Archives For pricing services

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.

1. Product

2. Staffing

3. Projects

4. Strategy

5. Vision

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

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Recently I’ve been focused on price.  Why?  Because it seems to be one of the key issues.  “The price is too high”, “We don’t have budget”, “How much of a discount can we get?”  The list goes on with excuses and pleas for you to cut the price.  But it always boils down to value.  So what do I mean when I say, “Agree on value before quoting a price?”

Earlier in the year I was talking with a prospect about speaking at a marketing event.  Through several meetings I finally made my way to the decision maker, the place where we all want to be.  When I heard the words, “But we can get a speaker for free”, I was ready.  Why?  Because I’ve hit this same objection countless times.  There are lot’s of things out there offered for free…free email, free wireless, free Googledocs, free teleconference services, free newspapers, and the list goes on.  So why do we continue pay for these services?  Because somewhere along the way we’ve discovered some value that is not included in the free service.  How about free eye surgery! Would you buy it?  Not me – I’m hiring the best surgeon I can find regardless of price.  Even if I do have to reallocate funding from other activities, including pizza!

Establishing this kind of value requires spending time with the stake holders, learning about their business, their pressures, upcoming decisions, risks, etc.  Once you understand, you begin to paint a picture of how you solve the problem.  In my case I know that getting the speaker there is not that big of a problem.  Getting a great speaker in the area of technology is a bigger problem, but not insurmountable.  Getting a speaker that can move 5o executives to take action is a giant hurdle.  Most technology speakers are there to tell you what they know, not move the audience to buy.  And finally, who knows how to get 50 executives into a room in the first place?  I do.  Understanding his pain allowed me to explain where his upcoming event was likely to go wrong, and then show how I was going to solve the problems he was about to face.  His free speaker can’t do that.  What’s the value?  If only ten percent of those executives buy projects or managed services, he’s up many thousands, hundreds of thousands, maybe even millions of dollars, depending on the kind of event he is hosting.  So what’s that worth?  A lot!

What are your solutions worth?  I don’t know…what problems are you solving?

© 2010, David Stelzl