Be Where The Ball Will Travel – Not Where It Is Now


As a group ERP consultants and Value Added Resellers (VARS)  flock around the same tired concepts. They tend to have one method of billing, one method of providing support, one method of marketing services.

Change doesn’t come easy to the group.

The problem is that the demographic of clients is changing – even when the VAR community struggles to keep old outdated practices in play.

One huge change that I’ve observed is in the area of pricing.

Ed Kless of Sage was an early proponent. Many times I’ve thought he was totally crazy with his fixed pricing talk.

Ed’s not crazy. He has just traveled to where the ball will be.

The VAR community needs to be there  – or someone else will catch the ball.

Here’s a great example. In the past when a software upgrade was available VARS (myself included)  worked  all sorts of complex hourly calculations and quote the client on the number of hours  it maybe would take to install the upgrade.

I said maybe because after delivering the quote, we’d tack on  warnings and disclaimers that when the hours were more than the quote (usually underbid ) we’d render an additional invoice — on an hourly ongoing basis. An open ended engagement – once the VAR started the work it’s quite possible the client would be expected to pay far above the original (usually underbid) quote.

Anyone like open ended quotes? When your furnace breaks is it ok for a plumber to come in and spend two days in your basement and expect you to pay him or her $100 an hour plus the cost of the furnace?

Of course not. Why? Because the plumber is a professional and is expected to give you a price to solve the problem.

But that’s what VARS do —  asking clients for an open checkbook. Shouldn’t VARS know how much effort it will take to solve a client problem?

Clients don’t want open checkbook quotes any longer.

I know this because I just met with a prospect whose complaint was that their last VAR expected to be paid hourly – even when the VAR screwed up and  badly mis-quoted and mis-managed the job. The client was presented with an additional bill for what they felt was shoddy work by their now ex- VAR.

Now this prospective client will only agree to fixed cost project work.

This is the fourth former client that I’ve seen –  of the same exact VAR. All four former clients are now current clients of our firm.

Clients don’t issue open purchase orders (aka – bill us whatever time it takes – even if that extra time is due to your incompetence in quoting or carrying out the service) to  any of their other vendors. Heck – they probably never wanted to buy that way – but that was the only option available.

This year we’re permanently changing the way that we price everything.

We’ll start with upgrades and gradually work our way to all services. Clients won’t have to worry about cost over-runs unless they’ve asked specifically for additional services.

I’m talking about fixed fee pricing to solve problems – not underbidding (hourly pricing)

I’m not talking about under-bidding. In fact most all of our fixed fee projects fully cover items like initial meeting, quote development, followup assistance. We’re being paid for all of that work — items which under the old method of billing by the hour often “fell through the cracks”.

Fixed fee pricing – at least for us – is about 20% higher than hourly.

Fixed fee pricing is also hard. It requires up-front work on the part of the consultant to develop a proposal and scope document. It’s much easier to just throw an hourly rate and let the client take on the risk.

Problem is that clients are only interested in a solution. They expect a solution. Heck, if it were easy they’d do it themselves.

VARS across the country are slashing hourly rates and writing off time  to win business in a shrinking pool of prospective clients because it’s easier than spending the time up front to properly outline a quotation describing the services to be offered. Period.

Will we lose money on some? Perhaps… ok probably on a few…but over time those that we lose on will be compensated by those we are on budget with.

That doesn’t mean we’ll provide the client with an open consulting engagement. The original quote will provide a full description of the scope as well as a clear indication that if the requested services veer outside of those quoted that we’ll allow them to submit an (optional) additional service request.

This is how I want to pay for professional services. Don’t you insist on a known price before agreeing to a project? Then why do so many VARS think it’s still ok to charge an hourly fee for upgrade projects?

This is the year you should be creating an upgrade document describing exactly the services to be offered – as well as the set price. Clients expect that you’ll quote them this way. That’s where the ball is. Now travel to it – or risk dropping the ball and losing the game.

Image via: Snagging baseballs

7 Replies to “Be Where The Ball Will Travel – Not Where It Is Now”

  1. Wayne, I totally agree with you. This is the way we’ve been doing business, and I think it’s a win-win situation for both our customers and ourselves. It’s more profitable for us and the customers love to know the costs upfront.

  2. Wayne,

    Good posting. I found this in a tweet, by the way, which tells me that social media tools are effective ways to get our message to a much wider audience!

    The metaphor of going where the ball will be is an appropriate one. The problem as I see it, based on my 5 years of selling ERP, is that customers don’t always follow the ball. Many are stuck in the same routine of looking for a lower price, which is often the hourly bid. Customers who’ve been through an implementation before and were burned in the process appreciate the value of a fixed-fee approach.

    I think it comes down to an education process that has to happen during the sale cycle, don’t you? The customer has to be made aware of the risks involved with the hourly approach versus the less risky fixed-fee approach. And that the perceived premium they pay for a fixed-fee will actually prevent them from getting bled to death with never-ending hourly billings.

    Dave

    1. I’m not ashamed to admit that of 10 people who contact us through the Internet — fully 7 never become customers.

      70% walk away – disappear – we never hear another word from them after we provide an estimated price!

      That’s because they’re doing exactly what you describe – and looking for a low bid. In essence they self-filter themself as not being a candidate to become someone we’d want as a client.

      I kinda like that self-filtering even though it seems like our “win” rate is low.

      I’ve found that price shopping Internet customers are disloyal, don’t appreciate your knowledge, argue nearly every bill and usually aren’t worth the time.

      I’m ok that 70% of them never get back to me when I provide them with an honest assessment of what a start to finish price will be for the project they’re inquiring about.

      The other 30% who become clients? They’ve usually (as you correctly point out) already experienced a less capable consultant or had some other issue.

      I also find that developing some type of relationship with the prospective clients first is a great help in landing the 30%. We do that through informative newsletters and posts on our web sites.

  3. Ed has definitely opened my world to a new way of thinking. It is not easy but most things worth doing usually are not. We review and challenge ourselves while developing these new ways of thinking.

    It has proven to be an exciting and rewarding change in our world. We have not completely perfected it, but we are committed to it.

    Wayne comments on the winning percent from the internet requests is similar to what we experience as well. I don’t feel bad about our win or lose rate on these prospects. We just try to learn from each of them.

    1. I wanted to include comments on the win ratio for Internet suspects because not everyone has dealt with those types of leads and sometimes it seems people think that the Internet is a super rich source of very easy profitable work — which I find it is not (at least not easy).

      We typically see 15-20 Internet leads in a busy month – and of the 30% who eventually close it is usually only after decent nurturing (newsletters, web seminars).

      However when they close it’s rarely in a bid situation and price is almost never a consideration.

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