Customers have the right to know the positive and negative about software solutions before making investments.

Hourly billing is the root of most ERP problems not caused by salespeople or free demos.

Schulz Consulting Beliefs

The session that I attended was sold out – with 32 firms announced as a attending. The essential message of the Symposium:

Billing by the hour is counterproductive. The use of ranges of hours (or estimates) when quoting jobs sets up and adversarial (and some would say unethical) relationship where the client is thinking that they’ll pay the lower end of the estimated range and the consultant knows that the bill will be in the higher end — PLUS 10% (or more).

A key takeaway from the Symposium for me has been the use of options. Rather than competitively bidding on projects with smaller budgets we’ve learned to provide options to prospects. These options range from the prospect doing most of the work (least costly) to we do all the work (most costly).

Using options also removes most of the incentive for a prospect to ask for a discount. Instead of a lower price they can be offered a lower value option. It’s the prospects choice.

The concepts in this course are solid, make lots of sense – and for some reason seem difficult for most consulting firms to accept and fully implement. Which is exactly why you should go.

Most consulting firms don’t make the up front effort to fully implement these concepts and instead put their efforts into “why they can’t implement them”.

Here’s more of my experiences from attending the early May 2011 session – as well as a success story that happened immediately upon returning from the Symposium.

I attended Sage’s Firm of the Future Symposium in Atlanta about a week ago. Ed Kless, Ron Baker and John Shaver taught. I’d never heard Ron speak before but knew of his reputation as one of the leaders of the key concepts behind value billing (aka fixed fee) .

Course description:

This experience is dedicated to the possibility that a professional organization can be run more effectively when it becomes a knowledge firm rather than a service firm. Creating such an organization is hard work and not for everyone as it requires partners to think differently than they have in the past about what it is that they do.

I went to the class not because I’d never heard or tried the concepts before. I’ve been a regular attendee to most of Ed’s classes. We’ve been applying fixed fee concepts for about a year. We’d already done fixed fee exclusively for support. This past year we converted to fixed billing for projects as well. It’s been a lot of hard work – and yes it’s a pain for quoting small projects and for projects that aren’t well defined. In short pricing on a fixed fee basis forces you to understand the work before you begin.

Some of the key concepts that I’ve learned:

- Customers love options. They love to be given a range of pricing to cover varying levels of service that range from a lower “do it yourself” price all the way up to the “we do everything” price. In the class this is discussed as the American Express Green/Gold/Black card.

I’ve been blown away in the past year by the number of customers who’ve chosen the highest option (which means they’ve requested MORE involvement on our part).

One of my first projects selected an option that was over three times higher than I would have priced the project hourly ($14,000 vs $ 4,000). Their reason for doing so? They explained they were more comfortable knowing that I would be on-site for the entire duration and would manage all aspects of the project.

They’ve just returned for another upgrade of their system. The pricing option was similar. They selected the “black card” price.

- Pricing is hard. There’s no magic bullet to compute a fixed price. We’ve made mistakes – but never to the extent that we lost a lot of money. Because all of our customers have an ongoing recurring support relationship with us I’ve always considered the lifetime value of a customer more important than the profit from any one project. (Note: If we don’t feel there’s an ability to help a customer on a long term recurring basis we generally decline the work).

- There’s no better feeling than being able to devote whatever time a project takes without worrying that you need to run from a customer’s office because the hours are starting to add up and the bill woud be too high if you stayed longer.

The question naturally may be — is the $2,000 fee for Firm of the Future Symposium worth the investment?

During the last class one of the first exercises was to develop a “Why’ statement. This is a summary of what you believe in. It’s purposes is to attract people who also believe in the same thing. Think of it as a fancy form of qualifying a prospect.

My statement was a little rough –

I believe that businesses need a trusted resource to provide candid experienced feedback when selecting or improving their existing technology I do this by surrounding myself with smarter people with varied experiences who aid me in providing that feedback – even if it doesn’t result in a sale

As luck would have it on day one back from the class I received a call from a company looking for assistance with evaluating their existing system. They’re stuck not knowing whether to junk it – or upgrade it.

In my case using my “why statement” (developed in class) worked. We’re starting a fully prepaid in advance assessment next week for roughly twice what the course costs. For me that’s a pretty good ROI. It’s also one of the first times I’ve made money from attending a course.

Here’s a link to the PDF of the Agenda – http://goo.gl/LvBSr and a link to Ron Baker’s Book – Implementing Value Pricing: A Radical Business Model for Professional Firms which is essentially the manual for this class (and well worth the $46)

Most IT project failure  leads back to  fully thinking and understand the scope of the project. In the race to get the (free) quote and the (free) assessment from the IT providers the customer forgets to analyze whether they’re making a sound long term decision.

I see this all the time. People (admittedly on a much smaller scale) think they can email a request to dozens of vendors with a request to “give them a price” for a certain project.

In my world it’s usually an upgrade of their MAS90 accounting software. However occasionally it is for a new software implementation. In each instance I’m incredibly nervous that the person making the email request has incorrectly assessed their needs.

As VARS we are left with two choices:

A. Go out and do a free paid analysis (which invariably gets used to solicit bids from a preferred provider)

B. Guess at a number (and hope that if it’s approved that the project doesn’t have any hidden “gotchas”)

The core issue is that customers unwilling to developer a project definition are looking for a Chevy price when in fact they realistically need the current year’s Rolls Royce because they often don’t have the internal understanding of what’s desired/needed and think that the software magically cures the issue.

While this example specifically relates to software I believe it accurately depicts most complex projects where the customer wants a one price bid to fix something they don’t understand.

Sadly the IT world still largely operates under a model where pre-sales consultations are assumed to be completely free and the customer assumes that they’ve correctly identified both current and future technical and business issues (or that they can use a free quote to do so).

When It Comes To Enterprise Software – It’s The Contract Stupid image via

In the interest of time — and figuring if two people have the same question then probably more do as well — I will share my answer to the following:

Hi Wayne
We are a MAS90 partner in _____. I have met you at Insights in the past but I am sure you meet a million partners.

Have a question about what you use to track your time and invoice your customers? We have used TimeKeeper with ______ for a long time but have some problems and so thought maybe if there is a better option we might consider it. We still have not moved to Ed’s value pricing so rely on tracking time and invoicing it. Any thoughts you have on this topic would be great.

As luck would have it — I do have some quick thoughts. Here’s how we roll…

Over the last year we’ve moved entirely to fixed price billing. This is the method where we take the approach that our customer should know the price prior to our starting the work – and that the price should be defined based upon an agreed upon description (scope) of the work.

It’s been a huge learning experience – however the pricing method by far is fairer to customers than anything I’ve seen. No longer does a customer have to look at the clock when our employees enter their offices — or worry that a difficult problem could incur significant surprise cost over-runs.

Here’s how we’ve changed in the last year to accomodate this fixed price billing:
We use Freshbooks — and moved to Ed’s fixed pricing shortly after Insights.

It’s a struggle and there are lots of lessons that you learn along the way. However I’ve found that overall it’s an easier system than tracking time and arguing about every 1/4 hour that a client wants (not) to be billed for.

The easiest transition to the fixed price is to run with the three options – where the lowest option could be the one where customer does most of the work — and your higher options are where you do more of the work.

Surprisingly clients will often pick the higher priced option. Just don’t price option one as bare bones so that you regret it if they pick it.

Freshbooks = Billing (and it will send out estimates via email for approval) — we no longer send out paper invoices (this was costing us $60 per month). We don’t use the feature but Freshbooks will also allow you to offer online CC payments for clients to click and pay on your invoices.

Basecamp = Every project is setup in Basecamp for tracking of projects and collaboration. We have also started to use Highrise for CRM since it’s all integrated and there’s no comparable Sage offering.

Google Apps = Setup all your quotes in Google Apps as templates. We have a 10 page boilerplate proposal for upgrades that we developed over the course of a few tough upgrades. Since you usually don’t want to take three days to review and quote an upgrade — only to have the client reject it — setup a good upgrade proposal that explains what is and isn’t covered by typical upgrade quotes.

We also use a simple chart that shows us depending upon the version that the customer says they’re moving from, # of users and other factors (custom reports, forms, etc) what the estimated $ would be. We make this proposal via email before going to a formal quote.

I like fixed pricing for all sorts of  reasons. Mostly I think it’s fairer to the customer who no longer feels a need to track the time you spend at their office – or raise an objection that they’re being billed while you take an emergency call from another client.

The most important thing I’ve learned about fixed pricing is that the process takes much more effort than the old method of quoting a rate.

Under the old hourly pricing model the conversation goes like this:

CLIENT: So what’s your rate

CONSULTANT: $180

CLIENT: So how long should this project take

CONSULTANT: Oh, (shuffle feet) probably 40 to 60 hours — but if it’s less we’ll bill you less – and if it’s more we’ll bill you more.

See any potential problems with the old method?

There are two major issues. First, the hourly rate is not predictive of the value that the customer gets. Secondly, as Ed pointed out, who goes to the store to pick up milk and would be agreeable to a price that’s ‘between $3 and $5 – could be more could be less’.

This year we’ve been doing fixed pricing almost exclusively. There have been a lot of lessons learned. And I’ve compiled a list of my top 14 mistakes  - I call them tips but in reality they are all mistakes I made this year and worked to develop a policy to make sure they didn’t happen again.

The Top 14 Mistakes I Made This Year (AKA 14 Tips For Improving Fixed Fee Pricing)

1. Don’t price a proposal for a slower month and then have the client delay it into November/December. I have one now that I quoted in June, started, found some issues the client needed to fix — and the people just came back (due to their own slow speed performing tasks) asking if we could finish the upgrade next week.

2. Include a statement in your proposal that you expect any issues to be brought to your attention within 10 days — and after that time you’ll be willing to provide a proposal for items which require changes. Do not allow a customer to come back in 3 to 6 months (or longer) after they finally get around to testing their data (and when it’s nearly impossible to easily fix).

3. Include language that you are able to schedule a start date within (pick a # days – we use 10) of receipt of payment (a lot of clients want to give you a verbal and then drag their feet on payment). Stress that verbal commitments are tentative only until you receive the downpayment (we collect 50%)

4. Always price in:

- Travel
- Project Management (we set every project up in Basecamp)
- One potential call to Sage

5. Include a guarantee that the client will love your services. This increases value — we provide a 10 day guarantee  (see also #2 above) on data issues and up to 90 days after our fixed proposal ends we’ll answer any questions/provide support on services provided as a part of the project.

6. Not responsible for hidden damage. This is the phrase we use in every proposal. I started using it after I got a fixed quote from my auto body shop and noticed the phrase on their quote. This gets you out of almost all jams. It also means you can price proposals without having to work in the potential for damaged data requiring lengthy consulting (because if that occurs it is a change order).

7. Assume that there are going to be one or two things that you’re not going to be able to get a change order on. Rather than lose sleep over it — price that into your proposal. The more complex the more you need a cushion.

8. I feel that a fixed fee bid really supports a minimum fee. Even “two second fixes” are never that quick. There’s always a hidden gotcha. In general we don’t quote anything under about $600-$800 (and that would be for work where we don’t travel)

9, Ed touched on this — I started off with a fixed fee billing mentality — yet was using subcontractors who I paid hourly. That didn’t work. The subs wanted to do a perfect job — and because it was fixed the clients wanted them on-site all the time. Instead I split the fee with them ( A good one is probably worth 40%. And I bring them in on the quote so they don’t feel like I’ve underbid).

10. An upgrade means upgrade. Do not spend time on old issues if they’re unrelated to the upgrade. If the client owned a program with a feature they weren’t using — then unless it’s stated in the upgrade you should not be training them on it. Put them on an issues list. This is HUGE. Because of #11 below….

11. Always remember that the last consultant to touch a broken computer or software program is considered by the client to “own the problem” and then needs to fix it. Don’t take on work that is within scope or you may wind up spending days figuring out why a printer keeps dis-connecting from a workstation when in fact you were just trying to be nice when you stopped to “try to fix” an issue.

12. Do a LOT of prep work. Before you go on-site give the client a list of what you need exactly. This helps a lot. If you need a computer make sure you specify that it has your software loaded, you need user rights, etc. Remember when it’s fixed fee you have to be more efficient because the client doesn’t have as much incentive to be efficient themselves.

13. Use the lowest priced option as your safety valve for being “too expensive” — the low option in my quotes is always heavily do it yourself for the client who wants to save money (most won’t choose it) and gives you a handy way to ward off the complaint of expense.

14. Never price an engagement as “up to xx hours” or “up to 1/2 day” or “up to … ” — clients will see this as “The price will not exceed xxxx” . Don’t believe me? Try pricing this way once or twice.

If you’re done with the work early – the client only wants to pay actual time.

Guess what they’ll want to pay if you go over your time limit/estimate… (Tip: They’ll suddenly demand the fixed fee).

Congratulations – you’ve just re-invented the world’s worst billing method — and it’s called “Not to exceed” which guarantees you shoulder all of the risk and none of the benefit of being efficient or smart enough to solve the problem quickly.

Moral of the story? The price is either fixed or it isn’t – don’t try to ride two horses.

How about you? Are there any that I’ve missed? Any that are so wrong that I should change my methods?

This morning I awoke to an email from Jo Ann Benzer who is the Executive Director of The IT Alliance. This is a group of IT Professionals who have a general meeting twice a year to compare notes on best practices in IT, hear from interesting speakers and share a nice dinner and bottle of wine or 15.

Jo Ann’s email requested a list of top WOW moments for 2010. These are items that you have found worked well in business and can be practice tips, marketing advice or cool technology that you’ve used.

One of my top WOW tips is to never write a lengthy general purpose email to someone without also re-purposing it as a blog post. These items which if sent via email can go to waste or reach only one or two people. Whereas if you post the item on your blog you share with the world.

Therefore, in the spirit of sharing – here are my top WOW moments for 2010!

Many of these are not earth shattering WOW moments however taken in total with other feedback from the group they may validate or add weight to help build a consensus of what items are working:

1. Our 90 Minds Consulting Group (http://www.90minds.com) – an informal alliance of over 27 Sage ERP MAS consulting partners – ditched our old Yahoo Groups email in favor of Socialcast (http://www.socialcast.com) .

This tool (similar to Yammer) is similar to Facebook in that members of our group share and comment on items. What’s different from email blasts is that the members are in charge of what items they’re notified about.

Here’s an example that I posted two days ago. Are your email blasts inside your company getting this much engagement from other staff?

In the past we had over 1,000 emails per month going to all members in the group.

Now with Socialcast members can login (or they can still choose to be bombarded with email notifications) and view, comment and share information. Email is saved for important client interactions.

Result: A significantly less cluttered email inbox resulting in more time to pay attention to client emails.

2. About 3 years ago I switched off Microsof Exchange in favor of Google Apps for Domains. My email, calendar and contacts are all hosted there. SPAM as a problem no longer exists to me. Cost is $50/year and well worth the price. Integration with Google’s Android OS is very smooth.

Result: No need for any third party assistance with email, calendar, mobile integration

3. This year I switched from an on-premise time and billing system to a hosted billing system – Freshbooks.com. While there are many features of Freshbooks which I continue to think make it mostly suitable for “the little guy” — the overall concept is a huge timesaver.

At a glance I can see who’s viewed the invoices I’ve sent. If any of the clients have a dispute over the amount or items on the invoice they can click a link displayed on their invoice which will send back a message notifying us of the problem.

In advance of any work being performed I send an email estimate. This is perhaps my favorite feature of Freshbooks. The client reviews the estimate via a link they receive. If they approve they click on the “approve” and I quickly follow-up with a final invoice. The client can also propose changes. The bottom portion of the estimate screen retains a history of all the back and forth proposals.

The client approves the estimate electronically.

I generate an invoice which they pay (integrated payment processing via credit card is supported).

I’ve found that Freshbooks works best if you’re billing by a project as opposed to trying to do a lot of hourly billing. The tracking of hours spent by work code was a report that I never could readily view.

Ultimately I’ve moved to fixed price billing I do not miss the breakout of hours – however some users may want to think about whether lack of hours is an issue for them.

As an added benefit since Freshbooks is hosted I find myself billing clients for incidentals ( like software renewals ) on the spot rather than waiting for my accounting department to enter, print, mail an invoice which can sometimes be a week or more delay.

Freshbooks also handles recurring invoices. I’m able to offer clients monthly, quarterly or semi-annually billing options for support – without needing to remember to generate a bill when due!

Recurring invoice capability is a huge timesaver – and it opens up our list of services to less frequent billing options. Instead of only offering an annual support plan we now can offer a quarterly or monthly plan (at higher rates). This has been a hugely convenience feature that we expect to use a lot more in the future.

4. Fixed Fee Billing for projects — This is the year that we embraced it and since just about everyone in the group will likely have better methods to share I’ll just chime in to say we find that it works better for us on several levels:

a. We are spending more time with clients on follow-up (we build this into pricing) whereas before we’d shy away from being on-site because our old hourly method made “all on site work billable”.

b. We are billing realistically and retaining customers who are looking for solutions rather than low bids. This means that a certain percent of people receiving fixed fee quotes go elsewhere looking to get a low rate. Overall we think these are low value customers that we’ve never made money on. The fixed pricing seems as if it serves as a good filter.

c. Collections is much easier since we won’t start a project into scheduling without a downpayment – you’ll be surprised how quickly the money will arrive when you have that policy.

d. We use options and the lowest cost option is almost always a “do most of it yourself” and provides the low end customer a way to save money. A surprising number of customers have selected the “do it all” pricing.

5. Using Basecamp for adhoc project management – Increasingly we’ve noticed that as we use fixed pricing that the work we’re doing is mostly projects. Clients rather than purchasing labor are purchasing a result or outcome. This meant that we really needed a better way to track our efforts (what was done, why and the tools used).

This year we’ve started using Basecamp (http://www.basecamphq.com) for tracking project work. Each client engagement is setup as a project. We keep all the communication inside there and when the project’s over we archive. In three years when the client asks “do you remember that set of reports you created ?” — we can go to Basecamp and have all the information in one place.

6. One of my favorite marketing tips that I started using about two years ago is to use Google Apps and the built in form feature to create links that I post on my web site to gather lead inquiries.

I’m able to create what’s essentially a front end to a Google Spreadsheet and post a link on my web site titled “click here for more info”.

This in and of itself isn’t earth shattering. There are tons of ways people do this now (collect leads). What’s interesting is that (a) it’s free with Google Apps and (b) It stores results right in a Google spreadsheet and (c) emails you when someone completes the form.

Sample:

https://spreadsheets.google.com/viewform?formkey=dFltbUlzRFVqVEZCUERkRE1hUTlISUE6MA..

I have also found it very helpful to provide visitors with enough information so that you’re not getting a dozen inquiries a week looking for free advice. So I link our full support agreement right in the “Request Help” document and mention that we’re not able to provide free advice via the form. This may seem harsh but from experience I’ve found if you don’t do that then you’ll waste resources replying to people who really cannot afford (or won’t pay) for your professional services.

And as a last WOW tip – I recommend never wasting any type of general informational email that you might send to a group.

This blog post started off as a private email to Jo Ann. Then I copied all the information, added some pictures and posted it online. Instead of sending the content I can send a link. Members get the same benefit — however by re-purposing non-confidential emails you also can develop interesting content for your blog!

Wow.

PS – I almost forgot — here’s my most helpful new technology tip that I’ve been trying for the last three months. The we site is Tungle.me and it links to your calendar (in my case Google) and provides a handy link that you can send to a client so they can pick a day to meet.

I’m not sure about you but in the past I’ve sent clients a list of three or four days that were convenient for me to meet with them. The client invariably takes a week to get back to me on the days. They pick out a convenient day — but in the passing week my calendar has suddenly become fully booked.

Tungle.me takes all that away.

Now I just send a client a live link to my Google Calendar. It doesn’t show ANY detail. All the client sees is my open times (see the image below — or click this link to look at my Tungle.me calendar).

I find this to be an impressively helpful tool that takes all the schedule tracking off my shoulders. In the past I’d have three or four clients who I’d given out differing open dates to. They’d all take varying amounts of time to get back to me with a request for a meeting — when in the interim another client would take the date they were requesting!

No more calendar scheduling conflict!  Tungle.me is free. It connects to most calendar systems including Google.

There’s a lot of talk about value based (aka fixed fee) fees. Listen to this three part series from a practioner who took his practice from waiting 180 days to be paid, not making money and wanting to give away his clients because they were so unprofitable.

Today this participants greatest fear? That he hasn’t priced himself high enough.

Here’s the second part

And the final segment – featuring a lot of Q&A from the audience:

If this is of interest – you may also want to attend the Sage Firm of the Future Symposium August 23, 2010 in Texas.  Hosted by Ed Kless this session (free to Sage Select business partners) will discuss pricing issue such as those shown above – and feature a presentation from Sage Partner John Shaver who has adopted these principles.

The real key to the session won’t be the lectures — but the open Q&A which will be available through each day of this two day session.

Firm of the future symposium and  Alan Weiss – Summit Consulting

What I’ve found is that one portion of the story is true – they have no slack in their schedule.

They probably don’t sleep much either.

That’s because they’re working 120 hours – and billing for 40.

Are they really collecting $150 an hour (or pick your favorite rate) for EVERY hour that they work?

No.

There’s one big part of the story that you’re never told though. Their average rate is somewhat closer to $50 (or less per hour). Why?

They’re Not Charging or Collecting For All Their Time

The dirty secret of the claimed big biller is that while the rate may be high — approaching $200 in many cases  - the number of hours they charge are far less than what they really work.

How does this happen?

• Working after hours to manage client conversions
• Phone conferences with “Our IT Guy/Gal” that aren’t billed
• Quick questions about unrelated project items
• Weekend time to “check up on ” system administration tasks
• Time spent revising, creating and explaining a proposal (often multiple times)
• Discussions with the software publisher over undocumented features (aka bugs)
• Mandatory attendance at live connect sessions with the software publisher

Is this happening with you? Do you know how much un-recovered effort are you gifting to your client?

You have un-recovered time when your proposals always “best case” despite knowing that all projects have some time consuming hurdles to overcome?

You have un-recovered time when you fail to factor in overhead items such as travel, proposals, project management, publisher interactions?

If you are not factoring these things in – then you’re working for less than what you think.

Fixed Pricing Always Seems Higher When Done Properly

Every one of my fixed prices has generated stares of disbelief. Both consultants and customers can’t imagine that an upgrade could take $ 5,000 from start to finish.

Certainly an hourly quote would be less?

That depends.

Does your hourly quote (tell the truth) allow for:

• Initial meeting
• Proposal time
• Extra tasks other than the project you’ve quoted
• After hours work (at a premium)
• Travel
• Time spent chasing bugs with the software publisher?

I’ve found most hourly quotes don’t allocate for anything except a best case scenario of the time a consultant expects to spend. The quote assumes everything goes perfectly, that there’s no administrative or project management, that you never call the software publisher or need to look in the knowledgebase.

The problem is that’s almost never true. There’s no perfect engagement in the increasingly complex world of consulting.

My advice? Drop the rate to zero. Give the client a fixed reasonable cost for a well defined project. You’ll be surprised how quickly you can turn that $50/hr into $150 again.

I think you should too.

The two trends ?:

1. Customers searching the web compiling spreadsheets of what random consultants charge per hour  -with little apparent regard for whether the consultant is good,  has the capability to solve the problem or even has recent relevant experience with similar companies.

   Think I’m kidding? On an average day we’re receiving two calls that are nothing more than companies (or IT consultants who work for them) checking on our rates and “how many hours would it take” to [fill in random project here].

2. Consultants who,  desperate for work, have slashed rates to an unsustainable $125 per hour (billed in quarter hour increments) and below.

And if word-of-mouth is to be believed those eye-popping rates of $125 are appearing in large cities like New York and Boston.

We bill our time for support and consulting as a fixed guaranteed fee.

So  for me -  quoting an hourly rate is meaningless. It does nothing but lower my perceived value to the same – or less -  of the consulting morons firms who are underbidding,  under-serving (and ultimately losing)  their customers.

Some other thoughts.

Other Reasons You Should Double Or Triple Your Quoted Hourly Rate

Those who are fixed billing purists will comment that you should not have an hourly rate at all.

Perhaps that’s true.

However I am finding in real life  that nearly every customer has been conditioned to work their analysis magic based on an hourly rate. Almost 100% of suspects  ask the magic “so what is your rate”. This approach doesn’t work when you bill on a fixed fee. I’ve provided the fixed cost and the customer still wants to know “so what is your rate”.

My new reply?

$400 per hour. Full hour increments. Minimum charge $1,600 when billed hourly.

Guess what.

Hourly is no longer cheaper than fixed price.

I am no longer comparable to my competitor across the street who artificially chopped his rate to 50% of what it needs to be.

I will lose the projects that insist on paying by the hour in 10 minute increments unless the customer is focused on value and outcome.

As soon as I quote the new rate – the customer has two choices:

1. Price shop someone else (85% will)
2. Focus on the value of a fixed price

Now you see why this is potentially a brilliant idea?

I don’t run into all the problems people say that you’re supposed to with an agreement. In other words I’m not constantly on the phone with specific customers, they’re not calling every minute of the day, etc.

Yes, it does result in an increase in call volume. It also results in an increase in customer loyalty — and recurring revenue.

I’ve not had to staff any extra people to meet the call volume – though I hear that other VARS do.

We also don’t specifically designate someone to “sit in a chair and wait for a call” (most other VARS don’t either though some consultants are permanently assigned to office work/projects).

I think if you’re talking any more than 150 customers on a phone support plan that you probably would have to (we have about half that number).

Our plans are all online – we keep them that way so prospects can review them and know exactly what they’re requesting for services:

Our unlimited plan is presently $2,800 and includes phone/remote/email support.

In the last year we’ve modified it slightly to address companies that are larger in size. The one area I’ve found you must be cautious with is those companies who come in via the Internet and have multiple entities — those are generally high support volume customers.

Here’s our current unlimited plan:

We’re not currently advertising a measured # of calls (silver) plan – however in the past we’d basically used the same plan as above but inserted a cap of 3 calls per year for $1,000.

We offer a “bronze” plan — not because we want to but because clients who drop support ask us “can we just go to pay as we go?”.

I happen to think pay as you go is a crappy way for VARS to provide support because it essentially requires you to fully staff, educate and be prepared for calls that come during your busiest time.

Customers want pay as you go to mean:

1. Don’t bill me for calls I deem quick
2. Don’t bill me for calls I deem easy
3. Don’t bill me for calls where I’m too lazy to look in the manual
4. Don’t bill me for calls that aren’t my fault – where the person who usually uses MAS 90 is out sick/quits
5. Don’t bill my IT guy when he calls you with 20 questions about setting up my server and why Windows 2008 64 Bit isn’t a good idea because the software publisher hasn’t yet certified the platform – and then proceeds to debate you for another 30 minutes about what a “no good such and such” the software publisher is
6. Don’t bill me for the 40 minutes my IT guy spends “educating you” about what a crappy setup [insert software] is because he’s never seen a system so [pick vice: slow, memory hog, undocumented]
7. If you are going to send me a bill — make sure it’s in 5 minute increments and bill me at the rate you first used when we met in 1998 and don’t include time for the first half hour of the call where I rambled on about how confused I was
8. Even though I’m unwilling to commit to any type of support agreement – treat me as if I am your best paying customer (though I’m invariably the worst)

What’s important is that you re-define the term pay-as-you-go.

After receiving a few requests by unlimited support customers to drop back to pay as you go — I came up with our version of pay as you go.

Essentially we’ve converted the PAYG concept to be a:

1. Per incident
2. Prepaid in advance
3. Non-priority response — 24 hours from RECEIPT OF PAYMENT (the most important concept)

Ultimately very few customers choose this plan. Those who go on it – tend to either move to another VAR (where they run them through the seven annoying billing questions that I’ve noted above) or they live happily ever after driving that VAR into bankruptcy with free quick questions.

We tell clients right up front that our pay as you go is a bad plan and they should not enroll.

Some of them just have to find that out for themselves.

Here’s what I call my Bronze (aka pay as you go) plan:

Hope this is helpful — I definitely recommend moving to support plans. The big question is not what the plan should look like – but how you can get your customers from the pay as you go treadmill over to prepaid annual support agreements.

Perhaps the best way to move toward prepaid plans might be to offer them a choice.

Since most customers will choose the path of least resistance — be sure that there’s at least some inconvenience in the “stay as you are”.

One possibly thing you could do is offer three levels of support:

1. Stay as you are — (Bronze) – Per incident (not hour)

2. 12 “diagnosis” per year – (Silver) — $1,000 – $1,500 per year — you can call us and we’ll tell you how to fix it yourself or quote you on the cost for our firm to fix it.

3. Unlimited plan – you call / we fix – as much as you need per year.

Have you figured out a better way to offer support — or a smoother way to convert pay as you go customers to support plan customers? Let me know in the comments below.