Mid-Year Rate Refresh

For most service providers, chances are that several months or more have passed since you implemented your annual pricing rate updates. Those pricing updates are typically based on a combination of 2024’s budget, a snapshot of headcount and other relevant data from mid/late 2023, and (for the high achievers) external benchmarking. Halfway through 2024, now is a perfect time to perform a mid-year rate refresh to look for material changes in previous assumptions that may require you to update pricing rates.

Below are a variety of factors I advise companies to account for when performing mid year rate refreshes. The odds that none of these apply to you are approximately 0.01%!

Turnover and Hiring

Since your annual budget was prepared:

• employees you thought would still be around have left the company
• positions you expected to hire in Q1-Q2 have been cancelled
• positions you didn’t expect to hire for this year have been or are about to be opened
• a planned layoff played out differently than expected
• contractor usage has not gone according to plan

The net result of these factors is that your personnel cost base, broken down to a per-role ?/ per-region basis, looks different than you expected it to. The effect could be quite significant for certain roles and/or regions, and the goal of the mid-year rate refresh is to review those effects on the profitability of those roles and thus help you decide whether a mid-year rate adjustment is required.

Merits, Promotions

Annual budgets typically allot amounts for departments to increase staff pay for merit / cost of living and promotions. Merit increases often play out as expected (especially with inflation rates declining) and rarely result in mid-year rate changes. Promotions, however, can create unexpected results- especially for roles and geographies with small numbers of staff- depending on how the promotions play out. The only way to determine whether these dynamics require mid-year rate changes is to plug the changes into your rate model and see the results for yourself.

New and Consolidated Roles, Geographies

Larger, global companies inevitably expand, contract, and consolidate roles and geographies throughout the year. The annual budget anticipates as much of this as possible, but unplanned changes happen, and the mid-year rate refresh will tease these out and help you decide how to update your rate card.

Examples

• a role change planned for next year was expedited based on new opportunities contracted this year
• a gradual shift in geography for a set of roles was expedited based on high turnover
• a new department head was hired and she consolidated her 12 roles to 8.

Change doesn’t happen once a year! The mid-year rate refresh keeps your pricing current with ongoing changes in the organization.

Benefits

By this point in the year, many companies have reviewed current year benefits and have started thinking about what changes may need to be planned for later this year and into next. Companies operating in numerous countries may have experienced unexpected changes already this year. Because we are always pricing for the future, the mid-year rate refresh is an opportunity to account for benefits changes on the horizon.

Phased-in Increases

During the last rate update cycle, there may have been certain large rate increases that you planned to implement in phases throughout this year instead of all at once in January. Say the decision was to increase a $200 rate to $230 in two stages. Companies tend to implement that first increase from $200 to $215 but often “forget” to implement the follow-up increase from $215 to $230 that was planned for “sometime in Q2”. The mid-year rate refreshes helps ensure those follow-up increases actually happen, and doing so with refreshed data helps calm the nerves of anyone second-guessing the original decision.

M&A

I’ve been there and done it multiple times, and know that integrating the pricing of an acquired company is typically an arduous, painstaking process. Humans like to procrastinate on tackling such matters. The mid-year rate refresh forces the action items to determine whether the acquired company’s cost structure and roles should be integrated into your rate card, and if so how the resulting pricing rates should be set. Doing so often provides further momentum to tackle pricing integration needs around pricing tools, unit algorithms, etc.

Benchmarking

Your pricing rates are likely the product of cost rates marked up to a target margin, scattered feedback from customers, what a BD or finance person said their last company set a certain rate at, percentage auto-increases from prior years, and so on. Externally benchmarking your pricing against competitive market ranges brings objective data points to bear, bringing to light rates that are still underpriced even though they drive great margin, rates that are overpriced despite low margins, pricing roles are that broken out into too many or too few levels, and so on.

If such benchmarking wasn’t engaged in prior rate updates, the mid-year rate refresh is an opportunity to size up your latest data and rates against what’s consistently being seen by your customers in your market.

Just Do It

Whether some or all of the above applies to your situation, the most important thing is to get it done! A mid-year refresh should take a fraction of the time of the annual full update, and will also help make your next full rate update process go more quickly and smoothly.

I specialize in pricing and financial strategies for service and technology providers, and provide external benchmarking services for clinical research providers. Contact me to discuss solutions for your organization.