Services Pricing

The move is over and the dust has settled–well, not really because the contractors started yesterday.  It was a bit like a scene from Tom Hank’s The Money Pit with electricians, plumbers, security alarm people, boilers people, and a dumpster—a very large dumpster showed up at the house yesterday.

All of this activity gets me to pricing of services.  We just finished doing the PPS webinar on services pricing as part of the Certified Pricing Professional program.  It was a good chance to review  the principles of pricing services, how some do well and how others don’t.

We selected a general contractor with the lowest price–but that wasn’t why we selected him.  We selected him for three very specific reasons.  First, he listened to us and our concerns.  He even listened to Carolyn.  Two of the other contractors tried to ignore her–not a smart thing to do when she is the President of a company.  Second, he accomodated our needs but told us when he thought we were making a mistake.  Finally, he had good relationships with his sub contractors but made sure they sharpened their pencils when they provided prices to him.  All in all the best fit.  Were we willing to pay more–sure we were but we didn’t have to.

I’ll compare that to the security company.  They had a contract with the prior owners, who had to spend $15,000 just to get the system working and that required multiple visits.  Each visit took a complex discussion to get a technician in on an emergency basis.  The guy who showed up had to call his boss to understand the difference between a volt and an ohm on his test meter (true–I heard the call).  They left the panel looking like a bird’s nest.  We’ve already hired a new security company to rewire everything.  They showed up fast and have very good rates.

The bottom line for services is that price alone doesn’t win it for most people or most companies.  It is hard for most sellers to understand that because companies and many people play poker with their suppliers.  They qualify multiple vendors and make sure they have some low priced guys in order to get the trusted vendors to drop their prices.

It is therefore important to understand the customer’s real purchasing agenda.  Do they really want the lowest price?  Or, are they playing poker.  If it’s the former, you’ve got to ask yourself if you want or can offord to do business with them.   Don’t waste your time on bidding for a piece of business you can’t or don’t want to win. 

On the other hand, if it’s poker playing.  You’ve got to train your salespeople to play better poker.  Have them ask the customer what they’re really looking for–value or price.  If it’s a professional buyer, they may not tell you but ask other members of the buying center.  When you do bid, have a low and high priced offering so the customer can see the difference and make the choice.

Yes, sounds simple but it is hard.  Those that do it well, win more bids and the bids they win are more profitable–now tell me, that isn’t bad is it?

Next week: software as a service or pricing with your head in the chouds.