The Price War — Conclusion
Much to my surprise — the actual price war was more of a price discussion and within about 40 minutes we were able to come to some useful conclusions.
Outcome #1 – Having a Price Strategy is Essential
We agreed that having no price strategy was unacceptable. This may seem obvious, but we went without a price strategy for 18 months. Even if a price strategy isn’t perfect, not having one let customers see right through us for this random / adhoc pricing. That led to uncertainty and undoubtedly had left us to giving lower prices than we should have.
Outcome #2 – Price on Value not on Costs
We agreed to eliminate terms like ‘hours’ and ‘GB’ from discussion of pricing. If we price on costs it will have the customer try to game the system to get the lowest cost — and in the long term we’ll not be able to collect as much revenue. Sure we will meet costs, but this tactic will quickly wipe away profits.
For example, a customer won’t know how to measure GB of storage, but they might be willing to pay an extra grand for video streaming. Video streaming might cost us a few more dollars a month, but a customer is more willing to pay for the feature with a large markup, than a GB overage. What I mean is $1,000 for GB overage is ridiculous compared to $1,000 for streaming video.
Outcome #3 – Base a Price on All Components
We need to be able to react really quickly to a customer who changes the rules on us. Like if someone says 2000 entries and reduces to 400 — we should be able to adjust the price without blinking. This will give them confidence in our prices. The price different from 400 to 2000 may not be much, but if we can back it up it will go a long way in avoiding more questions.
Outcome #4 – Do not be flexible
Our pricing should be firm — we should not use vague terms in defining our pricing. It will give clients the impression that we are weak and there is more negotiating room. 2501 entries? You move to the next price — no wiggle room. At least that is our tone. Any negotiations should be at the end of the contract discussion, not on the initial sales calls.
Using the initial spec sheet from the google doc, I plan to come up with a calculator the sales team can use. We’ll price everyone through it, prospect, actual quoted price, etc. Over time we’ll refine the mechanics, but this should be a good first shot at standardized pricing.
We will also update our contract language to better account for this consistent pricing.