How can a services
provider (Advanced Services, Technical Services or Professional Services) make
sure it has priced its
services just right?
There are
three ways to do pricing
1)
Cost Plus
2)
EVC (Economic Value to Customer)
3)
Competitive Marketplace
Just going
by Cost Plus, you leave money on table. EVC is theoretically best pricing but
you cannot price case by case (so you set list price and give discounts to
adjust for case by case basis). Competitive Marketplace is what most people do
but then you are treating your services as commodity.
I suggest
that you follow a more methodical approach about pricing strategies for
services.
1)
Creating a pricing model, which takes into account your fixed
costs and business strategy. A baseline
formula would let you know what price range is NOT feasible. Say your prices will not be less than this amount
so that you maintain your Gross Margin and survive in the industry.
2)
Break down your costs into buckets (Server, support,
manpower, gas, commute, task time, delivery model and expertise) and then have
a variable formulae based on weightage to what you have in plenty and what is
scarce for you.
3)
Research your industry (business cycle,
technology trend)
4)
Research your customers (segment the market, are
you their strategic partner, long term potential).
There is a constant pressure on services to invest in new
practice areas, either
because these investments would help meet business unit sales quotas or because the business units need
more people/partners out there, evangelizing new sort of technologies. Evaluate
those opportunities so as to keep your costs low.
