Tom Sweeney

It's a coming of age tale….

Archive for July 16th, 2009

Committing to a rate: Is it the best option for a company?

Posted by sweens on July 16, 2009

I am going through an exercise today where I am trying to come up with ideal rates that my firm can submit to a prospective client of ours. This is known in the staffing industry as a ‘rate card’. It is fairly common for buyers to set up a rate card with the sellers, but it may not always be the best solution.

Firstly, I understand the motivation for any buyer to want a rate card. It stops the price of professional services from increasing past a certain point and it allows the buyer to plan how much money they need to budget in order to complete a given project with ‘x’ amount of resources.

However, as we have discussed before, market rate for professional services always fluctuates. There is a direct correlation between the demand for professional services and the supply of professional services which drives the market value. While stopping an increase in rates for professional services is likely the ultimate goal of a rate card, it can affect the buyers ability to properly bring in resources should the market value for professional services increase significantly.

What I mean by this is that when a firm bids on a rate card, they would normally use current data and plan for a bit of fluctuation. So if for example I bid a senior programmer/analyst at a rate of $600 per day that would give me a competitive rate in today’s market. However, if for some odd reason, next year the market value for a senior programmer/analyst was at $800 per day, I would not be able to attract the quality of resource my client is looking for.

It is for this reason that clients need to be educated and understand both the good and the bad of rate cards. While the rate card can serve as a pricing and safety net when it comes to the rates of professional services, it can also cause challenges if the firms and the consultants are held to out-of-date rates due to an old rate card.

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