and environmental surcharges to offset escalating. The difficulty in moving to hidden price increases is it becomes increasingly difficult to track whether costs are being offset and can result in customer backlash.
Opportunity: Targeted Price Adjustments to Offset Costs
We would recommend a pricing strategy that adjust prices on selected items rather than widespread price increases. The benefit of using this approach is that it decreases the likelihood of seeing a drop in sales volume and if it’s timed correctly, the risk of an impact on sales is further mitigated. It’s important to pass on cost increases when they happen, as it leads to compress margins and becomes increasingly more difficult to recoup later.
Wage inflation can also act as a catalyst for your company to review the performance management processes and implement tools as needed. Monitoring costs and other economic benchmarks is table stakes for staying responsive and is likely to widen the gap between companies who have a strong review process in place those that don’t.
Adopting New Monetization Models
With increasing costs and the resulting pressure on margins, business services companies are increasingly adopting new monetization models that emphasize value-based pricing and stable revenue streams. Predictable and stable cash flow becomes more important when face by periods of economic instability or even the threat of such. One example is the transition from ‘reactive maintenance” or “project-based” to recurring service contracts to increase the size and predictability of the revenue stream.
New Pricing Models for Business Services
We are seeing the adoption of newer pricing models that run the gamut from the already tried and true value-based and subscription pricing to outcome-based pricing structures. Companies are offering value add-ins to justify higher prices, which can include personalized support, additional warranties, and training & development. Subscription based pricing for business services creates a revenue stream throughout the lifetime of the customer, but pricing structures can become increasingly more complex. Pricing based on an outcome or performance metric introduces additional risk but has higher potential reward as the perceived value increases.
Opportunity: Pricing Optimization Based on Data-driven Insights
Adopting new monetization models can be a competitive advantage for companies as their pricing adapts to evolving customer needs. We recommend selecting a pricing model and strategy through a balanced approach to pricing strategy that uses data-driven modelling. In our analysis, we examine internal financials, the market, customer needs to come up with a pricing strategy and implementation plan. Then a plan to implement tools and track success that follow revenue management best practices.
Competitive pricing is very important in highly competitive or saturated markets, or when there is little differentiation between what you and your competitors are offering. It can also work to your advantage if you are especially good at keeping production costs low.
Modernize Salesforce to Fuel Commercial Growth
Sales teams in business services have seen wide sweeping changes the recent few years, in part driven by the push for digitalization, rising customer demand for a seamless and personalized experience, and full transparency around pricing. More commercially focused companies are professionalizing sales teams and implementing advanced sales technologies to better manage customer relations. However, many companies are failing to keep pace with these changes and are becoming less competitive as a result.
Effective Sales Teams are Key to Hitting Pricing Targets
Sales teams are one of the key points where a pricing strategy will falter or fail altogether to achieve the projected results. It’s crucial for a successful implementation of all pricing strategy and new pricing that the sales team can effectively communicate the value proposition of services and support any price increases with effective messaging. Your sales team is also a key pathway for customer intelligence, and with direct contact to your customer base they can help smooth the transition to new pricing strategies.
Opportunity: Instill Processes to Collect and Review Customer and Competitive Intel
Without a process in place to collect and review market and customer intelligence, what is already difficult to capitalize on will seem nearly impossible. We have frequently seen with clients that they are not taking advantage of opportunities to collect this data, or they have not formalized a process to share and make use of it. Starting with the sales team is low hanging fruit for gathering customer and market intelligence. How you implement data collection is a function of the tools and processes already in place and scaffolding customer intelligence on top of this.
Opportunity: Equip Sales Team to Sell Value
Your sales team is a manageable and controllable factor in achieving your revenue targets, and there are several concrete actions you can do that have an immediate impact. The first is to build a sell deck and standardize the messaging around pricing increases and the value propositions. The second is providing supporting materials that sales can use to sell the value of the service. We consider this essential and always include training the sales team and developing supporting materials when building an implementation plan for pricing strategy.
The sales team is crucial to implementing pricing strategy but should not necessarily be the one that owns pricing in your organization.
We found in our 2024 Executive Pricing Survey, that when sales owned pricing, they were the least likely to meet their pricing targets and realized the lowest net price. Access the full report to see who should own pricing.
Optimize Complicated Pricing Structures
The pricing structure and quoting processes for business services companies are often highly complex with a large degree of customization and personalization. Due to that complexity and variability, often we see fragmented pricing strategies, rate cards and poor execution of the rate card prices, leading to margin leakages. In short, the pricing structure becomes inconsistent, inefficient, and not market aligned.
Complexity in Pricing Structure Does Not Equal Ineffective
Inconsistent pricing structures make it difficult to analyze the impact of pricing actions and to capitalize on the customer willingness to pay. Even in highly custom projects, there is still an opportunity to price consistently for the same process, to correlate price to business drivers, and to improve understanding of customer segments. Complex pricing structures does not mean you abandon best practices for building sound pricing structures and monitoring and analyzing their performance.
Opportunity: Define and Reconnect Pricing Structure to Your Customer Value
There are three immediate steps you can take to streamline your pricing structure and make it easier to track pricing performance. The first is process mapping to identify bottlenecks in your quoting process. At the extreme end, we’ve seen quoting take as long as 80 days from start to finish, and in that case, there are clearly opportunities to make pricing more efficient. The second is to identify customer segments based on shared values and willingness to pay. This will allow you develop rate cards for each segment and eliminate custom, ad hoc pricing by the sales team. The third opportunity comes in enhancing your rate cards to exclude potential execution errors.
Pricing for business services continues to evolve and innovative approaches are emerging to counter ever tightening margins and price increase fatigue. Standardization of pricing practices and building the capabilities of the sales team are two actions that can have an appreciable impact in the short term. While other practices, such as digitalization and improving data management practices, are part of the long-term and ongoing strategy for improvement. Overall, embracing these trends and taking action will differentiate the commercially focused companies, delivering that competitive edge for sustained growth in 2024 and beyond.
