Archives For pricing

When was the last time you raised your fees?  If your business still quotes T&M most of the time, now is the time to make the change.   If you set fixed price fees based on estimated time, you might consider moving to “value pricing” this year.   Don’t wait; it’s the New Year, meaning people are open to change.

If you’re looking for justification on fee increases, look at the value you bring to your clients.  If your value is low, it’s time to upgrade.  However, most companies I talk to insist their value is high and their clients are highly satisfied.  If this is the case, you have justification to raise your fees.  But don’t penalize your existing customer contracts.   Guarantee pricing to your best clients while you move new business opportunities to new prices.  Consider adding new offerings to your existing programs that deliver more value with a higher price.  Figure it will take several months, if not a year to see bottom line impact, so get started now.  Those who wait until their income statements are in a crisis will be sorry.

Some considerations.  It’s time to charge more if:

o You are losing money on existing contracts

o Installations are coming in with lower margins than expected

o Fixed prices are turning into losses

o You are the low price leader in a high-tech market

o Larger companies won’t consider you because of amateur pricing levels

o Your business is project oriented

o Your value exceeds your price

© 2010, David Stelzl

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Here’s a rare clip from a recent Making Money with Security Workshop…don’t forget to check out my upcoming virtual workshop.  I only have 16 seats left and there is no travel on this – perfect for smaller sales organizations.

http://www.stelzl.us/sales_development_MMS1_virtual.asp

© 2010, David Stelzl

Is there ever a time to charge less?  In fact there is…

(Remember Crazy Eddie? – funny, but the wrong approach for your company.)

1. If a company’s terms put payment way out there, often a discount for upfront payment is warranted.  While speaker’s fees generally are prepaid, consulting fees are not.  Using a fixed fee model allows you to invoice early, and many companies actually have a policy to accept early teams with a 10% discount.  An added benefit comes in that the project is much less likely to be downsized or canceled when fees are prepaid.

2. Subcontractor work or business where you are no the front line seller can also be discounted since there is little cost of sale, and possibly less or no commission being paid.

3. Certain referral sales may also be discounted since your prospecting time is low.

Note: Challenging economic times are not justification for discounts.  Instead, figure out what value is needed to move people, and find things to do that justify themselves based on value.

Finally, should you do something for free?  Yes.  I’d rather do work at full price, tossing in some pro bono work when called for, than discount across the board.  As I have mentioned, once you start discounting, your street price goes down and cannot be regained.  On the other hand, if a client is in desperation or you have enormous competitive pressure while entering a new market, pro bono work can be performed without creating a long term expectation.  Bottom line, you control pro bono work, discounts control you.

© 2010, David Stelzl

When I was growing up my father used to refer to our boat as a hole you throw money into.  You probably have something like a boat; something that continually eats away at the bottom line.  When it comes to selling support work, there are several holes I’ve identified.  Things to avoid if you want to produce hard-dollar profit:

1. Selling managed services with a contractual agreement to be on site.  Make sure your fee is high enough to include the cost of staff augmentation if you do this.  In most cases it is unnecessary.

2. Selling on site support or engineering (staff augmentation) with a commitment to be on site two or three days per week.  This is especially bad when the person is to be there every other day – it is nearly impossible to fill the other days.  This is break-even at best.  Another trap is selling half days.  What will they do the other half?

3. Billing a client for three hours.  You’ll never recover that 4th hour before lunch or the end of the day.

4. Support calls with no minimum charge.

5. A close second is, too small of a minimum charge.  Consider two hours…if the engineer has to drive an hour in traffic one way, the support call will be break-even at best.

6. Not understanding burden cost.  If a support engineer drives two hours (there and back) between every two hour minimum time call, the profit is zero in most cases.  Move to contracted managed support with annual contracts, spread your risk, and make sure your fees cover your cost with the required profit.

7. Converting support calls to managed contracts without a clear understanding of your cost and profit.  Once converted, good luck increasing prices!  You should be making more on managed contracts, not less.

© 2010, David Stelzl

Pricing Your Proposal

October 15, 2010 — Leave a comment

Finalizing my notes this morning for today’s teleseminar on proposals – a side topic which I plan to cover (but won’t have time for great detail) is pricing…

Join us today: 11:30 EDT (CLICK)

So here are a few random rules on proposal prices:

1. Most resellers are pricing things too low – the thought is, your SMB clients can’t afford more, the problem is, you can’t afford less.  Pricing is related to value…not your client’s perceived bank account.

2. T&M pricing is amateur.

3. T&M with a cap is foolish – you take all the risk, your client has no skin in the game.

4. Deals that schedule a given resource on Tuesdays and Thursdays (as an example), mean you must now fill their down time (every other day) with project work or their utilization will be too low to net a profit for the company.

5. Too much detail.  You don’t have to break out every detail of a project’s pricing.  Start quoting in milestones, and price based on value, while considering days and weeks, not hours and minutes.

6. Present options…a choice of yes’s.  Give them the best option, and upside option, and a phased option to allow for tight budgets, but with future phases in mind.

7. Don’t present pricing before value has been established.  Remember, business value can only be understood by a business person.

© 2010, David Stelzl