General Consultant Discussion

Transitioning customers off of hourly pricing question: A customer asked for a minor modification of a custom program. Sent quote for $xxx.xx. Got back a response: ""Does that mean it will take x hours of your time?"" What responses have been successful? Is it better to use Walmart pricing (ie $788 instead of $800) to stop people from translating into hours?

What did they use as a basis for coming up with X hours? Did your quote mention your hourly rate? Or did they just know what your hourly rates are?

They knew what the hourly rates were - this quote was a qty 1 each price.

Sounds like you're doing hourly in drag.

This request is along the lines of making tweaks to an existing custom Crystal report - there comes a point where the conversation hunting down ""value"" would take way more effort than actually making the change.

How did you come up with your price?

We don't track hours. Just like Raid - stops them dead in their tracks... And for these types of basic requests I've adopted menu pricing where I can quickly look and find a price for this type of work. It's essentially ""starts at"" pricing so that every request that is small does not require an engagement to uncover a price. Plus a decent number of my customers take these quotes and do nothing. I got tired of constantly doing analysis only to have the quote languish (especially true for upgrades).

Them: What is your hourly rate? Us: We don't have one. Them: Well how long will it take? Us: Do you mean when will we be done? It states in the proposal - xx/xx/xx. Them: Well you told us previously that your hourly rate is $xxx. Us: Yeah but we are done with that. It's for your benefit - we don't want to focus on how long things take and who is doing what and how long they take each person to do their tasks. We want to focus on what you want and deliver it to your expectations. Here's some thoughts: 1. Provide multiple options. 2. Provide rough pricing - not evened numbers (00's, 25's, etc.). 3. Understand why you are doing this and shift the conversation to those benefits - shared understanding of goals, focus on deliverables, guarantees, etc. 4. Be prepared that the transition will have ups and downs.

Do NOT give a choice of fixed or hourly - or you will have a high likelihood of backing yourself into a no-win ""not to exceed"" fee arrangement. Once the customer knows: 1. What you'd do it for fixed 2. Your hourly rate Most of them at the end of the engagement will do the math to figure out which way is cheaper. Some are bold enough to ask for the cheapest even after you've done the work. For a short period of time they'll know what you charged ont he last few invoices. I just use the 'we dont' track hours any longer because or billing system doesn't allow it"" .... It works for Sage.......

Phil, is this something you did out of the blue for this customer or did you talk with them about it first? I think it's very important to have the conversation about why you are making the change up front before they get any pricing proposals. Although we did not go down the toe dipping path, we did talk with our customers about what we were planning, asked for & listened to their feedback (even though we were not willing to implement all of their feedback, for example, ""can't you just keep billing us and we'll think about this fixed price thing?"") and set a date to change over completely to the new business model. I think Peter's hypothetical conversation is a great one for prospects. Just modify it for customers.

We've found that it helps a LOT to always give 3 options. I'll admit it's hard coming up with them, but it's necessary. Customers then focus on the differences between them, instead of the raw cost. If you make some sort of training, report dev, support, etc part of the options it confuses the straight time issue (good). For dev, be sure to include the specified development cycle: specs, draft, review, change, accept, support. Maybe put tight response requirements on the less expensive, and more flex on the higher. We've also found that putting explicit estimates of the benefits that the customer gets from the work into the proposal also helps a lot. It's all hard, though.

Tagging onto Jerry -- I like the time element. If you give three options and all can be done at the same time -- the customer is more likely to take the less expensive but still demand a faster response perhaps during an inconvenient/busy time. After having way too many customers accept a proposal verbally in April - thinking I would perform the services in June (slower) - and then hearing back that the customer was ""ready to go"" on December 24 (and could we be done by Jan 1?)....

@JohnShaver - So for transitioning existing customers, get their ""buy-in"" while there aren't any specific dollars on the table to haggle over - that makes sense. @JerryNorman & @WayneSchulz - I get the options concept for larger projects, but what about the ongoing small tasks like ""You know that inventory report you wrote for us last year? I need you to add a couple more fields to it"" type stuff? This is the kind of day to day stuff I have with several customers who I invoice just about every week for something. Other than a premium for ""get it done today"", I don't really see any reasonable options...plus it seems kind of wasteful to spend as much time on the quote as it does to do the work.

Phil, using Golden & Shepherd's pricing flowchart terminology, I use both value pricing and fixed pricing. Value pricing on the larger projects (or whenever it makes sense) and fixed on the smaller ones. A project like you're describing sounds like one that I would do fixed.

This is what I use. I keep adding things to it based on what I feel a reasonable price is for a 100% money back guaranteed project would be. There's nothing wrong, in my opinion, with having a minimum price to design a Crystal Report. The key is to be prepared ahead of time or you're going to fall back into the umm - uhhh -- ok, I guess we'll do time and materials for just this one time.... BTDT

@JohnShaver - what do you based the ""fixed price"" prices on, if not hours? Do you use a menu like Wayne does?

It's very close to Jay's model. For smaller projects I don't dive in as deep on these steps as I do on larger projects. http://www.clientrevolution.com/2009/08/how-do-you-set-your-prices.html

A couple more to think about. - options. Training is always possible. add a coached session about making the changes they want - especially if cosmetic. - ""This is the kind of day to day stuff I have with several customers who I invoice just about every week for something. "" Change the conversation. If they're coming regularly with little stuff, make them stop and and analyze with you what they're trying to do. The goal is to roll it all into a larger project with defined goals. Guaranteed you'll end up doing more, and they will feel better about the money they spend with you. Apply your ""Knowledge Access"" to helping them create a better vision about their work over the next 6-12 months. As part of that, you also help them estimate the $$ benefit to doing it. - or, for those regularly modifying stuff, offer an annual agreement covering it. The key to that is figuring out how to structure it so they get more out of the whole effort than they would nickle-and-diming the changes.

Personally if I were to go to a consultant and be given a different price every time for a Crystal Report based on my perceived desperation - I'd leave and find another partner. I just don't feel that for perceived routine tasks there's a big opportunity for quoting a different price every time. Ethically I feel that it's questionable to vary the pricing based on whether we have the customer over a barrel.... Larger projects I agree. Small projects - I think it's a slippery slope to vary pricing up and down. Customers are logically going to ask why a report last week cost $100 and this week it's $ 500. At some point they're going to wise up and bid you. .02

We're seeing somewhat different needs, but we have a smaller customer base. Pretty much when customers want minor mods of an existing report, we keep the pricing the same, based on delivery time. Pretty standard. Increasingly, though, when customers want a new report, they want it ultimately to dump to Excel. We try hard to work that into a BIE grid, training them as we go.

With that analogy isn't it unethical for FedEx to charge more for overnight delivery than for ground? If you want something overnight, you're probably pretty desperate for it. And I don't think they're asking me for the same report every time so why would the price be the same? What if it's a report that I don't have the knowledge to create and need to bring in knowledge from outside of our firm? If the customer wants that type of insurance, that's fine by me. Bundle in x number of custom reports in the KTA. But without the bundle, the prices will be different.

@WayneSchulz - I agree. One of my main concerns about this is the potential for screwing up a relationship based on trust. Right now the A level clients trust that I am going to be conscientious in getting the reports. mods, etc done in a reasonable amount of time and bill them fairly, so for small jobs they often don't even ask for a quote (though I do let them know in advance if it is NOT going to be a small job). And the smart customers have already figured out if its worth doing - one of them sometimes requests a ""really high quote"" for something that he considers to be not worth the two minutes once a month it would save.

Trying to avoid the ""smell"" of gouging is important. Still, most customers completely underestimate the overall effort it takes, even for minor ones. If you want to think about the opportunity cost to the partner of dealing with even just a simple ""add this field and rearrange"" report, it approaches a half-day; I find that at least half of customer projects is in communication of some sort. If you buy my claim, then on an hourly basis, simple reports really ought to be at least $500 each. Now ask yourself, ""how many of these customer requests are really necessary? And how many could be spec'd out at once, rather than dribble in over 6 months?"" A customer would want to know that, so figure out how to restructure their thinking about the whole thing. Nearly every time, I've found I end up drilling into a larger problem they're trying to deal with, but just didn't see it that way. Wayne's menu is great for some of the issues. We're trying to figure out how to get customers to think a bit bigger, so that they get more information (not just data) out of their Sage investment. It isn't easy.

I think this would be a great Summit session - this type of question comes up all the time and it's interesting to see the variations and approaches to pricing. I'd probably also update my reply (clarify?) to say that most of the time my pricing is a ""starts at"". I tend to use ""starts at"" quite a bit because I can't give a firm price until I know the details. The fuzzier the spec the higher the price - even for a routine ""menu item"". So John's right - no two items are the same and I don't mean to imply that every report is the same price. I want to have a chance to review and see if the reports even possible, etc. Personally I tend to like to get to the $$ pretty quickly so I don't waste time on a project where there's no budget. Starts at helps me qualify. Customers tend to have this need to ""get a sense of the price"" pretty quickly so they can figure out if they want to pursue the project. When I get an impromptu - ""what would it cost to design a report"" -- my reply is now always ""it starts at .... "" which I get from my menu. This gives me plenty of wiggle room when the specification changes and gives the customer enough comfort about whether they have enough value in this particular project. I'm very comfortable walking away from projects where the value isn't there for the customer. I probably am doing it 4 to 8 times a week (mostly for web visitors who are arguable as to their definition as customer). Right now I'm doing a routine data export from MAS. The price is about 5 times higher than what it would be if I sat down and figured out ""what it should take"". I upped the price because I'm working with a third party who has designed a specification which I know from experience is going to take more back and forth time than a customer who just asked for a dump of the same data files. I think this also crosses back to Jerry and John's suggestions around options -- give different levels of service and let the customer pick. I've done these Crystal quotes with # of reports, # of changes to the reports, timeframe to deliver. Those were all higher priced options that keyed off my ""starts at"" pricing.

@PhilMcIntosh - for reports, we charge a $150 assessment fee - soon to be $250. This is used to define and better understand the report and provide a final bid. If they go forward, the fee is applied against the report creation. If they don't, we are paid for the effort (not time) to work with them to understand their needs precisely. The fee gets rid of tire kickers really quickly. We do something similar with support. We have an annual, all you can eat support plan - priced to the customer. We price it based on a lot of factors: how much they use the system, how many users they have, how much custom functionality they have, how good are they to work with, how much we think they will use us, etc. We have four plan levels. The low-end plan is called ""On Demand"" and basically is not a plan as much as an agreement between us and the client of what they can expect. These customers can expect that when they call us, they will be charged a $250 diagnostic fee. Sometimes problems are solved within that call (and we do our best to make this happen) but if they aren't, we provide a bid to complete the work. Three options on all bids. I need to start doing a better job like John Shaver - I believe he is the one who always present option three as the dirt cheap option so they really never say no. @Johnshaver - can you confirm - is that you or did I pick that trick up from someone else? Is it always easy? Hell no. I feel that it's particularly hard for me as I do a lot of work with other partners and they aren't used to this type of arrangements and support can sometimes become a challenge. Many partners and their clients are trained to want to just pick up the phone and get support. My organization has become much more structured and designed to deal with customers on our annual plan so it can be difficult to explain the $250 diagnostic fee. My other challenge is ... I'm not in the business of profiting from partners. My goal is to help them profit with additive business (Sage CRM of course). So ... if a partner is in a jam and calls me, I have started explaining the $250 diag fee to them but a lot of times they can't charge the client (because things have gone off the rails). I'm loathe to charge partners this fee if they can't / won't charge it through. I explain it to the partners and typically we come to a mutually agreed upon solution and the client is happy. Hope this helps in your journey.

Journey"" is absolutely correct. I found that the really hard part is getting yourself to think about the customer request differently. We use diagnosis fees on break-fix problems, but I didn't think to do it for larger requests. That absolutely makes sense, as I'm trying to get our customers to think of us as ""problem solvers"" not ""service providers."" And you can't solve a problem until you can define it clearly --- which is a problem in itself! This pricing paradigm is much more than just getting a higher mark up on your time. And, for me, getting myself out of the time mindset, even subtly, has been very hard.