Archives For commission plan

After several posts on proposals and some words on pricing, people have responded with all sorts of reasons on why they can’t give a fixed price.  Believe me, I understand the dilemma.  If you just don’t know what it will take, you don’t want the risk…here are the common objections:

1. Client doesn’t want to pay more than the hours they see you onsite.

2. You always lose when you fix price

3. No one knows what it will take to complete the job

4. What about scope creep

and the list goes on – feel free to add some below and I will respond with my take…so what do we do?  First let’s understand the real issues:

  • When you do T&M the client sees it as T&M with a cap.  Even if you say, “there is no cap”, they expect one.  If someone quotes me $500 to fix something in my house and sends me a bill for $2000, we are going to have a problem.  Even if I pay it, it’s probably the last time I hire them.
  • When there’s a cap, I take all the risk.  If we come in early, I make less just because I was efficient.  In other words, I sold the $10,000 deal, got the approval, and perhaps a PO was issued for $10,000.  And I’ve even forecasted it!  But I only bill $7000, leaving 3K on the table.  I just lost commission on 3K and my company lost the balance right off the bottom line.
  • On the other side, if I go over, the PO is issued, the people I am dealing with have put the funding together, it’s all signed off and ready to go,  but three weeks later I am back in their office trying to get the PO increased.  What do we do?  Put everything on hold while we wait?  That will go over well with my clients!
  • Or I decide to keep going with no further approval.  Every dollar over is a loss in profit, and if my firm charges me a burden cost on services, which they should if they are smart, I really take a loss.  Before I know it, there is no GP left in the deal and my commission in zero.

So why do people continue to justify the T&M approach?  If you find you are losing on every deal, see if there is a trend.  I had one client who was losing about 25% on every deal.  Well, that was simple, start adding that amount to every new quote and you will be right on.  If the price is too high, the T&M quote is too high – another issue solved.  If the client only wants to pay for hours you can prove you spent, the deal was sold on price, not value, if you just don’t know, break it into phases and quote what can be quoted, estimate the rest for phase 2…stop quoting T&M prices!

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It’s that time of year – time to rob our bee hives!  If you’ve seen me speak you know I am in the process of raising entrepreneurs.  Avoiding traditional learning programs that tend to produce “worker bees”, while searching out ways to develop my children’s creativity and business acumen.  Seth Godin writes about this in his latest book, “Linchpin” – urging us to move beyond the #2 pencil, to develop our problem solving skills and creative abilities.

Yesterday we suited up in our “almost” bee proof uniforms, and headed out to the bee hives.  They’ve been working all summer to make enough honey to survive the winter, and hopefully enough to support my apiculture team through the winter as they sell their honey.  But, like all business ventures, there are no guarantees.

The bees do most of the work.  They begin by building up the hive in the early spring.  We start to really see some activity in March as the queen is mating and recreating to build up her team.  As the first flowers appear, nectar flows and the bees collect pollen.  Comb is then built on frames, first in the lower brood boxes, then in “supers” which are added as the brood chambers are filled with both brood and honey.

But there’s a risk.  As the hive builds, the bees know its time to multiply.  They’ve been created with an instinct to raise up a new queen, and so some of the brood are targeted for this new role in the hive.  Royal jelly is applied to several eggs to raise up this new queen.  A queen cell develops from this application, and two-thirds of the hive members prepare to leave with the old queen!  That’s right, most of our hive will try to flee the hive, hunting for a new home somewhere out of our reach.  If we don’t find a way to stop them, they’re gone.  The new queen will then emerge and begin repopulating the hive.  All of this is natural, however it completely disrupts the honey production, leaving the bee farmers with only a small amount of honey at the end of the season.

There are other problems as well. Mites may infect the hive, killing it off.  There are other pests that may disrupt the hive, weather conditions such as drought or a freeze may disrupt the nectar flow leaving us empty. Or perhaps an animal will get into the hive and completely destroy it as they help themselves to the honey.

It turns out that this was one of those years.  After faithfully caring for the hives through the summer, we incurred a few swarms (this is how the bees take off with the new queen), one of our hives died last winter, and for some reason the hives just didn’t produce.  In fact, only one hive had enough honey to actually harvest.  The rest only made enough for next winter.

Of course the kids were disappointed!  But let’s not miss the important lesson here.  For the Stelzl family, keeping bees is less about profit and more about learning (at least that’s how I see it).  I don’t expect any of my kids to actually support their future families on bee farming, however I do want them to learn about investments, overhead, gross profit, marketing and selling, and the work required to produce their product.  This year we’ve learned a lesson on risk – there is no guarantee.  They’ve put in a great effort, however the pay plan is pure commission.  In fact, they’ve even spent their own money buying bees to replace past failures, purchasing equipment and hive repairs, and purchasing jars to sell the honey in.  Who will make up for their loss?  No one.  There are no bail-outs for this type of failure.  Instead they will have to rely on their other business ventures to support their coming year’s expenses.  And of course, there’s always next year’s honey if all goes well.  But there are no guarantees.