How to unlock value with Ignition: Part 2. Pricing and selling services

Welcome to Part 2 of this three-part series on how to use Ignition to offer game-changing strategic advice to your clients in professional services. 

Part 1, showed you how to use Ignition to provide cash flow forecasting advice to your clients. 

Now in Part 2, find out how to use the platform to help your clients price and sell their services. 

This article will show you how to:

• Optimize client pricing. Dive deep into your client's financials with Ignition, ensuring they're not just covering costs, but also hitting profit targets.
• Master the pricing matrix. Streamline pricing strategies for businesses of different sizes and service complexities, making the guesswork a thing of the past.
• Find revenue opportunities. Spot the 'low-hanging fruit' in existing services where there are opportunities for your clients to create and sell additional services, helping to maximize revenue and elevate their profitability.

Finally, in Part 3, you’ll find out how to use Ignition to help your clients set and monitor KPIs as an additional service offering.

Pricing isn't just about numbers – it’s a key element in profitability and market position. It should be done regularly to ensure the prices that are being charged for services continue to cover cost fluctuations and maximize profits. 

When reviewing pricing, your clients may assess their market dynamics and competitive positioning along with their value proposition and client feedback. 

These are all important factors in pricing, but it’s the financial data that’s crucially important and this is where you, as their advisor, can help them.

Using Ignition and their financial data you can help your clients determine if their pricing is appropriate and if not, what needs to change. 

The first step for any professional services business when assessing pricing is to create their service list. 

A service list details all of the services the business provides. For some of your clients this will be straightforward and already easily accessible, for others it may require a bit more assistance. 

If your client is already in Ignition, exporting a list of services is a straightforward process. From the services tab in Ignition you can select all of your clients services and export them, along with current pricing details, straight to Excel. See how to do this in the video below.

If your client doesn’t use Ignition yet, you will need to compile this information from any other systems they have, or create a new list manually. 

Next, you need to determine your client's cost of delivering their service. This will be broken down into two main components: direct costs and overheads. 

Your client’s fixed direct costs will be clearly identifiable and are usually disbursements relating to a service or something that must be purchased for that service to occur. 

Their variable direct costs will change depending on the output and in professional services this is primarily labor costs for a productive team member's time spent on a job. (Don't confuse this with charge-out rates if your client has them; this is the actual cost of the time spent, for example, wages plus all additional staff costs.)

Lastly, the overhead costs, often seen as sunk costs, include those expenses that remain relatively constant from month to month, regardless of the volume of services produced. 

Once costs are identified, you need to attribute these to determine the cost of delivering as service. 

Fixed direct costs are the easiest to attribute as they are clearly identifiable. The ease of allocating variable direct costs will depend on if your client prepares timesheets. If they do, then the variable labor costs can be tracked and averaged out per service through timesheets. If they don’t use timesheets the time spent can be estimated and allocated to the service. 

Allocating the overheads is slightly more complicated in professional services. The first step involves calculating the allocation base and rate. Typically, when determining price, this calculation is based on labor hours. To do this you divide total overheads by total hours spent on a job to determine an extra “hourly rate” to be applied to the service. 

The below is an example of how to calculate the overhead allocation. You can do this for any period of time, so long as you consistently apply that same period.

In this example, the client should allocate an extra $80 per hour service delivery. 

Now that you know how to allocate the costs to services, you can calculate for your clients how much it costs them to provide a service. 

Example service cost calculation 

Following on from the above example, here is an example of of the full costing process: 

Cost calculation 

Once you know your clients costs are covered, the actual price to charge will be based on what their profit aims are in their business (made realistic of course, by comparing to competitors and market standards where available). 

If based on the example above, and your client would like to make a 20% net profit for this service, the price would be calculated as follows: 

Your client can apply their profit expectations as a blanket percentage across all services, or a service-by-service basis if they acknowledge, due to market factors, a particular service will be ‘cheaper’ and have lower margins. 

In any professional service business, clients come in different shapes and sizes, which will impact the services that are offered and the pricing. 

When calculating the cost of service delivery in this process, you may find that one service type will have multiple prices needed based on the category of their clients. This will likely be as the time inputs and cost will vary depending on the ‘size of the job’.

If this occurs, you will need to work with your clients to build a pricing matrix that will provide for tiered pricing across your clients services. 

To do this, you will first need to determine with your clients how best to categorize their clients. Will it be based on business size, number of locations, size of project, number of employees, and so on. 

Once you know how to categorize the clients, you need to identify how the inputs change based on different size clients/projects that are using the same service. For example, does a multi-location business take more hours to deliver a service versus a single location? 

You can then quickly apply the steps above to calculate the appropriate pricing point for the same service, but under different circumstances. 

An example of this is below, showing three tiers for each service based on a size category of the business. Remember: these can always be edited on a case-by-case basis if you have a client that’s significantly larger or smaller than the ones that you usually work with. 

Once these tools are built, it will take mere minutes for your clients to confidently price their services.

Once you have updated pricing with your clients it’s important to make sure these prices are set and used. By leveraging the Ignition service library your clients can be assured the latest prices are used when they send out contracts, while also providing a consistent client experience across the business. 

To import the services and new pricing into your clients Ignition file follow the steps listed here. 

The best part about this process is that it’s easily replicable. The next time you need to do this for your client, you can easily export their service list from Ignition, update the input costs and get straight into calculating pricing driven by profits.  

After working with your clients on their pricing you can help them identify the ‘low-hanging fruit’ in their business to quickly grow revenue and increase profits. 

Most professional service businesses are relationship-based. This is why the lead time from marketing to having cash in the bank can be substantial. Clients of professional service businesses usually need to like and trust the business before they will purchase from it. This all takes time, especially for startups or smaller businesses with low brand awareness. 

One of the quickest ways for these businesses to grow is to sell additional services to existing clients. This works even better if the service you want to sell is an extension service the business can already deliver on. 

A client service matrix is created by listing all the clients currently in receipt of a business's services, to easily identify the holes in delivery and the opportunities that exist with existing clients. 

For your clients that use Ignition, you can export their service revenue by client to build out the client service matrix easily.

The next step is to work with your client to choose a few services that you would like to focus on selling more thoroughly across their base. 

Using the insights gained from your pricing exercise you can help identify the services that drive the best profits or will have the best impact for them. 

Your client can then market this service to their existing base. Remember, as with any growth-focused marketing strategy your client will need to ensure they have the capacity to deliver and don’t over-commit.

Using Ignition, you can monitor their success with this strategy easily from the Ignition dashboard by keeping track of any movement in the ‘average client revenue’ on the Revenue tab. As your client moves through this process, the average client revenue should continue to grow. 

Once you have gone through this process with your clients once, it’s easy for them to move through the matrix and ensure they’re making the maximum impact in their existing base. 

Undoubtedly, as they grow and add extra clients to their portfolio there will be opportunities for you to regularly revisit this exercise with them and continue to build that strong advisor relationship with them. 

Unlocking the true potential of a professional service business doesn’t just lie in the services your client offers, but in their pricing and selling strategies as well. 

With Ignition at your fingertips, you can effortlessly refine your client’s pricing strategies, craft a powerful pricing matrix, and pinpoint revenue-boosting opportunities.

Coming up next in our series is How to unlock value with Ignition: Part 3. Monitoring key performance indicators (KPIs). Discover how Ignition can empower you to set and monitor critical KPIs for your professional services clients and turn goals into achievements.

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