Tag Archives: Customized

Do You Share Company Costs with Customers? Five Points

Situation: A B2B company has historically negotiated pricing with customers individually. While there are similarities between customers, each receives a product customized to their needs. The CEO is considering creating a “full disclosure” pricing model including their costs and seeks feedback from others. Do you share company costs with customers?

Advice from the CEOs:

  •  With only two exceptions, the CEOs did not agree with the concept of fully disclosing their cost structure to the customer.
    • The industry exceptions were public construction and government work. Some cities and the federal government require cost breakdowns and mark-ups by regulation.
  • The difficulty with the profit or license line, however it’s labeled, is that it becomes obvious that this is the company’s profit ‘nut.” This may be shared with a CEO that you respect; however, if the CEO shares this information with others in the organization your cost breakdown may become the basis for future line-by -line negotiations for cost reduction. Those with whom your company negotiates will be acting in their company’s interests, not yours.
  • The key is to optimizing pricing is to identify and sell a solution to the customer’s pain. If you do your homework well, and the customer is the right prospect, the price that you charge will pale in comparison to the costs that the customer seeks to avoid.
  • In your first negotiation, make sure that you have identified the customer’s pain and are presenting a value that addresses this pain. Only after you set expectations and have assured balance of effort do you go into more detail about your cost structure. Even here, only share detailed cost information if you deem this critical to the sale.
  • Look at it this way – price is not the key issue. The key issue is whether you can solve the customer’s problem and do so while providing an appropriate return on investment for the customer.

Do LEAN and Six-Sigma Work for Services? Three Thoughts

Situation: A professional service company is intrigued by LEAN and Six-Sigma approaches to increasing production efficiency and reducing costs. Most of the examples that they see of LEAN and Six-Sigma in action are in production or manufacturing settings. Do LEAN or Six-Sigma programs apply to processes in a professional services environment?

Advice from the CEOs:

  • LEAN and Six-Sigma are heads-down approaches to process improvement.  In a customized solution environment, standardization of processes has less pay-off. As an alternative, consider Agile Development and similar heads-up process solutions.
  • Agile Development is both a philosophy and a process. Steps to introducing Agile Development to a professional services environment include:
    • Identifying high risk areas of individual project plans,
    • Double resourcing high risk areas to increase the likelihood of fast, satisfactory solution outcomes,
    • Looking for collaborative synergies and scenarios,
    • Scheduling regular team meetings to enhance collaboration,
    • Working opportunistically rather than systematically to increase efficiency, and
    • Using project post-mortems to refine systems and processes.
  • One professional services company which has adopted Agile Development assigns Senior Engineers as outside consultants on projects. These individuals bring a more experienced perspective, and can identify more efficient ways to find solutions and produce a more cost effective and timely result.