Value Pricing succeeds even in the hourly-rate-dominated technology industry
When three partners of a computer consultancy firm registered to attend the three-day Executive Wisdom Business College, I said, “Computer guys are going to hate my business philosophies.” Technology industry people only charge by the hour (unethical), they continually engage in scope-creep (ineffective), and they are technically intelligent while being strategically naïve.
On the afternoon of the second day, we reach the point of value-based pricing. I thought: “Oh boy, here we go.” The concept of offering consulting maintenance agreements was discussed. Not just any consulting maintenance agreement but a value-priced maintenance agreement. These three computer entrepreneurs threw themselves into the activities and discussions with vigor. They listened closely and wrote copious notes. During the open discussions that followed, they realised one of their current clients was an ideal prospect for an upper-level maintenance program. So as a group, the course participants brainstormed this particular situation to design three levels in the initial offering:
Customers like knowing the total price; hourly rates are open-ended and scare customers because who knows how long this might take. The technology guys were understandably nervous. We included everything we thought their client would need and want in the program. Some of the items include:
- Unlimited technical support.
- Advance training.
- New employee training.
- Creating email reminders for actions such as:
- monthly closes
- changing the tape back up, and
- periodic system maintenance.
In designing the written proposal for them to present their client, we had them request quarterly installments in advance. The total price for the annual agreement exceeded $45,000.
Back on the farm … the computer firm implemented the fixed price deal with the specific customer for this significant software customisation and installation. Their client has accepted the proposal and sent a cheque for $11,000, along with the signed agreement. Here is a quote from an email they sent me:
“The total cost for all three of us to attend the College was $13,000 and we secured a $45,000 piece of business because we came along and learned how to do better business. That’s a return on investment you can bank on. Thanks Ric – and thanks to the other attendees who brainstormed this during the session with us. We thoroughly recommend The Executive Wisdom Professional Services College!”
If you would like to learn more about the Professional Services College: Contact us to receive a telephone call from Ric