As we head into 2002, hopes are high for an economic rebound and a renewed interest in the technology sector. Yet the past year hasn’t been kind to the IT industry, especially not to consultants. We wanted to know how the economy has affected consultants’ rates. In an informal survey, we asked our members if they had raised their rates in the past 12 months and, if they had, by how much.

This article will provide the results of that survey as well as remarks from Rich Staples, the vice president of sales and marketing for the Information Technology Services Marketing Association (ITSMA). ITSMA, a firm that provides marketing, branding, and sales strategies for the technology industry, recently published a study asserting that clients are becoming value-driven buyers, focusing less on price.

TechRepublic’s survey results
TechRepublic’s survey showed that more than half of the 1,177 participating consultants have not raised their rates in the past 12 months, although 18 percent indicated that they plan to raise their rates in the near future (Figure A).

Figure A

Figure B shows that nearly half of those who did raise their rates increased them between 10 percent and 20 percent. Another 18 percent raised their rates by more than 20 percent.

Figure B

Sixty-four percent of participants said the economy played a role in their decision not to raise their rates and indicated they would wait six months to a year before increasing their hourly wage (Figure C).

Figure C

Figure D shows that the majority of the respondents earn between $50 and $100 hourly, offering services like networking, application development, and project management.

Figure D

The ITSMA study results
The ITSMA study surveyed 200 buyers of technology-based professional services and solutions at Fortune 1000 companies. The study found that while services firms feel pressure to discount their prices, clients are becoming less price-sensitive. In fact, the top three deciding factors for provider selection are:

  • Technical skills
  • Prior relationship (used the firm before on a previous project)
  • Services features

Figure E reveals the ranking of provider selection criteria as determined by the ITSMA study.

Figure E

Staples said the TechRepublic survey results make sense when compared with the trends he’s seen in the ITSMA study results. While some consultants are giving in to the economic pressure to lower prices to compete for business, others find that lowering rates doesn’t help.

“We found that the decision makers are looking for increasing business results and reducing risk,” Staples said. “Pricing was important but not the primary differentiator.”

In fact, lowering prices may hinder consultants’ ability to get new contracts. Being the low-ball provider in the bid process calls your capability and credibility into question, he said. He likened it to the construction industry when consumers get bids for a home improvement project.

“If you’ve got bids at the $5000 level and someone comes in at the $2000 level as the low-cost provider, it raises more questions than anything else,” Staples said.

The same economic instability that makes consultants feel they need to lower their rates keeps customers anxious about the survival of their own companies, Staples said. For that reason, their attitude toward revolutionary solutions has changed.

“Eighteen months ago they were saying, ‘Show me something innovative and creative, and I’ll try it,'” he said. “Now they’re saying, ‘I have a limited budget to spend, and I’m going to use it for things that will show me business results. I’m more interested in you proving that you can demonstrate results and meet my deadlines than I am in you being a low-cost provider.'”

Staples recommends that firms focus on understanding their customers needs and desires for dependable, low-risk solutions and services. He recommends demonstrating consistency and professionalism in every stage of contact with potential clients. Everything from your direct mail or Web site to your proposals and contracts should reflect a commitment to quality and reliability, he said.

When should you raise your rates?

If you’re wondering when you should increase your consulting fees, read Meredith Little’s article “When is it time to raise your rates?” Already raised your rates? What happened? Send us a note or post your comments below.