What allows a company or individual to command higher fees? I’ve written various posts over the past few weeks on fees, and yesterday, I commented on setting higher fixed fees vs. totaling your projected hours and presenting a fixed amount (this generally leads to underestimating and a decrease in project GP). But what allows a company to propose higher fees without the competition coming in to win the deal on lower pricing? Commodity sales compete on price…high-value sales don’t. Here is a list of category offerings I use when considering how to go to market.
The order builds from pure commodity to greater intellectual capital. On the low end, companies like Dell are selling low priced desktop systems online. Nothing unique here, but they are fulfilling a market demand; consumers want inexpensive computers, in fact they demand them. Dell can fulfill this market demand by finding more efficient ways in manufacturing and distribution. What was once a $5000 entry point in the early 80’s (and 5K back then was something to talk about), is now a few hundred dollars. Netbooks and IPads may further change the game here.
Staffing follows with various skills that set apart individuals. Projects help companies move forward with initiatives that change the business. This is where value pricing really starts to make sense.
An interesting question arises with my model at this point. What about a utility such as SaaS like Salesforce.com? Cloud computing should fit in here somewhere…but we’ll come back to that another day.
As we move up, start thinking about Accenture or PWC. Strategy commands big dollars. In a prior life I referred to our growing company as, The Andersen Alternative (Back before the days of the Accenture brand). The message was clear; we were consultants, working up the model toward higher value consulting, while selling the technology to implement those things we recommended doing.
Finally we have people who create vision. People like Geoffrey Moore (Author of Inside the Tornado) come to mind. Consultants working at the top with large high-tech companies, helping them figure out where to go next.
Most resellers are not built to reach vision creation; their sweet spot is probably in the project area. Larger integrators are beginning to build business process, ITIL consulting, and other forms of business consulting into their model to offset the commoditization of product. If you don’t start thinking about this now, you may find yourself without profits next year, and perhaps out of business in the near future. But let me point out, the problem is not with the area you play in, rather it is in the model you’ve built. Resellers are built to sell projects, Dell was built to sell hardware. Both have high profit potential…but building one model and selling another is destined for failure.
© 2010, David Stelzl