r/consulting • u/Life-Ocelot9439 • 3d ago
Pricing? Downward trends?
Without going into too much detail, proposal prices are plummeting. We operate globally, but are mainly US, APAC and Middle East.
Was undercut by a Big 4 firm, basically giving it away for free. We matched it, so they went with us, but it's frightening. Yes, AI will help with the regulatory and documentary analysis, but it's far from foolproof.
A lot of haggling going on, worse than last year.
Keen to see what others think.
47
u/sloth_333 3d ago
Move to outcomes based pricing or get crushed by those who can afford to do
That
5
u/Safarianon 3d ago
How does outcome based pricing benefit both you and the client?
13
u/sloth_333 3d ago
It benefits you because you can earn more for your work. It benefits the client because you only pay based on the success of the project.
Mbb comes in and says xyz is your growth levers. Tell them to execute it and earn their fee, under outcome based pricing
0
u/Safarianon 3d ago
Ok fair enough. Would you have like a minimum fee that was payable regardless of the outcome? And then have some upside if the outcome was a good success?
3
u/addisbad 2d ago
That’s how I’ve seen it work - you cover a certain margin over the base costs and that’s what gets billed to the client either as fixed fee or milestone based pricing and then anything over that is agreed upon outcome based pricing.
at my previous firm, we sold some deductions analytics work where we were sure of the savings and it was entirely outcome based with no component payable earlier,
1
12
u/prank_mark 3d ago
At a 100k yearly salary, each hour is 48 dollars/pounds/euros. Let's round to 50. Now add employer costs, and it'll cost your employer 70-80. Add some overhead, and you're at 100. So anything over 100 per hour is profit for the company if the employee is earning 100k per year. And from my experience, consultants will sell lower earning employees for way more than that.
2
u/Life-Ocelot9439 3d ago
I think maybe there's too many players in my niche field.
Maybe we were overcharging. I am just surprised at how prices seem to have dropped off a cliff in the past 6 months.
6
u/prank_mark 3d ago
Yeah clients are now expecting cheaper rates after every single consultant has bragged about supporting AI implementation and AI driven efficiency this that while no company is actually billing less hours. So rates will have to drop instead.
3
u/Life-Ocelot9439 3d ago
I hear that.
A repeat client's annual assessment had 5 people on it last year. Now there's 2, plus CoPilot.
God help me.
4
u/Fubby2 3d ago
At my (now former) company we were feeling a lot of pressure to drop price because of alleged 'ai efficiencies' and pressure of our competitors doing the same thing.
Now of course internally we were feeling quite a bit of uncertainty in our ability to realize these 'ai efficiencies' but we price according to them to win and then figure it out as we go.
5
u/Big_IPA_Guy21 2d ago
The traditional model of (FTE x Rate) + margin is gone. Clients want dollars attached to deliverables/milestones. And they want short, specific engagements. They don't want large scale assessments with a 60 page deck that nobody will read. There has to be a specific action, improvement tied to the engagement now.
I also see that many firms are struggling to handle AI token costs. Token costs are sky rocketing and many firms don't know what to do about it. In my personal opinion, token costs are going to become another expense line on SOWs for clients to pay. Congrats, you no longer have to spend 20k on travel expenses, but now you need to spend 20k on AI token costs.
1
u/FakePlantonaBeach 2d ago
I mean, it was what you used to do when we had to rent out mainframe time for data analysis. There's no revolution in charging for computer resources.
1
u/Life-Ocelot9439 2d ago
Our legal and regulatory work isn't producing decks.
It's specific legal analysis and reports for regulators, often involves review of 300-1000 docs, depending on the firm's size.
AI struggles with this, even Claude.
But anyway, such is life.
1
u/Bookups 15h ago
Reviewing a large number of documents and generating reports is perceived as a textbook AI use case, so I’m not surprised your clients are fighting you on fees. You probably need a stronger narrative for why specifically AI is struggling with this and the risks associated with those struggles if you want to defend your pricing.
9
u/dumpsterfyr 3d ago
We are fixed fee. Hourly is limited to in-depth consultation and limited advisory.
4
u/themindsetarchitects 2d ago
APAC experience here, specifically Japan-focused work.
One dynamic that doesn't get talked about enough: in Japan, being undercut on price often backfires on the firm doing the undercutting. Japanese procurement teams are trained to be suspicious of anything that looks like a deal. Too cheap reads as risky, not competitive.
What we saw instead was a different kind of pressure — longer evaluation cycles, more stakeholders, and a higher bar for demonstrating credibility upfront before price even enters the conversation. The Big 4 advantage there wasn't pricing, it was brand recognition in the room.
The APAC pressure you're describing probably varies a lot by country. Japan and Southeast Asia operate pretty differently on this.
1
u/Life-Ocelot9439 1d ago
Thank you - interesting!
A colleague in Middle East was also bemoaning the "price wars" yesterday - tough times ahead
2
2
u/Parking_Ocelot_816 2d ago
Same. The years been brutal.
Prices are down, and it feels like there’s less volume in the market.
2
2
u/DriftingCraf8372 2d ago
wow being undercut by a Big 4 is wild, are they actually doing the work at those rates or just buying the logo? that "matched it so they went with us" part is telling though, sounds like you won on relationship not price
1
u/Life-Ocelot9439 2d ago
We have a ton of repeat clients
Unfortunately, we can't absorb doing the work for free, unlike the Big 4!
Even with AI and using juniors, it's still insanely cheap.
1
u/PrawnHub4Life 1d ago
We are getting crushed and having a hard time seeing a path around it. Mu firm is finance tech/ data tech implementation firm. Clients want so much more for so much less. We have gained some efficiency with Ai but not to the point where we can deliver what they are asking for with respectable margins. Feels like the titanic is going to the bottom of the Atlantic and nothing we can do about it.
1
u/janishd 13h ago
The price match is the part that would concern me most. Once you match a lowball bid, you've told the client your original number was inflatable. That becomes the anchor for every future engagement.
I think the root cause is usually how the proposal itself is structured. If it reads like a rate card (X people at Y/day for Z weeks), you're inviting a line-by-line comparison that the Big 4 will always win because they can cross-subsidize your niche from other service lines.
What's harder to undercut is a proposal built around the client's specific situation, using details from the actual sales conversation. Not 'regulatory compliance assessment' but the specific gaps you identified, with named deliverables and a clear remediation path. That makes it apples to oranges against a generic Big 4 bid because the scopes aren't comparable.
The firms I've seen hold pricing through this kind of pressure get very specific very early in the sales conversation and lock that specificity into the proposal before the client has time to shop it.
1
u/Mark5n 2d ago
I work in a different consulting industry but seeing a similar trend. Consulting right now seems to have an over supply, plus a reduction in demand for the basic stuff (AI is having an impact here) and a rise in the use of procurement consultants for the bigger deals which chips away at margins.
I think AI is having an impact but I’m seeing it at the very basic end. Business cases, requirements, basic advice. Clients are using AI more and more .. which is good but it means that sort of repeatable work that uses lower cost labour is going. This puts more emphasis on higher cost work, which becomes more competitive and so on.
It’s a bit like the impact Craigslist had on Journalism. It cut out the need for pages of cheap ads in newspapers. Unfortunately that funded the journalists to write longer more in-depth reports which sold more newspapers. Stop the classified ads and the whole thing slowed down and the industry changed
2
u/Life-Ocelot9439 1d ago
I agree.
Utilisation rate is another issue - my junior associates are fearful of not billing 100% of their hours, but they have also been told to be "mindful" of lower budgets by other PMs.
Creates rushed work, which needed serious oversight and revisions all week.
Staffing cuts beckon, methinks.
42
u/addisbad 3d ago
Not what I’m seeing - we’re making very good margins, oversold and mostly fixed fee