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Professional Services

If you are a service provider, how do you set your price? And if you are a buyer, how do you know whether the price that you are given is reasonable? Beyond the obvious, price itself is an indicator of a number of factors: value, credibility of the service provider, work effort on the project, and risk.

While some may say that pricing is an “art”, it isn’t: it is bound by three specific factors:

1) Cost of delivery: Beyond the cost of labor, there must be sufficient margin to pay for staff training, technology, rent, and all of the other overheads involved in running a business. If these aren’t covered, the business will eventually become unsustainable.  What to look out for:

  • Expensive offices and other signs of excess? (costs will be higher)
  • Senior staff on the engagement, vs junior staff? (costs will be higher)
  • Little investment in professional development, or reduced project scope? (costs will be lower)
  • Corners are cut (costs will be lower; more on how to avoid corner-cutting.)

2) Competitive dynamic: Setting prices too high usually results in disqualification. Setting prices too low breeds suspicion: has the work effort been estimated properly? While it may seem that this factor might not apply when there is no competition (eg for a unique service or a monopoly) there is always competition: the project can be executed internally, or it can be shelved.

3) Budget: If the budget is lower than the price, then the cost of delivery and competitive dynamic make no difference – there won’t be a deal. What to look out for:

  • Unrealistically low budgets: To win an engagement with an unrealistically low budget, either scope must be cut or more junior staff must be used. Or, the project will end up with a greater number of “change requests” and a higher total price.
  • Very high budgets:  If the budget is higher than price, it will be harder to justify the project’s ROI.
  • No budget provided: This is a no-win situation for everyone, as some service providers will deliver a Mercedes Benz-priced proposal, others a Toyota, and others a low-end Ford.  The truth is that each service provider can deliver the engagement at all three price levels: without budget guidelines, it is impossible for the buyer to tell which is best.

This week’s action plan:   If you are a buyer, this week look at your procurement process from your service provider’s perspective: how does your process influence pricing?  And do you provide budget guidelines?  If you are a service provider, this week look at your pricing process: when was the last time it was updated?

Marketing Insight: Price is also an indicator of risk. A low price typically means less work effort, more junior staff, and higher risk. Price is also an indicator of brand equity, which, again, is connected to quality, assurance, and risk. Build your brand, and it is easier to justify a higher price, notwithstanding the cost of delivery, competitive dynamic, and the budget.

Marketing Insight #2:  The best buyers understand that price is only one factor: experience, references, availability, and terms and conditions are all part of the equation.  How do you compare on these, relative to your competition?

Note: The Make It Happen Tipsheet is also available by email. Go to www.RandallCraig.com to register.

Randall Craig

@RandallCraig (follow me)
www.RandallCraig.com
:  Professional credentials site
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.com: Web strategy, technology, and development
www.ProfessionallySpeakingTV.com
:  Interviews with the nation’s thought-leaders

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What would happen if you planned for your own obsolescence? What if you changed your job so that you were no longer required in that role?

  • You wouldn’t be considered as “critical”, and therefore could be considered for other positions.
  • With the extra time you have available, you can redefine your own job to include new challenges.
  • You would be available for career-enhancing special projects.
  • You might become eligible for a generous severance package.

With all of these positive possibilities, why would you not consider this approach?

For one thing, sometimes change is tough. You’re comfortable and successful doing what you do. Making a change means exposing yourself to risk. And if you do get that generous severance, you will need to go through the uncertainty of a job search. Nevertheless, if you are keen on getting yourself to the next level, this is one way to do so. And it doesn’t need to happen overnight: you can work yourself out of a job in three months – or thirty.

Here are some ideas to start:

  • Groom your staff to take certain of your key responsibilities.
  • Evolve yourself from a manager to a coach.

With your manager’s support, stop doing unnecessary, zero-value-add activities

Note: The Make It Happen Tipsheet is also available by email. Go to www.RandallCraig.com to register.

Randall Craig

@RandallCraig (follow me)
www.RandallCraig.com

www.108ideaspace
.com
www.ProfessionallySpeakingTV.com