As published on Forbes.com
I had the honor of delivering a keynote address this past week in Aruba to an audience for SETAR, the top telecommunications company on the island. After the event, I was able to spend some time meeting with and answering questions from many of the hundreds of attendees who attended the wonderful reception. Several attendees raised the same question (almost word for word): “Our clients have tight budgets. There is more pressure than ever to save money. How do we address that issue?” This reminded me of one of the 2015 Trends I wrote about before the start of the year. To that end, I shared the secret to why some clients happily pay more than anyone thought they would.
As much as we all like to think that we face unique circumstances, I am always intrigued by how businesses around the globe face similar challenges to one another. You might ask the same question they asked me about pricing pressure. Let me share some examples of trend number five on my list: “Customers will pay for verified results.”
Focus On Results
One of my clients, Windward, had been facing constant pressure from their customers about pricing. They shifted their business focus from hours and dollars to a share of results. Windward’s management team is confident in their ability to deliver and demonstrate tangible results for their customers. Customers often call upon them to save money while maintaining or improving service related to information technology and support. In the past, Windward would base their proposal on anticipated hours. They would calculate a rate for each hour and provide an estimated budget. Of course, this is how most businesses would address the same scenario. Their customers would often raise objections about the cost. Eventually, there would be a discussion about reducing the billable rate. The competition was offering to expend similar effort for a lower price. All of their great work was being commoditized into hours and dollars.
Since Windward is confident in their ability to deliver results, they submitted a recent proposal to have their customer simply pay a percentage of the savings. The beauty is that by working this way, Windward and their customer share the same goal: Save money while maintaining or improving service. If the service improves while costs go down, Windward can earn as much as $20,000 of each $100,000 in savings. (15% on the cost savings, and up to 5% on the associated service improvement).
Each of their competitors proposed a fee based on effort. If successful, Windward will earn substantially more than the low bidder would charge for their effort. However, their customer said “We’ll only pay you more if you end up saving us more. One way we are paying for effort. In your case, we are just sharing the results.” On their own, the customer proposed paying a bonus if they end up saving more than anticipated. The end customer anticipates saving between $20 and $40 million. Do the math.
If You Agree To Become A Commodity, You Better Compete On Price
I often hear from people that their customers perceive their products or services as a commodity. Recognize that being a commodity is a choice. Saying that your customers perceive you as a commodity is an excuse (sorry for the tough love, here). If you agree to be a commodity, then you better be the low bidder and offer better delivery than the competition.
My client above offers similar services to many other companies. They differentiated themselves by putting their money where their mouth is. They agreed to earn a percentage of the savings instead of getting paid for effort. When you focus on results, your client will happily pay more compared to paying for effort. Instead of thinking why you cannot provide results-based pricing, consider under what conditions you could get paid for results. Once you start, you’ll never go back.
This Is Not New – It Is A Growing Trend
ExpenseToProfit and Expense Reduction Analysts are examples of companies that help their clients save money while sharing in the savings. By focusing on the results, they keep themselves on the same side of the table with their clients, and the sales process feels like a shared mission rather than a sales call. Neither party has any interest in wasting time if the client won’t see results. On the other hand, both parties are enthusiastic about proceeding if they agree there is a potential for big savings.
What Can You Do
It is easy to focus on what you cannot do. If you can clearly define one area or another where you can demonstrate results, then start there. For example, in my business, I use a hybrid model. After all, I realize that can’t force my clients to implement my recommendations or to reinforce behaviors. But, when those who do the work see results, they pay a success fee that can exceed what they paid for the original engagement. Of course, everyone is happy when the success fee is earned (even the client writing the check) since it is entirely based on results. When you focus on results, you put yourself and your client on the same side of the table.
It’s Your Turn
Do your clients have tight budgets? How do you address pricing pressures? Share this article and take the conversation to Twitter, LinkedIn or your favorite social network.