These days barely a week goes by without an IT Director calling to ask if I’m available to help them move a customer’s ERP software from one server to another. While it’s tempting to quickly answer “Sure just give me a call” – I have learned through experience that this is the absolute worst answer you can give. Here’s why.
Today we made our last trip for the summer to Lake Compounce – our local amusement park.
When we were walking out I glanced backwards at their ticket counter to see what their pricing board displayed:
- One day admission ticket $37
- Unlimited season pass for $72.
Amusement parks understand (and practice) the concept of smart pricing.
Notice that there is *NO OPTION to pay less due to any of these reasons:
- I don’t come here very often and I only want to ride one ride
- I’ll just be in and out in 10 minutes” price
- I used to be a season pass holder
- There was no ticket booth selling per-ride tickets for people who did not want to pay full admission
I bet there are also lots of benefits to having people come back on a season pass.
Since the season pass visit might be perceived as ‘free’ I bet season pass holders buy a lot more food and are overall more profitable than single trip visitors..
You only have to know 3rd grade math to figure the season pass is a better deal.
Why is it a better deal?
Because Lake Compounce made a full year unlimited visit ticket significantly more valuable simply by pricing the single visit option very high.
Why can’t every consulting firm struggling to implement fixed price into their practice follow this same strategy? (Answer: You can. If an amusement park can come up with a pricing strategy that they follow for all customers – so can you)
We have no hourly rates or lame estimates of “we think it will be xx to yy ” hours. We’ve not used hourly billing in well over two years. To that I say good riddance.
Hourly billing is a pain-in-the-ass.
Some consultants use hourly rates as a crutch when they don’t know what they’re doing or don’t want to stop to define a project. Rather than stopping to understand a request – or determine if a request is feasible – some consultants dive in and “run the meter” as they learn and experiment (it transfers all the risk to the customer).
Some unscrupulous customers use hourly billing as a crutch when they don’t know what they want (it transfers risk to the consultant because those customers refuse to pay when – after-the-fact – they deem the hours ‘too high’ for such ‘easy’ work).
Customers pay consultants to solve problems
I believe those problems have four major steps
Sage announced in an October 28, 2011 all hands partner conference call that a new pricing method for their products would be forthcoming within the next year and that they’d be ready to think about discussing it within three months.
Three months has passed and it now seems Sage are actively polling about 500 current customers asking what price they’d be willing to pay per month for their current accounting solution.
Update March 2, 2012: Sage have notified that channel of pricing for NEW (not existing) users of Sage 100 ERP, 300 and 500. This poll that was sent to existing users would appear to be testing the pricing method EXISTING users might prefer to pay if there is a transition allowed between module and user pricing (as of now Sage prohibits switching between licensing models).
Pricing options under consideration reportedly are $75, $100 or $125 per user per year. I believe this is for Sage 100 ERP users though I was not able to view the actual survey so have to rely on the customer’s explanation.
One company sent a copy of the email to us (not a customer of ours) remarking that with their present user count they could potentially face a bill of $40,000 per year. Of course this is only a survey and Sage might implement any number of plans for existing users including grandfathering existing users but adding new purchases at a potentially new rate.
With any change to a subscription model I think the Sage 100 ERP software will be issued expiring unlock registration codes so that using the software without paying maintenance could become a trick of the past for cost savvy customers.
Now is the time to call your support agreements something other than support and make services other than help desk/ break-fix be the focus of those recurring plans. You are offering recurring agreements to customers, right?
For MAS90 we are largely over the complex upgrade hump so creating an “access agreement” where you:
– provide x on-site planning and strategy meetings – up to y product update installs – up to z version upgrades
This is our “special sauce” that will keep out most competitors who don’t have a local presence.
Sure you can sit down and have a value discussion. However that’s often not practical. The customer doesn’t want you to come on site to discuss a Crystal Report or Visual Integrator job that might be perceived as a simple task.
I’m also skeptical about the “Value Bill” advice. I think it’s opportunistic and unethical in some situations. It’s also impossible to streamline in an organization. One person’s value is another persons “two second question”.
Probably could debate this all day and not agree.
In the interest of being able to adopt fixed pricing – what I found works for me is to have what I’ve termed a “pricing menu”.
I went through the most typical “ala carte ” requested services and came up with a “starts at” price.
For most customers the start at pricing — is the price.
For the other 85% who delight in asking a price — and then adding “oh but will it include… ” [insert laundry list here] — “start at” gives me wiggle room.
Also I have had problems that many customers want quick verbal quotes. Going to a full out proposal is often not practical no matter what they teach you in class. I believe my practice thrives because I am able to respond quickly to customers. Waiting three or four days to schedule a meeting for a routine request is for me not practical.
So here’s how I’ve been doing pricing of routine requests. I created a pricing menu and now if a client (or more often someone on the Internet) requests a quick “hey what would it cost” …. I have a standard guideline to review and reply “in most cases our pricing starts at ” … [insert price from list]
It’s almost a certainty that these are some financial types either doing due diligence or writing a research paper that they’ll re-sell.
I’ve never found a way to properly charge for “brain picking”. They all want to pay for an hour or two of services — however in the back of my mind I know that the value goes far beyond the hour or two that they offer – yet they almost always disappear at any suggestion beyond them paying you for an hour of your time (which they usually value at the lowest rate that they’ve offered
the guy mowing their lawn someone doing this type of work on the side — aka about $25/hr is deemed “fair”)…
Here’s what the request looks like.
This morning I received an email from a friend in the consulting business. His question is one that I’ve received before – and one that seems to come up at every conference that I’ve attended in the last two years.
The core of the question is:
Do you make money marketing online?
Is Social Media worth the time investment?
Does it help to sell new sales or mainly attract existing users?
Is the time and effort worth it?
Here’s my answer that I emailed just a few minutes ago.
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.
Sage is extending their Firm of the Future Symposium sessions with a newly scheduled event happening in August 2011 in San Francisco, CA. I attended one of the first sessions in Atlanta as part of the ITA Conference in Atlanta.
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. Continue reading “Sage’s Firm Of The Future Symposium – My Two Cents”