My last couple of posts have been about pricing issues and, as a result, so have the emails and PMs that many of you have sent me over the past two weeks. It would appear that the elephant in the room (I can’t wait to see how they translate that for the SPAR Japan edition!) is price discounting. I’m sure that every one of you has been asked to discount the cost of a proposed job and many of us are guilty of doing it–even when we should not. So why do we do it and is there a better way?
The why is all over the map for me personally. Sometimes it’s because I really want to go where the project is (helloooo, Jack Daniels!) other times it may be that I want to land a particular client or simply recoup something for the hours spent marketing to them. Sometimes you just need the cash flow to make payroll or you have a good relationship with the client and they are stuck with a lousy budget. There are lots of reasons but some are more reasonable than others.
There is one reason that I find failing, and that is using a discount as a loss leader.
This is one that I seem to get asked about more now than ever. You have a potential client that has never used scanning before. They are understandably nervous and they ask for some sort of price break, “you know, to get this first one in”. So, why is this a bad idea?
- Do you know why he/she is asking for the price break? Is the budget or the price of scanning really the problem? Usually it is not. Generally, they are unsure about data quality or that your solution will directly address their problem(s). If that’s the case then it has nothing to do with the budget and could be addressed through other means.
- How does a price break address the questions the customer has? Let’s say this is a new application for both of you. If the question is whether or not it will work, then perhaps you need a Proof of Concept project or a Test Demo. Personally, I’d rather agree to have them cover the actual costs to verify that everything works if that is the issue. However, if they are paying less then they are getting less. A Proof of Concept (POC) project is testing if the predicted results are achievable. If you intend to go this direction you have to make sure that your contract is crystal clear on the fact that you can have a successful POC that proves that the overall project will not work. In this case the client will still be on the hook for their invoice. This is a common misunderstanding. If I am only getting paid if I produce specific results it is no longer a POC. It is a standard project and my taking that risk means that I am charging for it.
- How do you plan to raise the price on project #2? Essentially, you have devalued your services. How do you plan to get them to pay more next time (if there is a next time)? This is one that I learned the hard way early on in my scanning career. I scraped by, and sometimes lost money to be “given” the opportunity to prove my value to clients. But here is the thing; there are always other service providers out there willing to the same thing next time. Look at it from the client’s perspective, why should he/she pay more for the guy that did this for me last time to do it again when I can get another “first timer’s” discount from another firm? As long as I write the scope correctly it will meet my project’s needs or I won’t be paying for it anyway so what’s the risk? The risk is that the client does not catch a problem until it impacts the schedule of his/her project. However, you could go through years of price hopping this way without an issue because there are a lot of very good, well qualified service providers out there. And unfortunately, too many of us are willing to devalue ourselves at every turn.
