Pricing On Purpose Our Journey Public Version

Pricing on Purpose: Our Journey

Presenters: Chris Burris, VP of Operations Natalie Noel, VP of Sales & Marketing

Location: Baton Rouge, Louisiana Years in Business: Over 10 years # of Employees: 9 full-time Products: CRM, primarily SalesLogix and SageCRM Industry Sectors: Government, Manufacturing, Big-ticket Resellers,

and Franchises Services: Consulting, Technical (Installations, Software

Development, Integrations w/ Other Apps, etc.), and Training

About HELP Solutions

# of User Licenses: 20 (ranges from 5 – 250) Project Total: $75,000 (ranges from $300 - $250,000) Services:Software: 2:1 Ratio (ranges from 1:1 to 4:1) Customer Revenues: $1,000,000 – $2,000,000,000 per Year Timeline: 120 days (ranges from 45 days to 1 Year) Revenue Streams: 75% New vs. 25% Existing Pricing Method: ALL Value Priced, except LA Government

Project Characteristics

Time-Based Billing Our Transition to Value Pricing Overview of Our Project Methodology Overview of Our Pricing Methodology Examples of Success & Failure Benefits & Struggles Q&A

Information to be Departed

Benefits:◦ Easy to implement◦ Simple metric to track employee “effectiveness”

Cons:◦ Puts you at odds w/ the customer◦ Customer unable to budget fully◦ Variability in risk◦ Limits your firm’s earning power◦ Actually limits employee “effectiveness”

Time-Based Billing

What were the drivers for our change?◦ Desire to increase profitability◦ Desire to reach full agreement on scope and price prior

to initiating a project◦ Desire to have a “friendly” mechanism for serving the

customers that truly value our services and disengaging with the rest

◦ Desire to have a better method for rewarding our employees

Defining Moment

Re-engineering of sales process Re-engineering of project methodology Re-engineering of customer support processes Re-engineering of billing practices Re-engineering of employee minds

Requirements

Company-wide commitment Purchased Professional’s Guide to Value Pricing

by Ronald Baker Engaged a current member of the VeraSage

Institute as our consultant Received assistance from Ed Kless PMP Certification

We didn’t dive immediately into Value Pricing; we transitioned…

Our Plan of Action

With new projects, we increased our hourly rates to test the market

What we learned:◦ Customers valued our services more than we realized

and were willing to pay more – experimented up to twice our normal hourly rate

◦ When you charge more, customers respect what you have to say; in other words, the more we charge the more our customers value our expertise

Time-Based Pricing: $$$

Est. Hours x Hourly Rate First attempts at Fixed-Scope, Fixed-Price

What we learned:◦ How to sell these types of projects◦ How to manage these types of projects◦ Customers actually preferred fixed-scope, fixed-price!◦ Identifying full scope upfront makes the project much

more successful (and less stressful)

Cost-Plus Pricing

Est. Hours x Hourly Rate + How much more do we think they’ll pay?

All projects and subprojects fixed-price at this point with some support still being billed hourly

What we learned:◦ Price does NOT equal effort – numerous approved (and

disapproved) proposals proved that the perception of value is different from hours required to complete a service

Guesstimation Value Pricing

Our final phase◦ Quantify value in the Discovery process◦ Transition all customers to fixed-price support◦ Price with these questions in mind:

What is the value to the customer? What is this project worth to the customer? What other factors affect the price?

What we learned:◦ The idea of fixed-price support is to be addressed,

preferably, during the first sales interactions◦ Value must be quantified in the Discovery process

Pricing on Purpose

Project MethodologyImplementation

(1) Project Plan & Proposal Approval

(2) Implement & Control Scope

Summary of Findings(1) Qualify Prospect(2) Summary Of Findings(3) Demo Product(4) Discovery Proposal

Discovery Process(1) Identify Problems(2) Identify Value(3) Design Solution(4) Compose Project Plan

Customer Ownership(1) Level I & II Training(2) Admin Training(3) Gold-Level Support(4) User Adoption

Maintenance(1) Support Agreements

(Gold, Silver, Bronze, or Per Incident)

(2) Subprojects

1

2

3

4

5

CRITICAL to value pricing (and successful projects!)

Project Plan Sections:◦ Title page (Account, Date, Version #, and Project

Name)◦ Document Revision History◦ Project Logistics◦ Scope for all phases (Installation, Customizations, Data

Migration, Integrations, and Training)◦ Approval page

Project Plan

To price effectively… to manage the project effectively… to have a high-quality deliverable… there must be clear communication!

Document your method of management for Resources, Scope, and Time – the “Iron Triangle.”

Project Plan - Logistics

Why document assumptions?

A real-word example: Customer will provide all computer hardware and software,

which meets or exceeds the product manufacturers’ recommended system requirements as stated in the Technical Specification document.

Installations will be coordinated such that multiple installations are completed within a scheduled time period, and the HELP Project Team will have ample time for installations and testing.

Project Plan – Logistics, cont’d

Why control scope?

Scope Control Process:◦ Project details not mentioned within this Project

Plan are out of scope. ◦ … HELP will evaluate the feasibility of the change, the

impact on the project, and the additional investment needed.

◦ …HELP may choose to approve certain changes to project scope, at the discretion of HELP, without further price commitments from the customer and/or a formal change request procedure.

Project Plan – Logistics, cont’d

Only 4 dates really matter:

Timeline:◦ The Go-Live date will be X days or fewer from

the approval date of this Project Plan.  ...customer will be responsible for meeting the following deadlines: Technical requirements for ALL servers and

workstations must be met by:  X or more days before Go-Live.

Project Plan – Logistics, cont’d

Timeline, cont’d: Import data source must be complete and provided

in the format specified by HELP by:  X or more days before Go-Live.

Customer’s decision makers must be available for Customizations review by:  X or more days before Go-Live.

If customer does not meet the identified deadlines, the project Go-Live date will be impacted. The degree of impact will be assessed at the time the issue occurs.

Project Plan – Logistics, cont’d

Why define customer’s responsibilities?

Excerpt from project team assignments:◦ Client-Side Project Leader 

Is accountable to executive leadership for successful completion of the project.

Assures knowledgeable and empowered resources are made available in a timely manner.

Can make decisions about policies relating to project organization, project scope, or allocation of project funding.

Project Plan – Logistics, cont’d

Customer Tasks:◦ Any responsibilities or specific duties assigned

to the customer at the time of project initiation.

Project Plan – Logistics, cont’d

◦ Example of Scope: The defined scope for this project is such that HELP will:

Install and configure one SalesLogix database on the Database Server PC.

Install and configure one SalesLogix Application Server program on the Application Server PC.

Install SalesLogix Administrator program on the Application Server and up to three other identified computers.

Install SalesLogix Architect program on the Application Server and up to three other identified computers, if pertinent licenses have been purchased.

Install and configure one SalesLogix LAN Client program on one identified computer per each Named User license specified as Network Clients.

Project Plan – Scope

Example of Anti-Scope:◦ Explicit Exclusions:

Install and configure one SalesLogix Sync Server program on the Sync Server PC. – Remote SalesLogix clients with synchronization will not be used within this implementation.

Install and configure one SalesLogix Remote Client program (to include SQL Express) on one identified Laptop computer per each Named User license specified as Remote Clients. – Remote SalesLogix clients with synchronization will not be used within this implementation.

Project Plan – Scope, cont’d

Real-World Example:◦ Module: Monthly Sales Reporting◦ Value Thoughts: Provides interface for adding, editing, and deleting

monthly entry; established foundation for further automation; user currently spends at least 10 hours / week maintaining this data in XLS; information is critical to maintain good relationship with vendor; gives financial data for all customers which would allow profiling by region, market, avg. transaction size, etc.

◦ User(s) Affected: Betty◦ Labor Savings: $12,000 ($60,000 salary; 20% time savings)◦ Increased Revenue: $50,000◦ Total Value: $50,000 + $12,000 = $62,000◦ Maximum Price: $15,500 (1/4 of total value)◦ Minimum Price: $5,150 (1/12 of total value)◦ Proposed Price: $7,750◦ Payout – Months: ($7,750 / $62,000) * 12 = ~ 1.5 Months◦ Est. Hours: 36◦ Per-hour Investment: $7,750 / 36 = $215/hr

Est. Project Value

Our Process to Developing a Value-Based Price◦ Needs Analysis Meeting◦ Summary of Findings◦ Demo of Solution◦ Presenting of Initial Valued-Based proposal◦ Discovery ◦ Presenting of the Value-Based project proposal

Overview of Our Pricing Methodology

First Encounter with the potential client◦ Important to educate them on methodology

We have to drive the process of finding value for each prospect◦ There mindset is more about “how much will this

cost me” Ask lots and lots of questions

◦ Why, how, what, how much, etc.

Needs Analysis Meeting

What does that mean to your organization? What is the impact the solution will have on

your business? Why are we having this conversation? What happened before you called me? What is driving you to do this?

Example Questions to Uncover Value

Any ideas of the feasibility of this project? Have they determined that they are ready to

solve? What are the main problems you want to solve? Is this the complete list? Is there anything else? Based on what other

customers have needed What is the timeline for the project?

Questions Continued

First chance to identify in writing the value of the solution and have the prospect agree that you are on the right track

Identify all of the initial areas they will receive value

Summary of Findings

Show visual proof of the value Get them to ask a lot of questions Prospects like to see how they will…

Demo

Do not present until the decision maker is present.◦ Influencers will slow the process

Understand if there is a significant amount of value for the customer to move forward

Clearly outline the Value points and their quantitative amount

If you have clearly identified as much value as possible they will say yes

Present Initial Proposal-Discovery Only

Building a case and value for the entire project ◦ Software◦ Future Services◦ Credibility reaches an all time high

After EVERY Discovery, we have NEVER received a price rejection

Discovery is critical because: We’re expensive… this gives customers an

opportunity for us to prove our experience without them needing to invest as much

Defining value (i.e. helping them realize their potential)

Discovery

Present all of areas that we will add value and the reasons why◦ We will save them this much time◦ We will eliminate this process◦ Improve this process

Payment◦ One number and allow them to pay it off over 2-3

months as we work on the project

Project Proposal

Price sensitivity Timeline Likeability of the customer Risks Expected ROI (Value) of the project for the

client Uniqueness of the project How busy we are Does this project have any strategic

significance? Can another company do this project?

In pricing, weigh such factors as:

Customer A◦ Project Total happily approved at 10X original

budget Customer B

◦ Expressed “maybe I am under valuing myself in my own business” after be persuaded to the idea that value does not equal effort

Customer C◦ Wrestled w/ issues on their own for 2 months◦ We scope & priced beforehand for $1,000; fixed

within few minutes via email◦ Customer was very happy despite effort involved

Successes

Customer D – unable to convince them to do anything beyond by-the-hour; he thinks it’s cheaper by the hour

State Contracts-Currently still by the hour Under Valued Ourselves

Failures

Customer satisfaction is higher Profitability Project totals are higher Service agreements

Benefits

Confidence of Employees◦ They have to value themselves

Getting all of our clients on board with the pricing model change

Affected time to close Affected total price of project Affected time to go through the process

and create proposal Harder to sell first discovery piece Customer satisfaction

Struggles

Q&A

Chris Burriss – [email protected] Natalie Noel – [email protected]

www.helpcrm.com(800) 346-0415