Discovering The Other Person's Logic

Pricing is one of the toughest issues any business has to face.

You can look at the studies, read the case examples and walk away with the impression that a large part of it is hocus-pocus. A major challenge is to avoid projecting your logic onto the potential customer. What you see as rational may be viewed by prospects as highly undesirable.

For example, a key issue in any prospective business transaction is risk. A consultant who is asked to complete a project that is relatively vague may want to charge by the hour not because he or she wants to gouge the client but because although the likely amount of time can be roughly estimated, it is not certain. The consultant does not want to take the risk of agreeing to a set amount and then later discover that the project involves much more work than originally anticipated. Clients dislike consultants who want to renegotiate fees and so the consultant pushes the hourly rate as a means of reducing risk.

The client, on the other hand, sees an hourly rate as the equivalent of handing the consultant a blank check. Since that is far too risky, the client pushes for a set amount so there will be no doubt as to what the project will cost.

At this point, the plot thickens.

The consultant, in response, calculates the expected cost but then adds a reasonable amount on top of that to handle unexpected circumstances. That is how the consultant deals with risk.

The upshot is that the client gets the security of a flat fee but probably winds up paying more than would have been the case if the project had been billed on an hourly basis. The client doesn't mind, however, because peace of mind and predictability are more important than cost.

Part of establishing a successful business relationship is determining the other side's real concern. By only considering your own logic, you may miss the other person's perspective which, in that person's eyes, is always logical.