My old boss has a saying, "We are in business for fun and profit. If we are not making a profit it's not any fun." All projects start out fun and profitable. What happens next is really up to us.
In my consulting practice I encounter some very creative ways that my clients undermine revenue opportunities by placing unreasonable expectations upon the project.
When a new job comes our way, we often project our own image of what the customer wants and how they will revere our work. The project therefore must be completed with the best materials and any obstacle to high quality work should be removed or dismissed.
Customers that refuse to make the "right" choices get labeled as "cheap" or "Not someone we want to do business with."
"Customers should come to us only if they want to do things right," is the battle cry of control freaks everywhere - and our industry attracts control freaks like flies to roadkill.
The fact is, projects never go right if we use idealistic standards. When customers come to us with a $5,000 budget for something that should cost $10,000, it is not a reflection on what we want to charge. They only have $5,000. We arbitrarily chose a $10,000 solution.
"That's what it will take to do it right. We don't want to do it wrong do we?"
Sigh. AV people can be such snobs. When it comes to technology, all that really matters is whether the customer is happy with the outcome for the price paid. How you prefer to do it is a choice.
It's only the right choice if the customer agrees that it is.
"We don't want to be associated with a project that won't look good!"
Big, snobby, snobs.
Low budgets do not have to mean schlock work. The implication that the customer is asking for a low quality job is a bit insulting. What they are asking for is a $5,000 solution. Yours may or may not meet their needs.
"We have higher standards than other companies."
Uh, well good for you. Apparently those standards don't include a willingness to research a $5,000 solution for a willing customer.
Some customers are price-shoppers who research their options then look for the lowest cost. Most of us don't want to deal with price-shoppers, and that's OK. Other customers have a budget.
That budget may not be realistic, but it's their budget.
They deserve respect for having one. We can educate them about what that budget will buy, and what a higher budget might afford them, but we can't look down our noses at the project.
The guys down the street may have a more cost-effective option: less expensive products or labor, lower overhead, or perhaps they are just more open to using off-brand products or lower technical specifications.
If that solution will make the customer happy, then that supplier deserves to win the business.
"They won't be happy with the outcome."
What if that client has a $5000 budget because no one explained what $10,000 would do? Unless you take the time to demonstrate the difference in the solutions to the customer to assess what meets their expectations, then you are applying your personal prejudices.
Bottom line, if you are going to be a snob then you are just going to have to work harder at proving your point.
Many of my clients will read this and think "Gee, Tom's talking about us." Unfortunately I am talking about a LOT of companies.
I run into this all the time and I can assure you, snobbery keeps firms from growing, alienates potential customers, and drives down profits. I find it in Systems Integration and Live Events, and I see it as a consumer. Snobbery manifests itself in project design, product choices, staffing levels, and pricing.
When you let your technical team drive the solution, it is almost always more expensive. If you let the same team evaluate potential projects based on their perceptions alone, they will reject valuable opportunities.
This results in under-pricing projects that you really want to do and over-pricing the ones that don't seem so glamorous. Big projects equal big money right?
In most AV companies, the perfect size of project is smaller than you think. The bigger the project, the lower the margins. The handful of small projects the team rejected were collectively worth more than the one showcase project you chose instead.
How do you change your team's (and your) expectations? Teach them how pricing works:
Follow the Money
Start with the numbers and learn where profit comes from. Are your cost assumptions correct? Are your margin expectations commensurate with the service you are providing?
Undercharge and over-deliver is a formula for disaster.
Account for Risk
One of the most dangerous words in business is "markup." It's a lousy method for determining value. Is marking a product or service up 100% greedy? Or foolish?
That all depends.
How easy is the item or worker to source? How much risk do you incur when you apply that resource? If the product needs to be integrated with other products, what is the value of your expertise to do that properly?
Protect Your Cost Advantage
Sometimes you costs are inherently low because of good fortune or business decisions. It would be a mistake to pass that savings on to the customer.
Instead, it is an opportunity to make more money or have more room to negotiate.
Conversely, if your costs are higher, then your margins will need to be lower to remain competitive.
Leverage Your Quality
Who wants to be competitive? That's too easy.
Be valuable instead.
If you want a larger market share at a lower price point, then manage customer expectations. Don't limit the quality, limit the quantity of the quality
Don't Aim Too High
Businesses with higher cost basis tend to deliver a higher level of service in order to command better margins.
We've all heard the Nordstrom's story about a customer returning a set of snow tires she bought somewhere else. If you had Nordstrom's margins at that time, you'd understand why they could afford to do that.
Know your market position.
We all make money by delivering what we promised for less than what it costs us to do it. What we need to understand is that there is potential profit everywhere.
Treat your customer with respect and the project with reverence and you will find that there is more acceptable business out there than you thought.