1. A price for every customer by Bob Scarlett
(Financial Management, November 2005)
Answer to question posed in article
You were tasked with the following challenge:
Imagine you are the marketing manager of a professional consulting firm. Customers are
charged, by industry convention, on the basis of an hourly charge out rate for consultant time.
How might you go about maximising the revenues of the firm through the practice of price
discrimination?.
An outline answer follows:
Rather than charging out consultant time on the basis of a uniform amount for all jobs and all
customers, a pricing structure might be adopted.
(1) Customers in some business sectors may be willing to pay higher prices than in others.
For example, the petroleum and banking sectors are widely considered to be less
sensitive to personnel related costs than other sectors and hence they may be charged a
premium rate. At the other extreme, the charity and not-for-profit sectors may be charged
a discounted rate
(2) The issue of charge out rates may be more sensitive the larger is the size of the job.
Hence, a large job involving more than, say, 1,000 hours of consultant time may be
charged at a discounted rate.
(3) Customers in some parts of the country may be more price sensitive than in others. So, it
may be possible to charge a premium London rate and a lower ‘country’ rate.
(4) If a particular client is serviced on a regular and continuing basis then it may be
appropriate to agree to a discounted rate or a fixed charge per period plus a very sharply
discounted hourly rate.
(5) The practice manager may be given discretion to negotiate variations in the charge out
rate according to his assessment of a client’s circumstances. A keen or ‘distressed’ client
can be charged a premium rate. A distressed client is one who requires immediate and
important work to be carried out – for example, where a factory has stopped working
because of a major equipment failure.
A professional practice may adopt a charge out rate structure along the following lines :
Practice Charge Out Rates
London rates, £ per hour
Sector : 0-500 hours 501-1,000 hours 1,000 hours +
petroleum / banking 220 180 170
other 200 160 150
charity / NFP 180 140 110
Country rates, £ per hour
Sector : 0-500 hours 501-1,000 hours 1,000 hours +
petroleum / banking 190 175 170
other 180 155 140
charity / NFP 160 130 100
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November 2005

2. The key point to note is that the charge out rate differences do not reflect differences in the
cost of serving different clients. A consultant will be paid the same salary regardless of what
type of job or client he/she is working for.
The charge out rate structure of a professional practice is likely to be considered highly
confidential and its contents may not be known to most staff. Its very existence may be
something that the practice may not wish to be common knowledge.
end
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November 2005