NAWBO: Pricing Your Services Right

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NAWBO: Pricing Your Services Right

Facilitated by Martin McLaughlinMosaic Partners LLC

[email protected]

Fall of 2005

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Mosaic Partners – Same Pricing Issues that You Have

SEI INVESTMENTS

HPCII

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Service Pricing Challenges

• How does marketing and selling services differ from marketing and selling a product?

• What is the impact on pricing services?

• What can I do to overcome some of the inherent challenges associated with marketing and selling services?

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ServicesServices

Inseparability

Services cannotbe separatedfrom theirproviders

Inseparability

Services cannotbe separatedfrom theirproviders

Perishability

Services cannotbe stored for

later sale or use

Perishability

Services cannotbe stored for

later sale or use

Intangibility

Services cannotbe seen, tasted,felt, heard, or

smelled beforepurchase

Intangibility

Services cannotbe seen, tasted,felt, heard, or

smelled beforepurchase

Variability

Quality ofservices dependson who providesthem and when,where, and how

Variability

Quality ofservices dependson who providesthem and when,where, and how


By P. Kotler

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ServicesServices

Inseparability

Increaseproductivity of

providers

Inseparability

Increaseproductivity of

providers

Perishability

Match supplyand demand

Perishability

Match supplyand demand

Intangibility

Use cues tomake it tangible

Intangibility

Use cues tomake it tangible

Variability

Standardizeservice, production

& delivery

Variability

Standardizeservice, production

& delivery


By P. Kotler

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What are Your Great Challenges Related to Pricing?

• Are you perpetually lowering your prices?

• Are you feeling like you are not getting enough compensation for your efforts?

• Do you have little idea how to price a contact?

• Do you feel that pricing is more art (guess work) than science (cost, customer, or market based)?

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The “Science” of Pricing

Select a Pricing ObjectiveSelect a Pricing Objective

Determine DemandDetermine Demand

Estimate CostEstimate Cost

Analyze the CompetitionAnalyze the Competition

Select a Pricing MethodSelect a Pricing Method

Select a “Final” PriceSelect a “Final” Price

AdjustAdjustJustifyJustify

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• What are you key cost / margin / profit inputs to generate your selling price?

Fixed CostDon’t change with volume

Fixed CostDon’t change with volume

Variable CostDo change with volume

Variable CostDo change with volume

• Salaries / Payroll

• Website Hosting

• Rent

• Utilities

• Office Equipment

• Insurance

• Marketing Cost

• Advertising & Promotion

• Contractor Cost

• Sales Commission

• Office Supplies

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Your Worksheet

Labor: My Salary $60,000 __________ Staff Salary 25,000 __________ Total Labor $85,000 __________Other Expenses: Benefits (30%) $25,500 __________ Rent 6,000 __________ Telephone 1,200 __________ Auto Expense 900 __________ Utilities 240 __________ Meetings & dues 360 __________ Adv/promo 1,000 __________ Office Supplies 600 __________ Repairs 600 __________ Misc. 1,000 __________Total Expenses $37,400 __________Total Operating ExpensesProfit Goal (10%) 12,240 __________TOTAL $134,640 __________Divide by 1,040* Hourly Billing Rate $130/hr __________

* Most consultants estimate that they are doing well if they are billable 50 percent of the time. If there are 2080 hours in a year to work (excluding weekends and holidays), that means that your billable target is 1040 hours.

Sample Revenue Planning Worksheet for Consultants

Use the following worksheet to calculate your annual expenses, annual profit goal and hourly rate necessary to achieve the profit goal.

Example

$122,400 __________

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The “Science” of Pricing – Know Your Competition

• Traditional– Capital Structure– Business Model– Market Segment / Position / Target Market– Value Proposition– Offerings– Pricing Model– Partnerships (Clients and Go-to-Market)

• Emerging– Technology– Globalization– Product Commoditization

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The “Science” of Pricing, Method

• Standard Pricing Formula (pricing floor to stay in business)– Breaking Even– Pricing for Desired Profit, Cost-based

• At the Competition (sustain market share)– Similar Size, Structure, and Offering– Impact of near perfect information and alternative revenue streams

• Below the Competition (build market share – difficult to sustain)– Obtain best prices to lower your cost of production– Minimize overhead– Limit supporting services– Promote / advertise based on price– Find customers that value low cost

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• Above the competition (skimming strategy)– Target customers that don’t value low cost

– Differentiate on service, convenience, personal touch, etc.

– Impact of near perfect information and customer segmentation

– Impact of positioning your offering

• Multi-level pricing (discounting for market penetration)– Higher hourly commitment, large scope, more complex, large clients – lower rate

per hour

– Entering new markets, lower rate per hour

– Launching a new offering, lower rate per hour

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The “Art” of Pricing

Select a Pricing ObjectiveSelect a Pricing Objective

Determine DemandDetermine Demand

Estimate CostEstimate Cost

Analyze the CompetitionAnalyze the Competition

Select a Pricing MethodSelect a Pricing Method

Select a “Final” PriceSelect a “Final” Price

AdjustAdjustJustifyJustify

Rational

Cost

+ Operating Expense

+Desired Profit

= Billing Rate

Price Floor!!!

Emotional

Perceived Value?

Expected Benefit?

Personal Wins?

Image Alignment?

Price Ceiling!!!

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“You don’t sell through price. You sell the price!!!”Phil Kotler

“You must never sell features and function” Marty McLaughlin

Pricing Zone toJustify and Adjust

InternalView

ExternalView

Fixed and Variable Costto Develop and Deliver Service Offerings.

Based uponTarget Customer, Competitive Pricing, and Perceived Value.

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Customers, People, Brand, Processes, Relationships & Intellectual Property

CommodityProduct / Service

QualityProducts

QualityServices

UniqueCustomer

Experience

Increases DecreasesNumber of Competitors

Price Pressure and Margin ErosionReliance on Market Data

Make and Deliver Mindset


CustomerFocusedSolutions

Mosaic Partners LLC TM

Physical and Financial

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• Understanding Perceived Value to Push on the Pricing Ceiling– How do customers describe what they get for their money?– Do they quantify it in terms of dollar or time savings?– Do they gain a competitive advantage?– Is it more convenient to work with you then do it themselves or look for a

competing offering?– What are your customer’s choices?– What are their business needs that you are solving?– What is the personal win that you are fulfilling?– Do they recommend you to others?– Do they buy from you over an extended period of time?– Do you know why you win and why you lose?– Do you always quote price with a value statement?– What do you do when clients push back on pricing?– Are certain clients only looking for lowest cost?

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•Customer-based perceptions

•Price-to-value trade-off

•Two broad positionslow costDifferentiated

Pricing has as much to do with customers you don’t take as it is about customers you do take!!!

The “Art” of Pricing - Market Positioning

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PricePrice

ValueValuePrice

Selection

Quality

Atm

osphere Service

Brand

““Customer’s Eyes” ViewCustomer’s Eyes” View

xWal MartWal Mart

Low Low CostCost

DifferentiatedDifferentiatedxNordstromNordstrom

1 x1 x

4 x4 x

The “Art” of Pricing - Market Positioning

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We live in constantly changing We live in constantly changing and intensely competitive and intensely competitive marketsmarkets

We must constantly innovate We must constantly innovate and make price-value tradeoffsand make price-value tradeoffs

PricePrice

ValueValue

CommunityCommunity

20042004

$23$23

$46$46

<< $9 $9

AccessAccess ContentContent

NetZeroErols

AOL

Cable, Broadband

The “Art” of Pricing, Market Positioning

ExperiencesExperiences

Nokia

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• People buy because of who you are – not what you do!!! Lighten up on the collateral material!!!

• Price to attract the right types of customers!!! Your price says a lot about you!!!

• Find a coach to help you through the selling and pricing process!!!

• Stop making cold calls!!!

• Reward retention!!!

• Don’t let fixed cost impact your pricing!!!

• Pricing isn’t so much about what you sell, but how you sell!!!

• Pricing in just one of the other P’s of Marketing!!!

• When in doubt…start high!!! When you take fees off the table – take value also!!!


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“?”Questions?

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Thanks!

Expanding My Brand

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Our Methodology.

Delivering SolutionsThat Matter

to Your Customers

CreateValue

CreateValue

CommunicateValue

CommunicateValue

DeliverValue

DeliverValue

Assess C

ustomers

and Markets

Align the Organization andProcesses Around Customers

Art

icul

ate

Bra

nd S

trat

egy

to E

mpl

oyee

s and

Cus

tom

ers

Mosaic Partners LLC TM

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Our Process.

Focus on the customers’ problems, not your current offerings!

1. Understand needs of your Best Customers – Think Solutions, NOT Products!

2. Clearly Define Your Value Proposition within Your Defined Ecosystem!

3. Un-bundle Your Value – both Tangible and Intangible!

4. Re-bundle around the Personal / Intimate Needs of Your Customers, Business Partners, Channels, and Ecosystem!

5. Monetize Your Intangible Assets! Decide where do you need to Invest to Strengthen the Intangible Side of Your Balance Sheet?

CreateValue

CreateValue

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1. Define the Solutions / Experience that You Want to Create for Your Customers? How can you help Your Customers Create an Experience for Their Customers?

2. Understand that Solutions will require you to Partner with other solutions providers – Build and Nurture Your Business Ecosystem!

3. Understand that Ecosystems Don’t Respond Well to Protectionism (within limits)! Challenge, Test, Push, Expand, Invade the Value of Your Ecosystem to Ensue Long-Term Health!

4. Make it Easy for Your Customers to do Business with You and Your Business Partners! Welcome Your Customer to Your Ecosystems “Roach Motel!”

Our Process.

DeliverValue

DeliverValue

Develop processes that make it easy for customers to do business with you!

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1. Develop Your “Burger King” Story! What you advertise, what you sell, and how you make money are 3 different things!

2. Focus on Internal Branding! You and Your People are the best Communication Vehicle! Can everyone clearly communicate who you are, what you do, and how you are different?

3. Everything Communicates! Add Value in Every Conversation – It Will Come Back to You…Even If It Takes A Year!

4. Don’t Make People Guess how they can Help You!

Develop a brand strategy that clearly defines who you are, what you do and how you are different!

Our Process.

CommunicateValue

CommunicateValue

NAWBO: Pricing Your Services Right

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