As Services Leaders, it’s that time of year when we think back on the last year and make plans and resolutions for next year. To save you time, I made you a list of resolutions that you can use as a starter. So, repeat after me; I hereby resolve that…
…In 2023, I will Price Projects with More Math and Less Emotion (and increase revenue 10 to 20%).
I think most of us who lead services teams determine prices through a combination of prior experience, a task plan and what someone – maybe you, maybe a sales person – “feels” the customer can afford. The problem with that approach is that it is inherently subjective and tends to assume the best case, not the worst case or even the expected case, in terms of the unexpected issues that will show up during delivery.
That means prices are often based on what we perceive the customer is willing to pay more than what it will cost to deliver. And the result of that, in turn, is often the need to do free work to meet the expectations of the customer. And doing free work then leads to all kinds of problems, like cost overruns, missed targets and high stress for the project team.
You probably have seen the effects of that kind of stress. I see it when, once we are behind on the budget, unhelpful emotions are brought into the project…as reflected in statements like “I agree we should do more training, but we already are doing this at a loss”. And those kinds of sentiments are decidedly unhelpful when we are trying to navigate to a successful go-live and a satisfied customer.
So this year, start pricing projects this way: Build a catalog of well-defined services offerings with defined components for each, and with pre-defined pricing for each offering and each component, and include a risk factor in the process.
Then, with your “catalog” built, price your projects by simply adding up the pre-priced components. That way, the price is not personal and not subjective…it is just the result of adding up the components that are included in the project. And if you then do have to discount, do it as a clear percentage off the total, shown as a line item instead of making random tweaks to hours and rates.
From our experience with WorkRails customers, you will see more accurate and effective pricing and less remediation work. Another benefit you will almost certainly see is an immediate increase in your average project value…typically of 10 to 20%. That’s a pretty big return on the investment of one simple New Year’s resolution.
And while WorkRails works with an offering and components catalog as part of its core functionality, nothing is stopping you from changing to a standardized, catalog-based approach to pricing today..right now.
…in 2023, I will NOT create new SOWs by starting with a copy of a previous SOWs.
Don’t be ashamed. We all do it, or at least have done it. You know, that thing where you need to provide an SOW or proposal for a new project, and you start by resurrecting a prior SOW or proposal from a previous project.
A few clicks – File, Save As – and some search and replace work and voila, you have a new SOW for a new prospect. And what’s wrong with that?
A lot, actually. This approach creates a bevy of problems, including the fact that any errors from the prior versions are carried forward. In addition, an analysis of the results of the prior project (like asking whether we make any money on the project) is probably not incorporated into the new pricing.
And perhaps most embarrassingly, small details like names of the customer can be missed in the “find and replace” step and show up glaringly in the new version. (I call those ghosts, because they give me nightmares).
A better way? Generate new SOWs and proposals automatically, with the content driven from standard descriptions and standard prices for each project component. An automatic sales document generation system ensures that no ghosts from prior SOWs sneak in, and allows the content to be refreshed periodically as part of a central content management system.
WorkRails incorporates an approach that uses a guided model, asking questions about which components of a project are to be included, and then generating PDF and Word versions of the SOWs and proposal from a standard template. The result is an SOW that includes exactly what it should and nothing that it should not.
…in 2023, I will transform the way we do pre-sales discovery .
Perhaps the oldest adage in sales is that “time kills all deals”. Any delay increases the chances that budgets will be frozen, competition will be evaluated, your company’s champion will change jobs or their company will be acquired.
And the only thing worse than that happening is being the actual cause of the delay.
It makes sense to want to do a deep dive into requirements and integrations before pricing a project, building up the scope piece by piece, line by line. More information will of course yield fewer surprises. But taking more time also increases deal risk.
There is a better way, a happy compromise. Start the scoping work by assembling the known components of the project based on a catalog of project types and components. That gives you a first estimate.
Next, evaluate each component of the project and make a simple determination: In this project will this project element or component be simple, typical or complex. Using that assessment, use a standard complexity factor (such as +0%, no +10% and +20%) to adjust the price of each component.
The result? A really solid price, determined very quickly, without a large expense of time and effort in “Discovery”. And that means less of an impact on the deal cycle, which in turn leads to higher close rates (and better relationships with the sales team).
Of course, some projects include brand new elements, and they deserve careful analysis to manage risk. But hopefully most of your projects are built from standard elements, and time spent building project plans line by line, and pricing each based on hours, roles and rates for each item, is simply time wasted.
…in 2023, I will reduce the hours we lose to unpaid work by half
Between target utilization and actual, realized utilization lies the land of unpaid work. Not a pleasant place to spend time.
The unpaid work that you do for customers can be thought of as a revenue leak. That’s because unpaid hours are like water flowing through a hole in a dike, except instead of water the outflow is the dollars you could and should be billing for that time.
The root cause of unpaid hours is almost always mistakes made either in pricing a project or delivering it. Both problems can be dramatically reduced with a change in how projects are packaged and priced.
For a brand new type of project, never done before, it is reasonable to expect problems in pricing and delivering the project, because there are so many unknowns. But for repeatable types of projects, like implementation and on-boarding, there is a very clear way to minimize unpaid work on projects.
The key to minimizing, if not eliminating unpaid work is to deliver repeatable, productized projects based on standard components that have been honed through multiple deliveries. With a catalog of project types built on a set of standard components, every project is based on tasks and deliverables that have been delivered before, and which have been priced based on that experience.
And standard, productized services can be more effectively presented to customers, using proven descriptions with clear lists of risks and deliverables, helping to eliminate the misalignment that leads to customer frustration and the unpaid hours you need to deliver in attempt to bring the project back on track with the customers expectations.
Lastly, a catalog of productized offerings can include process for each component that include a risk factor, so that the cost of that component or element is priced based on reasonable expectations of challenges and obstacles, not next case scenarios. And that means when issues do arise, the project budget and allocated hours are available to address those issues.
So make a resolution to reduce your unpaid work this year. It is easier than you think if you work from a catalog of offerings and components, and the payoff can be staggering. After all, if you are leaking 10% of your hours to unpaid work now and reduce that by half, we are talking about an increase of 5% in your utilization…and your revenue.
…in 2023, I will stop “creating, preparing or writing” SOWs…and start “generating” them
How much time does it take your team to prepare SOWs, Proposals and Agreements, and how much does that time cost?
Here is a quick calculation that is well worth doing; It is just three numbers. Take the number of SOWs (and related documents) your team will prepare next year. Now take the number of hours that each set of documents takes to prepare. Multiply those two numbers and then multiply by a loaded cost per hour for the people doing that work.
Here’s an example. 1,000 SOWs a year, at ten hours each, at a cost of $100 per hour. That is $1,000,000 to prepare SOWs and sales documents.
Now, what if you could reduce that number by half next year? That is a savings of 5,000 hours in time and $500,000 in dollars.
The good news is it is not just the calculation that is easy, the actual mechanism for harvesting that savings is pretty easy too. It comes from a shift from “preparing” SOWs and Sales Documents to “generating” them.
Imagine for a second that you have a very smart assistant who follows instructions very well. So when you tell that assistant to “create sales documents for a company called “Hutchinson Systems” for a Standard Implementation, with an extra training module and integration with Oracle”, they would know exactly what to do, and would provide the documents to you about 2 minutes later…perfectly prepared, perfectly formatted and priced based on your standard pricing structure.
In that case the savings would be a lot more than 50%, but you get the idea.
And that is the idea behind WorkRails, which takes project parameters as inputs and generates standard SOWs and sales documents, with standard pricing, automatically.
In practice, WorkRails customers dramatically reduce the time that their teams spend on preparing SOWs and sales documents, saving as much as 90% of the time they were spending without WorkRails. With the side benefit that every document is error-free and perfectly formatted, ready for delivery to the customer.
“It is a dramatic change. It pays off immediately. And it plays a catalytic role in transforming your services business, allowing it to scale rapidly and increase its profitability. Making the resolution to stop creating SOWs and to start generating them is a great way to start the New Year.