The Max the Market Will Bear

Happy Friday,

It’s late in the year and time to figure out salary and rate increases for next year. Here are a couple recommended strategies.

First One: Are you charging the maximum the market will reliably bear? If not, you’re leaving profit on the table. That may sound noble, but leaving profit on the table is bad for your business. Profit drives competitiveness, enabling your organization to attract top talent, buy the best resources, innovate, and create opportunities for continued professional growth for your staff. Thus greater value for clients. More profit makes your business better, less profit makes it worse.

How do you know if you’re charging the maximum the market will reliably bear?

Test for sufficient resistance. Instead of the usual 3-5%, try raising your rates 10% or even 20% next year. And instead of bidding to be the cheapest, increase your focus on communicating your firm's value in terms of total project lifecycle dollars. In other words, become better at communicating why your firm and its people are worth every penny. When contracts actually get cancelled, which isn't as likely as most imagine, then back it off a hair. Nothing says we’re the best like premium pricing.

It’s a given that no matter how much or how little you charge and no matter how much value you offer, the employees of the ultimate client will always recite some version of “your price is too high, you’re too expensive, you need to sharpen your pencil”. It’s reflexive and well-intentioned but usually uninformed. 

If you dutifully respond by cutting your fee, you’ve almost certainly increased the client's project cost and risk, plus you’ve increased your own budget risk, professional and personal liability risk, and reputational risk. Stand your ground, protect the public, and communicate the value. Clients usually push to see how sure you are.

If you're uber concerned about being perceived as expensive, then cut your mileage charge in half. That’s a number everyone actually understands and cutting it won’t cost much.

Second recommendation: After settling on the standard rate increase for next year, sit down with a list of everyone on your team and one by one ask yourself this question: could we reliably charge more for this person?  People don’t progress in unison. Some rising stars earn trust with clients and project managers fast and can command more in the marketplace. Every year 5-10% of staff can reliably support a much greater than standard increase. Like $20-$40/hr. more. Confirm with their PM’s if you’re unsure. Then, follow-up with an unexpected raise. If you don't do it, a competitor might.

Punchline: Cheap engineering doesn’t benefit the client. In general, both engineering services and individual staff should always be priced at or very near the maximum the market will reliably bear. Profit drives competitiveness, creates more opportunity for staff, and enables greater value, which greatly benefits the client.

Have a great weekend,

Dave

Feedback and blowback are welcome: dave@goodnewsfriday.com

All past topics are still available at @goodnewsfriday.com