The money shot

By Hugh Rittner, Lighthouse advisory board member

Forrester’s had a great start this year. With hiring progression in addition to revenue growth through research and consultancy, the number two analyst firm is certainly firing in the right direction.

Forrester’s pricing and professional fees have evidenced a degree of spiking through increases over the past six months. And of course, this is a fundamental factor in their overall revenue growth. However, what does the future hold for their pricing structure? And what should it hold?

As far as we can tell, there are no plans to continue this pricing ascent. With a 10% increase across the board in the 2005 and the fact that as much as 30% of revenue growth already comes from price rises suggests that Forrester is coming to a natural break in the fee increases.

The 16% rise in research revenues (which represent two-thirds of total revenues) combined with a 30+% spike from other revenues demonstrates just how fast their start has been. Even by negating fee increases, Forrester is powering towards higher levels of performance through a steady increase in the number of clients – they estimate about 150 new clients this year, we think something more like 200 is attainable – combined with initiatives such as the re-branding of the Oval programs as Boards.

So Forrester is generating greater cash through both spiking its prices and organic revenue growth. Of course, this raises the question, why raise prices concurrently with “natural” revenue growth?

Might a shareholder, for instance, say that in times of business expansion it is unnecessary and maybe even wasteful to raise prices? Would a better option have been to delay fee increases until revenue growth slows, thereby flattening overall revenue growth? As things stand, Forrester has induced an almighty spike in revenue, which is great now that business is good, but what about when a period of stagnation arrives?

It makes sense to “make hay whilst the sun shines” – to raise prices in good times – but it also makes sense to save “the money shot” (as it is called in basketball and extreme sports) for when you really need it. The question is this: has Forrester jumped the gun?

But if their market analysis says their product is worth more to their clients than they’re currently charging, then shouldn’t they raise their prices? The logic of maintaining a steady growth in revenue is something akin to pandering to the stock market. Their focus should be on best business practice rather than what’s best for Wall Street and the City. Although smooth revenue streams might help some sleep easier, Forrester is best served by their current pricing strategy – the stock market can look after itself.

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