Time-based billing puts the vendor and customer at odds with one another, resulting in the misconception that effort (time) equals value (results). Nothing could be farther from the true and damaging to a business relationship. It has been our goal to find and implement a better way to price our services. This is our journey to Pricing on Purpose.
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Pricing On Purpose Our Journey Public Version
1. Pricing on Purpose: Our Journey
Presenters: Chris Burris, VP of Operations
Natalie Noel, VP of Sales & Marketing
2. Location: Baton Rouge, Louisiana
Years in Business: Over 10 years
# of Employees: 9 full-time
Products: CRM, primarily SalesLogix and SageCRM
Industry Sectors: Government, Manufacturing, Big-ticket Resellers,
and Franchises
Services: Consulting, Technical (Installations, Software
Development, Integrations w/ Other Apps, etc.), and Training
3. # of User Licenses: 20 (ranges from 5 – 250)
Project Total: $75,000 (ranges from $300 - $250,000)
Services:Software: 2:1 Ratio (ranges from 1:1 to 4:1)
Customer Revenues: $1,000,000 – $2,000,000,000 per Year
Timeline: 120 days (ranges from 45 days to 1 Year)
Revenue Streams: 75% New vs. 25% Existing
Pricing Method: ALL Value Priced, except LA Government
4. Time-Based Billing
Our Transition to Value Pricing
Overview of Our Project Methodology
Overview of Our Pricing Methodology
Examples of Success & Failure
Benefits & Struggles
Q&A
5. Benefits:
◦ Easy to implement
◦ Simple metric to track employee “effectiveness”
Cons:
Puts you at odds w/ the customer
◦
Customer unable to budget fully
◦
Variability in risk
◦
Limits your firm’s earning power
◦
Actually limits employee “effectiveness”
◦
6. What were the drivers for our change?
◦ Desire to increase profitability
◦ Desire to reach full agreement on scope and price prior
to initiating a project
◦ Desire to have a “friendly” mechanism for serving the
customers that truly value our services and disengaging
with the rest
◦ Desire to have a better method for rewarding our
employees
7. Re-engineering of sales process
Re-engineering of project methodology
Re-engineering of customer support processes
Re-engineering of billing practices
Re-engineering of employee minds
8. Company-wide commitment
Purchased Professional’s Guide to Value Pricing
by Ronald Baker
Engaged a current member of the VeraSage
Institute as our consultant
Received assistance from Ed Kless
PMP Certification
We didn’t dive immediately into Value Pricing; we
transitioned…
9. With new projects, we increased our hourly rates
to test the market
What we learned:
◦ Customers valued our services more than we realized
and were willing to pay more – experimented up to twice
our normal hourly rate
◦ When you charge more, customers respect what you have
to say; in other words, the more we charge the more our
customers value our expertise
10. Est. Hours x Hourly Rate
First attempts at Fixed-Scope, Fixed-Price
What we learned:
How to sell these types of projects
◦
How to manage these types of projects
◦
Customers actually preferred fixed-scope, fixed-price!
◦
Identifying full scope upfront makes the project much
◦
more successful (and less stressful)
11. Est. Hours x Hourly Rate + How much more do we
think they’ll pay?
All projects and subprojects fixed-price at this
point with some support still being billed hourly
What we learned:
◦ Price does NOT equal effort – numerous approved (and
disapproved) proposals proved that the perception of
value is different from hours required to complete a
service
12. Our final phase
◦ Quantify value in the Discovery process
◦ Transition all customers to fixed-price support
◦ Price with these questions in mind:
What is the value to the customer?
What is this project worth to the customer?
What other factors affect the price?
What we learned:
◦ The idea of fixed-price support is to be
addressed, preferably, during the first sales interactions
◦ Value must be quantified in the Discovery process
13. Summary of Findings Implementation
(1) Qualify Prospect (1) Project Plan &
(2) Summary Of Findings Proposal Approval
(3) Demo Product (2) Implement & Control
(4) Discovery Proposal Scope
Discovery Process Customer Ownership
(1) Identify Problems (1) Level I & II Training
(2) Identify Value (2) Admin Training
(3) Design Solution (3) Gold-Level Support
(4) Compose Project Plan (4) User Adoption
Maintenance
(1) Support Agreements
(Gold, Silver, Bronze,
or Per Incident)
(2) Subprojects
14. CRITICAL to value pricing (and successful
projects!)
Project Plan Sections:
Title page (Account, Date, Version #, and Project Name)
◦
Document Revision History
◦
Project Logistics
◦
Scope for all phases (Installation, Customizations, Data
◦
Migration, Integrations, and Training)
◦ Approval page
15. To price effectively… to manage the project
effectively… to have a high-quality deliverable…
there must be clear communication!
Document your method of management for
Resources, Scope, and Time – the “Iron Triangle.”
16. Why document assumptions?
A real-word example:
Customer will provide all computer hardware and software,
which meets or exceeds the product manufacturers’
recommended system requirements as stated in the Technical
Specification document.
Installations will be coordinated such that multiple installations
are completed within a scheduled time period, and the HELP
Project Team will have ample time for installations and testing.
17. Why control scope?
Scope Control Process:
◦ Project details not mentioned within this Project Plan are out
of scope.
◦ … HELP will evaluate the feasibility of the change, the
impact on the project, and the additional investment
needed.
◦ …HELP may choose to approve certain changes to project
scope, at the discretion of HELP, without further price
commitments from the customer and/or a formal change
request procedure.
18. Only 4 dates really matter:
Timeline:
◦ The Go-Live date will be X days or fewer from the
approval date of this Project Plan. ...customer will
be responsible for meeting the following
deadlines:
Technical requirements for ALL servers and
workstations must be met by: X or more days before
Go-Live.
19. Timeline, cont’d:
Import data source must be complete and provided
in the format specified by HELP by: X or more days
before Go-Live.
Customer’s decision makers must be available for
Customizations review by: X or more days before
Go-Live.
If customer does not meet the identified
deadlines, the project Go-Live date will be impacted.
The degree of impact will be assessed at the time the
issue occurs.
20. Why define customer’s responsibilities?
Excerpt from project team assignments:
◦ Client-Side Project Leader
Is accountable to executive leadership for successful
completion of the project.
Assures knowledgeable and empowered resources
are made available in a timely manner.
Can make decisions about policies relating to project
organization, project scope, or allocation of project
funding.
21. Customer Tasks:
◦ Any responsibilities or specific duties assigned to
the customer at the time of project initiation.
22. ◦ Example of Scope:
The defined scope for this project is such that HELP will:
Install and configure one SalesLogix database on the Database
Server PC.
Install and configure one SalesLogix Application Server
program on the Application Server PC.
Install SalesLogix Administrator program on the Application
Server and up to three other identified computers.
Install SalesLogix Architect program on the Application Server
and up to three other identified computers, if pertinent
licenses have been purchased.
Install and configure one SalesLogix LAN Client program on
one identified computer per each Named User license
specified as Network Clients.
23. Example of Anti-Scope:
◦ Explicit Exclusions:
Install and configure one SalesLogix Sync Server program on the
Sync Server PC. – Remote SalesLogix clients with synchronization
will not be used within this implementation.
Install and configure one SalesLogix Remote Client program (to
include SQL Express) on one identified Laptop computer per
each Named User license specified as Remote Clients. – Remote
SalesLogix clients with synchronization will not be used within
this implementation.
24. Real-World Example:
◦ Module: Monthly Sales Reporting
◦ Value Thoughts: Provides interface for adding, editing, and deleting monthly
entry; established foundation for further automation; user currently spends at
least 10 hours / week maintaining this data in XLS; information is critical to
maintain good relationship with vendor; gives financial data for all customers
which would allow profiling by region, market, avg. transaction size, etc.
◦ User(s) Affected: Betty
◦ Labor Savings: $12,000 ($60,000 salary; 20% time savings)
◦ Increased Revenue: $50,000
◦ Total Value: $50,000 + $12,000 = $62,000
◦ Maximum Price: $15,500 (1/4 of total value)
◦ Minimum Price: $5,150 (1/12 of total value)
◦ Proposed Price: $7,750
◦ Payout – Months: ($7,750 / $62,000) * 12 = ~ 1.5 Months
◦ Est. Hours: 36
◦ Per-hour Investment: $7,750 / 36 = $215/hr
25. Our Process to Developing a Value-Based
Price
Needs Analysis Meeting
◦
Summary of Findings
◦
Demo of Solution
◦
Presenting of Initial Valued-Based proposal
◦
Discovery
◦
Presenting of the Value-Based project proposal
◦
26. First Encounter with the potential client
◦ Important to educate them on methodology
We have to drive the process of finding value
for each prospect
◦ There mindset is more about “how much will this
cost me”
Ask lots and lots of questions
◦ Why, how, what, how much, etc.
27. What does that mean to your organization?
What is the impact the solution will have on
your business?
Why are we having this conversation?
What happened before you called me?
What is driving you to do this?
28. Any ideas of the feasibility of this project?
Have they determined that they are ready to solve?
What are the main problems you want to solve?
Is this the complete list?
Is there anything else? Based on what other
customers have needed
What is the timeline for the project?
29. First chance to identify in writing the value of
the solution and have the prospect agree that
you are on the right track
Identify all of the initial areas they will receive
value
30. Show visual proof of the value
Get them to ask a lot of questions
Prospects like to see how they will…
31. Do not present until the decision maker is
present.
◦ Influencers will slow the process
Understand if there is a significant amount of
value for the customer to move forward
Clearly outline the Value points and their
quantitative amount
If you have clearly identified as much value as
possible they will say yes
32. Building a case and value for the entire
project
◦ Software
◦ Future Services
◦ Credibility reaches an all time high
After EVERY Discovery, we have NEVER
received a price rejection
Discovery is critical because:
We’re expensive… this gives customers an opportunity
for us to prove our experience without them needing to
invest as much
Defining value (i.e. helping them realize their potential)
33. Present all of areas that we will add value and
the reasons why
◦ We will save them this much time
◦ We will eliminate this process
◦ Improve this process
Payment
◦ One number and allow them to pay it off over 2-3
months as we work on the project
34. Price sensitivity
Timeline
Likeability of the customer
Risks
Expected ROI (Value) of the project for the client
Uniqueness of the project
How busy we are
Does this project have any strategic
significance?
Can another company do this project?
35. Customer A
◦ Project Total happily approved at 10X original
budget
Customer B
◦ Expressed “maybe I am under valuing myself in my
own business” after be persuaded to the idea that
value does not equal effort
Customer C
◦ Wrestled w/ issues on their own for 2 months
◦ We scope & priced beforehand for $1,000; fixed
within few minutes via email
◦ Customer was very happy despite effort involved
36. Customer D – unable to convince them to do
anything beyond by-the-hour; he thinks it’s
cheaper by the hour
State Contracts-Currently still by the hour
Under Valued Ourselves
37. Customer satisfaction is higher
Profitability
Project totals are higher
Service agreements
38. Confidence of Employees
◦ They have to value themselves
Getting all of our clients on board with the
pricing model change
Affected time to close
Affected total price of project
Affected time to go through the process
and create proposal
Harder to sell first discovery piece
Customer satisfaction