How Clients View IT Resources – Commodity or Trusted Advisor?
7/6/09 at 6:31 PM by Tony Lael There are a lot of IT service firms charging clients a monthly rate based on the number of machines they are managing for their clients, usually because this is easier to price and explain to the client. Presenting pricing this way may be easier, but ultimately positions the IT service firm as a commodity that can be replaced at a lower price rather than a key resource to the business team that is responsible for management and support of critical business infrastructure.
If we take a closer look at what clients perceive as determinants for what they pay for services it becomes clear to see how, given the opportunity, it will be easier for the client to make a case for negotiating lower prices.
Determinants of Price – Defined Units
- Number of servers
- Number of work stations
Think about it this way – if clients are making adjustments in budgeting for services and there is an option is to choose between what they perceive as a lower available price for the same services, same quality of service supporting the same number of machines there is a stronger chance they will ask for lower unit prices.
However, if pricing has been based on defined responsibilities the client usually equates the value of the IT service firm to their business differently. It becomes more difficult to eliminate business responsibilities that have been defined as necessary than it does to negotiate a lower price per unit.
Determinants of Value – Defined Responsibilities
- Services provided (some services are managed and defined by a number of units)
- Devices supported (tracking the number and type of devices is still required)
- Scheduled on-site support
- Management services
- Operational scope of support (regular hours, response times)
- Location coverage
- Technology usage (defines how aggressive the client is at using technology)
CoreConnex offers an IT Services Pricing Calculator as part of our ConnexIT psa software subscription that calculates a monthly price based on the defined responsibilities entered into the calculator, but this is something you could create on your own.
Pricing services based on value is not about gouging the client for more money, it is about defining your relationship with the client so they see you as more than a unit cost that can be negotiated lower. Too many clients are not presented with value and only given unit costs – they forget the value of their IT partner and sometimes need to be reminded that you are not just a mechanic that fixes boxes.
Excellent Blog Post Tony. I feel that too many service providers are selling on price which hinders the clients from seeing the true “VALUE” of services being offered to them, which ultimately leads to commoditization.
If we sell on Value our clients will see IT expenses as investments in their organization’s ability to increase efficiency and productivity, and mitigate business pain and risk.
In contrast, if we sell on price clients will see IT expenses as annoying costs to haggle over. A relationship cannot be built on cost, but on the value the prospect perceives you to be for their organization.
I feel if you lead with price you’ll put yourself out of business relatively quickly. If you lead with value, you’ll have a sustainable business model.
Which leads to a question I have ? Maybe this could be a good topic for your next blog posting.
How do feel about service providers advertising their service offerings on their website. Plan A = $X, Plan B = $Y, Plan C = $Z. To me this leads to price shopping which comes right back around to commoditization. Because if customers/clients go online and see Johnny’s Support Shop with Plan B for $60, Timmy’s IT with Plan B for $40. Then guess what, they will once again only see price while out price shopping and never even get a glimpse of value.
My Lawyer, Accountant, Doctor, etc does not advertise their prices on their website. But do I know the quality and value that they offer to me. You bet I do.
I believe that we as service providers should be offering the same to our clients, QUALITY and VALUE.
We all understand and know that these are tough economic times and many of the services we provide are here to help our clients through these tough times. Continue to show that you are there for them and why you are their Trusted Advisor. Nothing beats Value and they will always remember you for it.
Have a wonderful day.
Ricardo, the interesting thing is that IT service companies should have ‘plans’ or ‘packages’, but the trick is to use them as internal guidelines for a place to start with the client offering – not as an advertised offering (like cell phone companies do).
There are factors in every business that make them unique to how you might support them and what THEY think are responsibilities that should be taken on by their IT service firm.
The firms that I have seen who are able to have a value added discussion and make pricing easy to understand for their clients have built the best relationships.
Thanks for the comments!
Right on the spot. I started out pricing by pc and server. Quickly realized that clients looked at us as a commodity that could be increased or decresed. We created a calculator that although takes into consideration the # of PC’s & Servers, we also take into other things like Terminal Services, Wireless system, etc…all of which can either decrease or increase the cost to manage. Yes clients ask how i got my price, but i tell them its 20 years of doing this, best practices, and being the best at what we do!