Stop Pricing Like a Realtor

“How should I adjust my fees for my local market?”

Every so often, a smart advisor reads a benchmarking study and is now worried they’re charging Ohio prices in a New York world (or the other way around).

My opinion might not be the popular one, but I feel strongly about my answer.

You don’t. At least, not directly.

Why advisors think geography sets the price

Most of us were trained to think about price the way a realtor thinks about a house. Location, location, location. So, the logic goes like this: New York should charge more than Ohio. San Francisco should charge more than Kansas City. Boston should charge more than pretty much everywhere.

It sounds reasonable. But that’s not how pricing should work in an advisory firm.

Your expenses already did the math

Look at what it costs to run your firm. Compensation, benefits, rent, technology, vendors, overhead.

If you operate in a higher-cost market, compensation, rent, vendors, and other overhead will generally cost more. Those expenses are already reflected in your firm’s economics, so there is no need to add a separate local-inflation adjustment on top of them.

A better question is: What does it cost me to serve this client?

That’s the question that makes pricing objective. Every client relationship uses up resources: your time, your team, your technology, your processes. When you understand those costs clearly, you stop guessing.

Cost-to-serve is only half of it

Cost-to-serve gives you one side of the equation. The other is what clients in your target market are willing to pay for the service you provide. To understand that, look at:

• What is the market willing to pay?

• What are your clients already paying you?

• What are your best relationships telling you about your value?

Pricing decisions come from looking at both sides together. Cost-to-serve tells you your floor. Market rate tells you what’s possible.

Stop chasing ZIP-code pricing

When you price on geography alone, you’re guessing (with a map, but still guessing). When you price on your economics, you get clarity, and you can defend your fee with confidence.

The firms with the strongest pricing discipline simply know two things:

1. What it costs to serve their clients.

2. What their market is willing to pay.

Know what it costs to serve your clients and what the market will support. Once you understand both, you can set fees based on the business rather than on anxiety about what firms in another city are charging.

Does your fee match what you deliver? Book a complimentary consultation with me to find out, and see how profitability consulting may be able to help you reach your goals.