However you choose to examine your pricing, simply examining it may help find new ways to communicate your value to your clients. And that alone may be worth the time.
As competition on advisor fees heats up a return to the basic business school principles of price setting might help ease stress and help create a workable plan to fill your pipeline of business prospects. It may seem like the best option is to become more competitive with others in your industry by slashing your fees, but before you go giving away a free toaster to each new client, review the basic principles of price setting and price behavior.
It should be a no-brainer that a good pricing strategy will help you determine the price point where you can maximize profits in your services. But cheaper prices aren’t the only thing that makes an advisor more competitive: the level of service you provide, the kind of responsiveness you can offer (due to excellent support staff or superior technology) and the access you have to your target customers are also crucial. In short, you have to deliver services at a level your customers expect and price accordingly.
While almost anyone in a service-based business that has done any marketing training in the last decade can tell you that the secret is to be focused on your niche area of business, that is more than simply conventional wisdom. When it comes to pricing, being in a niche can allow you to price at a premium. Premium pricing allows you to set your cost higher than your competitors based on the perception by your customers that you have some higher value: for tangible goods, that added value may be better packaging or higher level ingredients and for services, the added value may be industry knowledge, location or flexibility.
On the other hand, for advisors who can mix in newer, greener employees that they can properly supervise, lowering fees may attract customers or allow access to a new market base. Pricing for market penetration will almost always result in a lost of initial income, but it might just be offset by extra training opportunities for new employees and in long term clients who understand their fees may increase as the less experienced advisor working with them gains skills. This is often thought of as a loss-leader in economics and doesn’t always translate into the service economy. Another pricing strategy that doesn’t translate into the financial services market well is the idea of economy pricing – that is, a boiled down, no frills approach. Given that advisors have significant layers of regulation, and that those regulatory layers may increase in the coming years, this approach is generally inadvisable. It may be helpful to be proactive in approaching clients about why this approach won’t work to help nix any element of this in a client’s negotiation of fees.
Bundle pricing, usually used to buy packages of goods in lower cost, may be a pricing concept that may work for advisors. Bundle pricing allows clients to buy multiple services at a lower cost per service than if they bought each service individually. For clients that have complex benefits systems, or tiered benefits systems, having a bundle approach may help clients see the value of different services.
Other aspects of pricing, such as price skimming or psychology pricing are inappropriate in the financial services industry. Both of those two concepts involve setting fees at a rate that plays on the emotions of clients to get them to buy a good for reasons other than, or in addition to, the quality of the good.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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