The Consulting Growth Podcast
Joe O'Mahoney is Professor of Consulting at Cardiff University and a growth & exit advisor to boutique consultancies. Joe researches, teaches, publishes and consults about the consulting industry.
In the CONSULTING GROWTH PODCAST he interviews founders that have successfully grown or sold their firms, acquirers who have bought firms, and a host of growth experts to help you avoid the mistakes, and learn the insights of others who have been there and done that.
Find out more at www.joeomahoney.com
The Consulting Growth Podcast
How to Price your Consulting Services with Ethan Williams
In this episode of the Consulting Growth Podcast, we sit down with pricing strategy maestro Ethan Williams, who transitioned from real estate investment banking to becoming an authoritative voice in global pricing strategy.
Here is Ethan's AI Pricing Advisor: https://chatgpt.com/g/g-MNWgcA4wX-value-based-pricing-advisor
Here's Ethan's LinkedIn: https://www.linkedin.com/in/ethan-williams-8567278/
We dive deep into Ethan's experiences at GE Digital, PwC, and McKinsey, and his transformative work at FGS Global. Ethan unveils the secrets behind moving from traditional time-and-materials pricing to value-based models, shedding light on how these shifts not only elevate client value but fundamentally alter business models. Learn about the art of leading pricing transformations and the most common objections consultants face when adopting value-based pricing.
Ethan also discusses the impact of AI and automation on consulting practices, making the case for abandoning time-based pricing in favor of more efficient models. Get practical advice on implementing value-based pricing, including strategies for maintaining confidence during negotiations and presenting clients with engaging scope options. We wrap up with heartening insights into how AI and low-code solutions are democratizing advanced tools, leveling the playing field for smaller consultancies. This episode is a must-listen for anyone eager to stay ahead in a rapidly evolving consulting landscape.
Prof. Joe O'Mahoney helps boutique consultancies scale and exit. Joe's research, writing, speaking and insights can be found at www.joeomahoney.com
Welcome to the Consulting Growth Podcast. I'm Professor Joe O'Mahony, a Professor of Consulting at Cardiff University and an Advisor to Consultancies that want to grow. If you'd like to find more out about me and access some free resources to help your consultancy grow, do please visit joeomahonycom. That's J-O-E-O-M-A-H-O-N-E-Ycom, o-e-o-m-a-h-o-n-e-ycom. Okay, welcome back to the Consultancy Growth Podcast. I have the absolute pleasure today of being joined by Ethan Williams, who's had a fairly stellar career, but certainly the last 10, 15 years of that has been focused on the issue of pricing. Now, I have to admit my ignorance here. When it comes to pricing. I've seen a lot of consultancies and we tend to do the old time and materials approach. There's a lot of talk about value pricing and all the rest of it, so I think this is going to be a really interesting podcast. So welcome, ethan, and would you mind telling us a little bit about yourself?
Speaker 2:So welcome, ethan, and would you mind telling us a little bit about yourself? Yes, of course, and thanks for having me. Super excited to be here and obviously love talking about this, this topic. So, very quickly, I started my career as a very quantitative real estate investment banking analyst and the decision to go back to grad school and get an MBA was sort of made for me in the financial crisis and so I went back and I got my MBA and knew that I had specialized too early so I wanted to do sort of a general management program and, um, I did, uh, I joined GE's uh experienced commercial leadership program, a fantastic program delivered on um, all of its value propositions. It was an incredible experience. Propositions. It was an incredible experience and I had my heart set on corporate M&A coming out of that program and I had an offer to do that.
Speaker 2:But one theme in my career has always been follow good people, and a CFO that I had worked with previously asked me to come start a corporate commercial strategy function with him where I started to dabble in pricing. Then one of his peers asked me to go start the pricing function at GE Digital, their software division, and I said you know, I've never done pricing in my life other than this last role a little bit. And he said you'll figure it out. And so I went with him. I joined him and I realized very quickly that I had actually been doing this my whole life, especially from a B2B perspective B2B buyers, b2b pricing it's nothing more than an NPV through your client's shoes and you try to beat everybody else's NPV. That's what my take on B2B pricing is. So I led a value-based pricing transformation there, helping to take GE Digital from on-premise licenses to value-based SaaS offerings.
Speaker 2:From there I went to PwC. I got a call from PwC saying hey, we see you do this value-based pricing thing. Do you want to come do it here? And they had just publicly announced that they were going to take 5 million hours out of their 15 million hour tax practice and that it wasn't a cost out exercise. They weren't going to fire anybody. This was about changing the business model. So they quickly realized they needed to change their revenue and they looked outside the industry and found me. So then I helped lead a pricing transformation there from cost plus rates and hours to more value-based output, outcome-based pricing. I led a similar effort at McKinsey and then through that level. I was a director, and you know becoming more confident in my play and the results that I generated. I wanted to have a stake in it, and so I found a place that would make me partner as global head of pricing, and that brings us to today.
Speaker 1:That's brilliant, thank you. So you're now working at FGS.
Speaker 2:FGS Global Yep.
Speaker 1:As a partner and global pricing leader.
Speaker 2:That's right.
Speaker 1:What does that involve?
Speaker 2:day to day. So day to day, well, it's my, you know, it's my first year here, so it's and change is hard. In partnerships and consultancies, your shareholders are your salespeople, so nothing goes quickly right people so so nothing goes quickly right. So there's a lot of consensus building, awareness and awareness building, setting up the levers and the plays in the business case for next year, getting budget for it while at the same time just being consultants to the consultants on pricing their engagements, and I would say that's the most fun element of it and that's probably 25% to 50% of my day-to-day.
Speaker 1:Whenever I have a conversation about pricing, I'd say that would be the response 80% of the time across a broad spectrum. So is this an objection that you've encountered, and how do you go about countering that counter?
Speaker 2:Yeah, it is for sure. I hear that. I hear that a lot, and the first thing that we have to do is, you know, get on the same page about what value based pricing is Right. Value based pricing is pricing to be your client's best value, their best NPV Right. It's not about taking a cut right. That is outcome-based pricing and that is a pricing model. Value-based pricing is a philosophy, and it's a philosophy that involves threading the needle, not carving up a pie right. So I think anything can be value-based, value-based priced, so long as you understand what value-based pricing is. And, by the way, you, as partners selling your service and your clients should like that a whole lot better.
Speaker 1:Yeah, yeah, I mean, I personally like, I like fixed and I like value-based pricing. One of the reasons I like value-based pricing is because it's not just about the pricing. It almost, if you do it properly, it flips the mentality of some of the leaders and some of the salespeople from thinking how do I sell this thing, how do we deliver more value than anyone else, and how do we articulate that? And if you can crack those nuts, almost the pricing takes care of itself.
Speaker 2:I think yeah, yes, I would agree with that 100% and I think the thing that rates and hours pricing has going for it is that it's easy and you get to kick the can down the road and not have that pricing conversation. But everybody is better off if you have it up front and if you're talking about you know value for price. It can be fun and you can play offense right. If you're explaining your price in the context of cost, you're always on the defense.
Speaker 1:Yeah, yeah, great, okay, listen, okay, that's fantastic, thank you. So that kind of gives us a bit of context about what we're talking about here. I'm interested in some of the common mistakes that you see in the pricing area, both in terms of some of the firms you've been with, but also more generally looking at professional services and B2B some of the challenges that you see and the mistakes that leaders make.
Speaker 2:So I think viewing it as viewing a transformation to value-based pricing, as a either this or that, is probably a mistake. We can do this over time and it should be about what the client wants. I think what they want is generally fee predictability and understanding the value for price they're getting. There will occasionally be clients that you want to do business with, um, that, for whatever reason, can only do rates and hours, and hey, guess what dude you know, do do business with them. Right, it's not an. It's not an. It's not an either or thing.
Speaker 2:I think the other thing is getting is playing that same old game of you know, filling out an RFP and putting in your rate table and allowing them you know your client to boil down your value proposition to that value, to that number versus somebody else's number. Right, and just look at OPEC. If you force you know this was especially relevant when I was working at the big four but if you force four people to compete purely on price, the only way to win is to just keep cutting price. So I think the biggest mistake I see is just playing that game. Play a different game. Decide where you want to win. You have a right to win. Come up with your strategy, have your pricing to back that strategy and don't try to be everything to everyone and don't try to be everything to everyone.
Speaker 1:So we've talked a little bit about the differences between value, fixed cost and outcome based pricing. When people are implementing outcome based pricing, what are the types of things they should look out for and be aware of Sort of some of the obstacles in the road that might trip them up?
Speaker 2:yeah, I think like um often I I see people, if they want to get into this game right of outcome-based based pricing, they jump immediately to some quantifiable metric like EBITDA and say, we get paid when your EBITDA goes up, and there's just so many different factors right Like so and and, by the way, there's other ways to structure success fees other than purely contingent right. So if, if you have to identify that metric, that you are going to help them pull and be along for the ride and you have basically total control, along with the client, of improving that metric and nobody else can influence it, if you're doing purely the roadmap and the strategy and the implementation is up to the client or perhaps another provider. I would say number one you don't have a right to earn an outcome-based price, nor would you want to structure an outcome-based price Because there's too much you don't control in between there. But there's other ways to do it too. You can say you can do it based on your performance right.
Speaker 2:I have a fixed fee of this and then you know if I deliver by such and such a date, you know there's a 20% kicker. That's performance-based. You could even do it discretionary. We will do this engagement for a fixed fee of X and, in your sole discretion, if we exceed your expectations, please consider giving us an extra 20%.
Speaker 1:Yeah, it's great. I mean, I love that. It signals a lot of things, doesn't it? It signals confidence. Yes, it focuses the team's mind on delivering outstanding value, which then means easier sales, and it goes into that virtuous circle cycle 100%. So let's talk a little bit about differentiation. Confirms use I mean, you've got a background at McKinsey and McKinsey signals its quality in many different ways, from partnerships and associations to thought leadership. Is pricing part of that and confirms use pricing to differentiate themselves?
Speaker 2:yeah, I mean I would say, um, just in in general. Um, you know, commoditized outcomes lead to commoditized pricing. So if you're offering the same thing as anybody else and, by the way, I don't believe that's even possible in professional services but if you're, hypothetically, if you're offering the very same thing as the next person, there is a market price for that. Accept the market price and move on. If you have a differentiated value proposition and in professional services that means you're either faster or better Yep Right. You're either faster or better, yep Right. You have a right to capture a portion of that better and faster and add it to the commoditized price, yeah, then you be. That is mathematically a better value.
Speaker 1:Yep, I'm doing a bit of research now what I have been for the last three years on the impact of AI on consulting firms and you can see in some ways owners are thinking oh, this is great, we get AI to supplement this and we can get rid of a few consultants and reduce the amount of time it takes to do a project. But that doesn't work with time-based pricing, because all that happens is your fees go down. So are you seeing any because of SaaS and automation and AI? Are you seeing more movement in this space towards different pricing models?
Speaker 2:You know, this was the entire value proposition proposition for PWC reaching out to me and I was super impressed with their. They were a leader in this automation and innovation space and when they realized hours were coming out of the business, they realized they had to switch to a different FV model. By the way, that was even before AI. That was just automation. Ai is going to continue to take hours out but at least, as of my time of departure, 70 percent of of you know what they did was on a fixed basis or a value-based basis, and so an hour out doesn't mean a dollar less revenue. You should share in some of the efficiency, but you have a right and a mechanism to keep some of it.
Speaker 1:I mean at McKinsey, at PwC, at the firm you're at now. I mean partnerships, as you say. They tend to be a bit slower. They tend to be a bit more consensual in their decision making. Did you get a lot of pushback in any of these firms and how did you deal with that? I'm thinking of some of the partnerships. I know where you've got 11 people around the table and some of them are always going to say no to what's thought. So I guess this is as much of a political and change management conversation as it is a technical one.
Speaker 2:Yeah, yeah, and I guess that's what keeps me learning is because you know GE and other well-run corporations are very policy driven and you can write a good policy and you have to do the change management too, but done right, it expects success. If I were to write a policy for pricing or anything at any of the partnerships I've worked at, every policy would have to end in unless you don't feel like it. Right, you have to do this unless you don't feel like it. So the transformation is more principle driven, right, you have to just get the partners operating in the same set of principles. And you know there's like a year of principle awareness. You got to recognize that success is never going to be 100% conversion, and that's okay. Even with 50% conversion to your new pricing principles, I guarantee you that's an accretive value prop for a firm to invest in pricing.
Speaker 1:I think you've been quite ahead of the curve here, because the whole value pricing and outcome-based pricing I realize some of the big firms have been doing it for a while, but in terms of boutiques, I'd say 75% are still doing time and materials. Are you seeing, do you have visibility of trends beyond your own firm, what's happening in the market and how these might be affecting smaller firms in the long run?
Speaker 2:I think what I've seen is um, a, definitely a move to be interested in this um, and you know, I, I have to say, I've worked for three rather large um partnerships and so, uh, I don't necessarily have my finger on the pulse of small consultancies but, um, I can imagine that you know a founder with four partners getting interested in this is a quicker time to value, definitely for sure, yeah, but I think the other thing. The other thing is I don't think anybody has really figured out how to price ai yet and, by the way, I don't think open ai has figured out how to price no yeah, um, uh.
Speaker 2:So you know everybody's thinking about that as well. Investing in pricing teams and trying to move away from time is what I see in the industry. I can't say that that is unique to small versus large.
Speaker 1:Sure yeah, the AI and automation, the low-code, no-code approach. Really it democratizes a lot of stuff that was previously only available to the big firms, because it's so damn cheap.
Speaker 1:You can add $20 a month per seat to get open AI access and you can create your own bots that will automate tasks for you. You can build your own APIs into your own data stores and in some ways, it's easier for boutiques to pivot with this type of stuff because they don't have these huge legacy IT or personnel or training systems that are tough for bigger firms to move off.
Speaker 2:Yeah, yeah, and in fact I have a GPT. I got very free to anybody to walk you through a professional services value-based pricing process. It's called the Value-Based Pricing Advisor. You can find it on OpenAI and I wouldn't put any proprietary client information in there. I don't see the data, but it was just something fun to build and anybody can use it.
Speaker 1:So I had a little go on that and it's good for two reasons. The first is the most obvious around looking at the pricing side of things. But it's also that challenge because it's not simple. It's not a simple one question and here's your answer. It takes you through a series of steps to generate recommendations and those steps help you think.
Speaker 2:Yeah, I think the biggest challenge in moving to this way of pricing is all prices are contextual, like we need context for every price that we see in our personal or our professional lives, and unless you provide the context value, the client will provide the context and compare you to somewhere else. So the hardest part of this whole transformation is getting people to speak the value language right and saying these are the outcomes that I'm going to drive for you, this is why they're valuable and this is why I'm uniquely suited to deliver them. Yeah, right, and that and it'll and it'll walk you through that and, like you said, it's democratized. I don't. I don't make any money from it.
Speaker 1:We're early stages now with with AI. It's kind of, you know, generative AI has only really been around for two and a half years. In terms of public availability In that space it's increased, not exponentially, but a fairly high linear curve. And GPT-5 will be coming out at the end of this year, beginning of next year. Yeah, you do start to think well, you know some of these jobs are going where. You know it has to be a value conversation.
Speaker 1:It has to be a impact conversation, also a brand conversation. I can imagine people would pay a premium for McKinsey's AI bots if you get to talk to the equivalent of Michael Porter or whoever the modern day equivalent is, because it's got the brand there.
Speaker 2:You know that's interesting. I'll tell you what a compelling AI offer for McKinsey would be, because, having worked there and competed there, I can say they are the brand in the, in the strategy consulting, in the imaginative thinking, in the um. But they, you know, they, that brand hasn't necessarily translated to technology right, like they don't have the same right to win in that space.
Speaker 2:But if you had an AI author that said, hey, this sits on top of our proprietary knowledge base that we built over 100 years and and you will sell you a subscription and you can, you know, almost have a conversation yeah with every mckinsey partner that's ever worked there. Um, that's pretty.
Speaker 1:That's pretty compelling, and you know you can like, do you? Do you remember the old paper clip of word or microsoft word? And we had that. I don't know if you're old enough, but a little clippy, so wasn't it clippy, yeah yeah, yeah, I can.
Speaker 1:I can imagine, you know, a couple years time we're gonna have, you know, the joe o'marney equivalent or the mckinsey partner equivalent that you know you can hire for specific challenges or maybe just have sitting on your shoulder like like an angel or demon. Yeah, I'm interested in some practical things. So if I I'm a boutique or a large firm owner time and materials let's say I don't know strategy advice or you know the traditional consultancy market what practical steps do I need to take to first explore and you've talked a little bit about the implementation of this, but how?
Speaker 2:do I go about thinking about shifting my price? I love the word explore, and the benefit and the curse of pricing and professional services is you get to have a pricing conversation with every one of your clients or have to, depending on how you look at that so you can experiment. You don't have to put a skew on something and put it on the shelf and live with it for a year. You can experiment. And so practical tips on how to get started. Here's what. If you do these couple of things, I'd say you're in like a solid B plus for value-based pricing, pricing. It's sort of like the, the quick cheat to get there. Build up your cost to serve or build up your cost plus price. Those are two different things. Build up your cost plus price and then think about just like five factors that, along a scale, drive more or less value right and adjust your cost plus price either up or down based on those criteria. And, by the way, it's impossible to be positively differentiated everywhere. So be honest with yourself. And so now you have a number, come up with that number. Instead of showing the rate table and showing the hours, put that number next to the scope or the deliverable. Right Now you're pricing deliverables or outputs, leave the rate card behind the scenes. Then the next thing is do that again, but one smaller, and do that again but one bigger, and put three options in front of your client. And you've changed.
Speaker 2:When you, when you hand a, a price quote to a client and it's here's the scope of work, here's the price. You've asked a yes, no question. Yeah, right, the best way to not hear no is to not ask a yes, no question. So offering options of fixed price for different scopes of work changes the conversation to which one, or how do I work with this person? And the relative price differences provide that context for a price. And then you get to listen to your client, think out loud and say, oh yeah, I like that part of this one, but not this part of that one, and I don't need this, but I do need this. And you can say, hey, we can do that. If you just do those two things adjust a cost plus price for some unique value drivers to your situation, put it on the outputs and then offer three options. I guess that's three things. That'd be solid B plus for value-based pricing in professional service.
Speaker 1:I'm a big fan of providing options for exactly the reason you say and, as you also say, it very often ends up in a conversation. So you might end up with option 2.5 rather than option two or three.
Speaker 2:And, by the way, it creates a framework for negotiation, negotiation, moving forward. If you're finding that a client is pushing more scope on you than you originally agreed, right hey, you chose the middle option, but now you're more in this territory in terms of the upper option, in terms of what you're asking us to do. Would you like us the upper option? In terms of what you're asking us to do? Would you like us to throttle back or would you like to move up to that higher tier?
Speaker 1:Right. It provides a framework for negotiation as well, just out of interest. So I'm thinking about confidence. So I am awful at negotiations. I generally don't go. I say you know this is what it would cost and people either say yes or no. Do you get involved in that, as well as the style of conversation, what we're talking about when we're discussing value Do you ever get involved in the negotiations with price, or are you more of sort of the internal consultant for the consultants? And I guess the consequence of that question is do you have any advice for people like myself who are quite challenged when it comes to the pricing negotiation? One of the nice things about time and material from my perspective is you say well, this is my hourly rate. You can buy more or less depending on your budget. As soon as you get into that value conversation, I think a lot of people struggle with their confidence perhaps.
Speaker 2:For sure, and in different roles I have been involved in the negotiations. Pwc has a dedicated team of really strong professionals who who do that full time. Um, and I've gotten involved in it a little bit here I would say, decide first what you're competing on Right, eating on Right, and I guess what. What I mean by that is if we've never done business together, I would scope something down to a bite size piece like a diagnostic or an audit or something, and on that thing I will. If you leave the rate card behind the scenes, I would not lose on price. I want to win that client to see if we're going to have a lasting economic relationship together, and I figured that out during that time. But I haven't discounted my rate card by 40 percent, which I've got to live with forever.
Speaker 1:Yeah.
Speaker 2:Right. Then, as you go along and and you go into implementation, or you go, you know, you know, helping to activate the strategy that you've laid out. That's where I would begin to compete on value right and say if there's anybody who's offering a better value than this, if you have a higher NPV project on your desk as it relates to this implementation, like please, please, let me know. We will fight like crazy to be the best NPV, but it's two different phases of an economic relationship and so I think if you kind of break those apart in your mind, you can kind of be confident about what you're doing and how long you have to live with the results of what you're doing.
Speaker 1:I think that's fantastic advice.
Speaker 2:If you're interested in this topic, read anything that Ron Baker has written. But one thing that he says is how you sell is a leading indicator of how you solve right, and so if you can make that quick and painless, you'll figure out if you like each other right. And that's so much of that's so much of our satisfaction in professional services is are we getting to deliver outcomes for, you know, people that we like and respect?
Speaker 1:yeah, yeah, really, really good. That's that. That's good. I mean, I'm smiling. I I recently um delivered a business development master class, a one-day thing for consulting salespeople perhaps who needed a bit of a refresh or new techniques or needed to build their confidence. And I ran it with three guys who, when it comes to business development, spot on, all of them had grown. You know, large companies had delivered hundreds of millions of contracts and we had a great time and massively respected their work and the feedback was fantastic. When it came to that conversation around, well, who's getting what? In terms of the revenue, I was a minnow and I realized they had 30, 40 years of experience in these types of conversations. And you know, don't get me wrong they were very, they were very generous with me, but that was because they they almost felt sorry for me being such a bad negotiator. Fortunately, they were kind guys as well.
Speaker 2:Yeah, they were kind guys as well. Yeah, well, I mean, you know in life and in, you know your professional work. I believe that comparison is like the root of all suffering and the root of confidence problems.
Speaker 1:So if you're like, if you're, if you decide on your game and the way you're going to play the game, and you push yourself to play your game and you like, you just get more confident like I'm not playing against anybody, I'm playing against myself, right and it's, and that's like, man, such a confidence booster I'm interested in whether you, you, you know any, any stories that you are either particularly proud of or particularly insightful, any, any pricing examples where you've gone ah, that's clever or that worked really well and I realize you can't share you know client, client names and all the rest of it, but I'd be quite interested if there were any examples that either you know, possibly even surprised you, or you thought that was was a really really good piece of work and worked for the client and the consultancy yeah, I think, um, one of my, I guess, biggest sort of like personal wins um was I won't even name the company but we were selling software that went on a piece of machinery and to monitor that piece of machinery and to move to predictive maintenance right instead of break fix, right Instead of break fix.
Speaker 2:And so I helped the salesperson come up with the value proposition of putting the software on that piece of equipment and I equipped him with this little tool for him to go into the client and say but, by the way, you've got a hundred of those sitting here, here's the value if we do it for all a hundred. And they say, oh my gosh, that's amazing. And he says and by the way, you've got 10 of these plants around the country, here's the value if we do it for all of them. And we took it just by value, by putting in the context of value. We took something in the tens of thousands into the millions. Now I was dealing with a very good sales person. I can't take all the credit for that, but I think that was one of the first times that I was like oh, I'm on to something, I'm on to my own little style or my own little system.
Speaker 1:Yeah, yeah.
Speaker 2:And that was just super rewarding, and he and I are in touch to this day.
Speaker 1:I bet you are. I hope. I hope you got a share of the bonus. Okay, ethan, thank you. Thank you so much for your time. Um, I believe you're talking to the boutique leaders club next week, a bit of a Q and a. Thank you so much for your insights and um. Have a great day.
Speaker 2:Yeah, I've really enjoyed it. Thanks for&A. Thank you so much for your insights and have a great day. Yeah, I've really enjoyed it.
Speaker 1:Thanks for having me. Thank you, take care. Bye-bye, bye. I'm Professor Joe Omani, a professor of consulting at Cardiff University and an advisor to consultancies that want to grow. If you'd like to find more out about me and access some free resources to help your consultancy grow, do please visit joeomahoneycom.
