Out-of-control service discounting erodes margins and sets unsustainable expectations with customers about future service delivery prices. Yet service discounting is widespread—and it’s often unnecessary.
To stem the adverse impact of service discounting, companies must establish the ability to configure and position service value and adhere to defined pricing practices. The keys to getting service discounting under control are well-defined service sales policies and practices supported by end-to-end service sales automation.
Why you MUST manage services discounting
Services are a value enabler. They are essential to accelerating customers’ success. Discounting, however, diminishes the perceived and actual value of services and erodes margins for highly skilled, in-demand human resources.
Yes, some level of service discounting IS inevitable and appropriate. But any discounting should serve larger strategic objectives. Well-defined discounting practices with executive-level oversight and approval are critical.
Services deliver accelerated time to value
Customers typically buy services to augment their existing skill sets or fill in a lack of skills. Services enable customers to tap directly into suppliers’ product expertise. With the right services customers will experience accelerated time to value and establish the means to effectively use and apply products to achieve tangible business outcomes. Value realization with products alone is often slower or even unobtainable without complementary expert services.
According to ServiceXRG, a global technology services research firm, the leading cause of customer churn is failure to effectively implement products in the early stages of ownership. As a result, companies cannot fully support key business practices or achieve expected levels of performance. Selling the right services to help customers achieve success is vital to sustaining long-term and profitable customer relationships.
Service discounting erodes margins
Effective service delivery requires the investment of time and effort from skilled resources who are often in high demand. Services are labor-intensive and costly to deliver—even with well-established tools and methodologies. Discounting services erodes margins and must be minimized and carefully regulated with defined process and approval requirements.
5 ways to get service discounting under control
Of course, companies would prefer not to discount services or erode service margins. But discounting often happens because companies lack policies to define service discounting and/or they lack systems and processes to assure proper oversight and approval of consequential service sales quotes. Services may also be discounted because sales incentives favor license sales over product sales.
Your company will get service discounting under control if it implements defined service sales policies and practices supported by an end-to-end service sales automation platform. Here are 5 actions to consider:
1. Establish and adhere to service price levels and discounting policies
Service pricing and policies should not be a mystery to your Sales team. Establish a service price book aligned with your service catalog and establish clear discounting policies. Assure that the service price book is used as the basis for configuring and pricing all service quotes.
2. Automate service sales configuration and pricing
When new service statements of work are being configured, integrate service pricing into the proposal generation process. This will take the guesswork out of establishing proper price levels. Automating pricing during the configuration process assures consistency in pricing and reduces the frequency of unauthorized adjustments to price levels.
3. Require review and approval of “non-compliant” service deals
Automated end-to-end service sales workflows and approvals can assure that proposals are aligned with current Sales policies. Establish workflows to route high-value deals or any deals that deviate from established service discounting polices to proper teams and executives for review and approval.
4. Help sales justify service value
Service discounts should not be used as an alternative to defending the service value. Selling services and establishing the service value proposition have two levers: the price of the service and the benefits delivered. The default service value proposition should emphasize service benefits, not discounts.
Provide your Sales team with the resources they need to help customers understand the benefits of the services offered. Establish guidance to help Sales promote the tangible benefits customers can expect from services. These can include faster time to benefit; lower costs to implement and maintain; and the attainment of business performance objectives.
5. Incent action
Establishing pricing policies and approval procedures may not be enough to mitigate the desire to discount services. If you want Sales to take an interest and commit time and efforts to selling services at appropriate price levels, then create a plan to recognize and incent action. Structure compensation, goals, and KPIs to properly incent Sales to position and sell the values of both products and services.
To protect margins, sell service value
Unless brought under control, discounting will erode service margins and diminish the value of services. To stem the adverse impact of service discounting, companies must establish rational, end-to-end service sales policies, practices, and systems to deliver value and protect margins.