Artificial intelligence (AI) may only be in its infancy, but it’s already changing a lot for businesses. It’s making core business processes faster and easier, reducing the time and effort needed to go into traditionally time-consuming tasks, such as data processing and research. While this is widely viewed as a positive thing and holds plenty of potential, it’s also disrupting how things work. Because if, like most professional services businesses, you rely upon a time/effort-based pricing model, when you reduce the time and effort that go into project completion, you inevitably impact your billable hours. This is the problem that many professional services brands are beginning to grapple with.
The problem of time/effort-based pricing
Right now, AI is only just beginning to creep into professional services companies. It may help with some data analysis or content ideation, but as the technology becomes more advanced, it will be used more widely – from research to editing and beyond. The problem is that the more it is used, the more time it can save across the board, so if you’re using a time/effort-based pricing model, your billable hours can only continue to fall. This not only has the potential to damage the profitability of your company, but also the perceived value of your work.
So, what can you do? Ignore AI and be outpaced by your competitors? Use AI, but pretend that you’re not? Accept the fall in billable hours and make economies within your business? Or take a new approach to pricing?
Moving towards AI-agnostic pricing
Time/effort-based pricing has become the accepted norm across the professional services sector. Its primary virtue is that it’s easy. Everyone understands the concept of paying for someone else’s time – even if it’s not entirely clear what they’re getting for it. However, even without AI in the frame, other pricing models can hold greater potential.
Contemporary professional services businesses need a pricing model that delivers a strong framework for employees to work with. Something that enables businesses to promote their services rather than just their time, bringing clarity to customers and staff alike. More than anything else, however, they need a pricing model that can withstand the implementation of AI, that allows them to embrace and benefit from AI – and whatever other technologies come along – without impacting their bottom line. While numerous strategies can be adopted, deliverable-based pricing currently holds the greatest potential.
How deliverable-based pricing can help
Deliverable-based pricing – also known as asset, solution or output-based pricing – shifts the focus away from the time that will go into a project and refocuses on the end results. It is built upon the premise of assigning a value to each individual element of a company’s services. This enables companies to build a comprehensive list of services that will hopefully be fully understandable for clients, while enabling staff to quickly build tailored quotes and pitches specific to customers’ needs. It’s simple, transparent, and completely AI-agnostic, allowing companies to complete projects in the way most beneficial to the client, irrespective of time and billable hours. This means that AI, machine learning, automation, and any other relevant technology can be used at the business’ discretion without impacting income.
How to implement deliverable-based pricing
Switching pricing models is always going to be a daunting task. It impacts the entire business and its customers. However, in the current climate with the pervading drive for autonomy, there is an appetite for change, and deliverable-based pricing carries so many potential benefits that the change is usually well worth the effort.
In most cases, the best approach to implementing deliverable-based pricing is collaborative. While you may require an external pricing expert to help you with the final details, its best to start by bringing all stakeholders in to help define a detailed service list that will fully answer the needs of your customers and showcase what your business can do. Once you’ve got your basic framework and have assigned your prices, tools such as configure, price and quote (CPQ) software, are available to help you to move forward and support your team to maximise the new model.
Late last year, the Simon Kucher Institute released research showing that almost no businesses were ready for the impact that AI will have on pricing. That’s mainly because AI’s recent evolution has happened so rapidly. It’s also because our focus has been more on what AI will be able to do for us, than on how it will impact integral business functions, such as pricing. The thing is, now AI is here, there’s really no going back. We all need to embrace the tools that technology can bring, but that will mean accepting change in unexpected areas, including pricing. It’s the businesses that accept this and make the first move that will benefit the most from taking on a new approach to pricing.
