Continued from part 1.
3. Value Results-Oriented Pricing
I met with a CEO of a small business that requires lots of traveling to disseminate its products. The team is well liked by all clients, but the traveling process makes the business inefficient. This drops the overall value of the product and delivery services. It also means, unbeknownst to the CEO, that clients are looking for alternative solutions.
My package offer to fix the looming problem was designed to increase revenue 300% by implementing online ordering. The new process guaranteed that the parts and services happened “just in time” rather than by chance. It also allowed for territory expansion without adding more personnel or trucks.
The package was priced at $120 per hour for my time to set up the online services, train the employees, and structure the new distribution practices using a third-party shipping company. Plus, they wouldn’t owe anything if I didn’t double the company’s revenue in 12 months. In other words, if I only hit 99.9% of the financial goal, they’d get everything I did for free.
The CEO turned me down because he never paid anyone more than $29 per hour. Since our last meeting, the business has seen a 12% reduction in revenue because clients have found alternative sources for the product. While this situation was an odd bird, there are plenty of companies that would love to work with a vendor that guarantees his work. The real value of any workload is in the end results.
4. Establish a Formula for Service Pricing
When I worked for the network division at Lucent Technologies, our competition was running circles around us. After loosing two dozen bids in a row, upper management demanded something be done about it. I researched the situation and learned that it took our team 7 days to publish a quote, and our competitors did it in 3-4 days.
After discussing the issue with the team, we came up with an online quoting system that returned accurate quotes within 4 hours. No one ever questioned why we were inundated with orders. Upper management just smiled all day long.
An entrepreneur that I met with last week had a similar problem. She didn’t have enough time each day to put quotes together and lost most jobs before she could finish her quotes. By turning to a modular formula system, she can now turn some quotes around while she’s still on the phone.
End of part 2 of 3. Part 3 will provide a pricing sample.