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)
A story out yesterday describes an Epicor customer who is suing over a $70,000 software purchase.
Although I do not know the circumstances of this particular case – my bet is that most of these types of ERP problems start off with a free demo and free analysis.
Who is ultimately to blame if a customer purchases ERP software and subsequently (as the story infers) refuses professional implementation services.
As professional service providers do we not have a duty to first diagnose before prescribing. To coin Ed Kless’s phrase – “prescription before diagnosis is malpractice”.
In the “I can get this cheaper on the net” world this type of customer is very common and typical.
Here are their common characteristics:
– has already self diagnosed
– wants your best price based on a list they provide youi
– typically the evaluation is led by IT (biggest red flag in my experience)
– 100% your fault when ERP doesn’t run identically to MS Office
I blame whoever sells the software into these situations without requiring an advance paid analysis. Paid analysis, in my experience, is an ideal way to separate the tire kicking problem customer who may not ever be successful with an implementation. My experience says that problem customers never see a need to pay for advice.
Red flag #1, 2, 3. Three strikes you’re out.
Within the first minute on the phone they told me I was their ‘selected vendor’.
Within the next 15 seconds I knew I didn’t want the work – which over the next three months might have been $ 8,000 to $ 12,000.
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 week a software publisher notified their channel of either an increase in maintenance costs for customers or other policy changes that resulted in the same net result of increasing customer cost.
Rather than presenting customer benefit statements centered around how the product has been substantially improved and customers are enjoying the newest features – they trotted out a graph of inflation to prove value.
Really? The key benefit of a product or service price increase — is that the price is growing slower than the pace of inflation?
Does this inflation statistic fool anyone? Is the marketing department out of ideas? Maybe the internal conversation is ” Gee we can’t think of a compelling justification to raise pricing — let’s just throw in the same inflation graphic across all our product lines, notify the consultants, and be done with our explanation”.
Or, as I believe, does it signify that the product is mature, has run out of exciting new features to justify a cost increase (think Microsoft Office which in my opinion ran out of exciting new features 10 years and has been adding bloat ever since)?
Are customers really fooled by this type of graph? Do they sit back satisfied with the explanation that at least the price of their software isn’t rising as fast as milk?
My one learning point is that I’ve not been explicit enough about when work will be scheduled.
Clients have treated this as “oh that’s nice to know” — and in some cases never approve the estimate.
My bad for not enforcing it. Until now. Continue reading “Even Taxis Have A Charge for Idling”
If so, I’m willing to guess that you’re not yet prepared. My most valuable preparation has been the creation of templates and agreements that I am able to use again and again with prospective and current clients.
For example below is a template for use with fixed price ERP software upgrades. It is missing lots of legalese – so I make no promises that this will keep you out of legal hot water – or achieve any results whatsoever. Use it at your own risk.
And most importantly – this is a constantly evolving document. By the time you read it I’ve probably already changed the template. I thought I’d share in case anyone else was in the process of creating a similar proposal template. It may serve as a helpful starting point.
I’m using this for fixed fee MAS 90 upgrades — but the concept is similar for any type of engagement you’re quoting. Continue reading “The Secret To Fixed Prices. Preparation.”
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
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.
Just a quick thought that came to my mind as I struggle (as I’m sure most of you are) with prospects/clients who I proposed on back in March/April and maybe started some work in June – only to have the client back off because of any number of concerns (not ready, need further data fix-up, etc).
I have about four of these with varying degrees of complexity.
They suddenly want to become active in what I feel is the prime consulting season (aka busy time) — November through January 31.
Which leads to my question – why the heck do I (we?) allow clients to be quoted on one price (usually an off-peak rate) for work scheduled for our down time — and then the client delays and comes back to us in peak season. Continue reading “Don’t Let Clients Use An Off-Peak Ticket During Peak Times”