Very few practitioners have discovered cost consciousness. Yet, of all the client service attributes measured in Beaton’s research studies over the last decade amongst thousands of clients of professional services firms of all types, cost consciousness stands out head and shoulders in its importance – and neglect by practitioners.
Cost consciousness is a ‘missing link’. Improvements in cost consciousness have more potential than anything else to enhance clients’ overall experience. Yet cost consciousness is poorly understood and receives little attention with the result that both clients and firms are deprived of the benefits.
Cost consciousness was uncovered in research for a Melbourne Business School doctoral thesis in The University of Melbourne in the mid 1990s. Dr Margaret Beaton was researching how members of Australian Corporate Lawyers Association and Chartered Secretaries Australia perceive the value of solicitors’ services. Her work revealed a large ‘black hole’, i.e. something large and important, but not explained by knowledge at that time. The ‘black hole’ was important in explaining what drives perceived value in clients’ minds, yet it had no name. It was nick-named cost consciousness; and the phrase has stuck.
In their own words this is how clients describe those practitioners and firms that receive high scores on cost consciousness.
++ “We are always kept up-to-date on how fees are being incurred and advised if extra costs or variations are anticipated so that we, as the client, are always fully aware of the cost position.”
++ “The firm is aware of the budget available for any project and suggests optional ways of doing the work based on different budgets.”
++ “They always quote first and explain the cost estimates in ways that I can understand.”
In other words a cost conscious firm is mindful at all times of costs. These firms provide accurate cost estimates upfront and again when any additional charges are incurred. The provision of low or fixed cost solutions and diligent care for organisations with small budgets is also important.
On the other hand, clients who score a firm or practitioner low for cost consciousness say things like this:
– “Way too expensive for simple matters and tend to over-service.”
– “Their invoices for a particular job were far higher than anticipated – and we were never told.”
– “They failed to provide realistic cost estimates.”
These disaffected clients most often feel that the fee charged is too high for the quality and/or value to the client of the service. These perceptions may be the result of an undue focus on making money, an excessive reliance on junior staff, not accurately identifying the likely costs upfront and/or a lack of care in containing costs or working within a budget.
Beaton’s research demonstrates clients mostly regard price and value as positively related, particularly for premium providers. That is, higher fees signal higher quality. Price is social proof of a firm’s market position and quality. Yet this doesn’t mean a firm can charge as much as it likes; there is another factor in the mix. This factor is cost consciousness.
Yet our research consistently shows the weakest link in managing clients’ perceptions of value is poor cost consciousness. This applies to all types of client and all work types.
Cost consciousness is the attribute in the bundle of attributes measured by Beaton that has increased the most in relative importance since the 2008 economic downturn. Crucially, the importance of the ‘sticker price’ i.e. the quantum of fees has shown no increase in relative importance. But the materiality of cost consciousness – which clients describe as their practitioner "spending our money as carefully as if it were their own" – has increased.
Beaton’s research shows that if a practitioner demonstrates cost consciousness (as explained above) then the quantum of fees will have relatively little impact on clients' perception of the value they receive. This is particularly true if the practitioner also provides high levels of client service, i.e. is responsive, reliable and easy to do business with.
If practitioners communicate with their clients openly and regularly about fees, demonstrate concern when costs are mounting, and show an eagerness (yes, eagerness!) to discuss their budget constraints and how they can work within them, then clients will more readily accept their rates.
But if practitioners demonstrate a cavalier attitude to spending clients’ money, they can expect clients to push back on every single invoice, no matter what the amount. Cost consciousness is a – perhaps the – ‘missing link’ in the way professional services firms manage their clients.
This post was first published in BRW as "It’s not the price of your service but the ‘consciousness’ of the price that matters to clients".