Pricing your offer
Offer pricing is an important area for both the Offer Management team and the Business Development team. The first step is to price the standard offer. The price of a standard offer is usually a monthly unit price for a piece of infrastructure that you manage. The most typical is per-element pricing, where you set a monthly price for each type of device you manage.
For example, per router for data, per port for voice, per server for server management, per mailbox for messaging, and so on. Many managed service vendors are moving to per-user pricing so that users can have multiple devices. Our recommendation is to use the one that you can most effectively track and manage, and that is appropriate for your offer and your customers. I have also seen some vendors use a fixed fee for all services offered, while others use a maximum fee. To me, the risk of undercharging here is outweighed by the benefit of ensuring that the customer knows their costs. Rather, this is something we do on an exceptional basis for clients who have asked for it. For clients with a relatively fixed volume – for example, the number of users or devices – we offer what is effectively a fixed price. You must also decide whether you want to set a one-off fee which is payable upfront. Customers tend to negotiate one-off fees.
Therefore, you need to be prepared to waive these charges and build them into your monthly list price or discount strategy. For transactions of a certain size, you may be able to waive the one-time fees that can be waived. You will also need to take into account the charges for MACD (moves, adds, changes and deletes). While we could set a separate fee for all MACD work, we believe that it is most common to include soft MACD in the price.
I believe that it is most common to include soft MACD in the price, at least up to a certain level of volume per month, and to charge separately for “hard” MACD. Hard MACD requires actual changes to part of the customer’s IT infrastructure, whereas soft MACD can be operated remotely online. Once the pricing structure is in place, it is important to get an accurate benchmark. It is important to get an accurate benchmark of how your competitors are pricing for the same type of service.
In many cases, it is a good idea to consult analyst reports. Sometimes, however, these reports can give you a false sense of security in your pricing. Vendors often explain to analysts how their list price compares to the actual ‘street’ price. Often, the best information will come from the managed services deal team doing the deal and understanding what prices competitors are offering for similar services. Many firms will provide copies of competitors’ bid prices if requested. You can also work with an analyst firm to obtain blind bids from competitors.
In this way, we can get a fairly accurate picture of our competitors’ pricing. Another way to get an idea of your competitors’ prices is to hire their employees. The most important thing in comparing prices is to understand the specific services offered at that price. That’s why actually conducting competitive bidding or blind bidding will give you better competitive pricing data than analyst reports. Large custom projects often make or break a Managed Services business. Therefore, the pricing of these deals is very important. As with any other element of a custom deal, we recommend that you start your pricing with a standard offer.
The core of a delivery is based on a standard offer. The delivery case team will need to calculate the cost of all non-standard features that need to be supported for a particular client. The business development team will need to work closely with the delivery team to calculate this cost.
It is important that the delivery team is actively involved in the proposal of large custom projects. It is not something that the delivery team should shy away from for fear of delaying or jeopardising the close. If we do it right, we’ll know if we understand your environment and our ability to deliver.
You will increase your customer’s confidence in your ability to understand and deliver their environment. It also increases the likelihood of a successful relationship with your customer. It is important that the person in charge of pricing in a managed services business belongs to either Finance, Offer Management or Business Development. This person will work with the offer manager to determine the standard price and with the bid development team to determine the price for each custom project.
For each custom project, a pro forma should be prepared that takes into account revenue, profit and cash flow over the life of the contract. A pre-defined tender approval process should include financial approval for all custom deals. Pricing in the managed services business is a critical business. All decisions regarding the pricing of standard and custom deals are It is therefore important that all decisions regarding the pricing of standard and custom deals are made by someone who understands all the appropriate details and is responsible for pricing.