Tag Archives: Guarantee

How Do You Assure Consist Reliable Service? Six Solutions

Situation:  A company has remote employees who are on a wide variety of schedules. Retaining great employees is a challenge, and with this consistent service due to turn-over. How do they improve the relationships that they have with remote employees? How do you assure consistent reliable service?

Advice from the CEOs:

  • Guarantee employee income for a period after they lose a client and as you seek another assignment for them. Limit your exposure by setting hurdles – an employee must have served the company for X time to qualify for this benefit.
  • Create your own “down time” bank. Say you pay an employee $10. Give them $9 and put $1 into a bank so that you can pay them once they lose their current client. The fact that their bank is limited to the amount of these contributions creates an incentive not to draw down the bank.
  • Offer a paid day off per month of service.
  • How do you shift your business from commodity to specialty, as a value add business?
    • What Peace of Mind features could you provide to your clients to create added value and stickiness? For example, can you provide a portal into your system so that clients can access information on the services that you’ve provided, or enhance their ability to communicate with their own clients? What about access to time schedules, account notes, etc.
    • Look for a solution that will shift the industry.
    • Look at menu driven packaging and pricing options. Examples include discount pricing for purchase volume commitments or iPads for a significant level of investment.

How Do You Evaluate Distribution Alternatives? Four Thoughts

Situation: A software company is evaluating its distribution network. Historically they have worked with resellers who aggregate software services into packages for larger customers. Recently they were approached by a reputable distributor seeking a master distribution agreement with favorable payment terms. Is this an option that they should pursue? How do you evaluate distribution alternatives?

Advice from the CEOs:

  • There are at least three objectives to consider: market coverage, margin to the producer, and market risk.
  • For market coverage, evaluate the alternatives in terms of their ability and commitment not only to serve your current market but to expand into adjacent markets.
  • Regarding price and margin, there are two alternatives:
    • Decide what price you want, and don’t worry about the reseller or distributor’s final price to the customer, or
    • Establish a floor price for your product and ask for a percentage commission on sales.
    • Run models on each and decide which will provide the best return on sales.
  • Market risk is more complex. These are different approaches to the market.
    • In evaluating the reseller option, insist on terms in reseller agreements that the reseller disclose the terms of their sales.
    • Sharing of customer databases is another factor. Siemens, for example, considers their customer database as IP and only releases portions of their customer database selectively to resellers.
    • A master distribution agreement has different risks. It puts all of your eggs in one basket. If the distributor adjusts focus away from your software during the term of the agreement your sales and revenue will suffer.
  • Are there conditions where a master distribution agreement may make sense?
    • If the distributor is willing to sign a multi-year agreement with sales guarantees at favorable pricing this mitigates the risk.
    • The central issue is risk and guarantees. If you see the option as a low risk – high return proposition, it may be worth considering.

How Do You Craft an Effective Trial Offer? Five Suggestions

Situation: A professional services company has developed a new trial offer to promote their services to prospective clients. The offer includes a discount for an initial evaluation accompanied by a discount on services should the client choose to proceed with recommended solutions. They seek guidance on whether this is an effective approach. How do you craft and effective trial offer?

Advice from the CEOs:

  • The suggested approach is similar to what others offer to new prospects, but only goes half way. A discounted offer only works if you’ve convinced the prospective client that first, they need your services, and second, that there will be a positive financial impact to their bottom line if they agree to your trail offer. You need to add recommendations that will demonstrate a significant short term financial benefit.
  • Target your message. Give the prospect a reason to spend scarce dollars now.
  • Offer to apply all or some of the initial fee to future expenses if they contract you to solve problems that you identify in your initial review.
  • An example of a more targeted offer would be as follows – we will audit your accounts receivable as well as any debts that you’ve written off last in the last 2-3 years. Based on this audit, our past experience has been that you can boost short-term collectibles from these accounts by 30%. An offer like this demonstrates an immediate impact on cash flow.
  • Do you feel comfortable offering a guarantee? You will save the client $X over a guaranteed period or the service will be free.

How Do You Bridge a Short-Term Cash Crunch? Three Options

Situation: A technology company has grown rapidly over the last year. Two customers representing a significant share of business have temporarily reduced orders for one quarter, resulting in a cash crunch until these orders resume. How do you bridge a short-term cash crunch?

Advice from the CEOs:

  • Do you feel relatively secure that once the quarter is over these orders will resume and your cash crunch will be resolved? If so, ask your bank to increase your cash line. Explain the situation, the companies involved, their order history and the expected timing until you get your next payments. A letter from each company saying that they plan to resume orders will help your case. Be aware that the bank may request a personal guarantee to substantially increase your credit line.
    • If you have to personally guarantee a line of credit extension, make sure that you see this as an acceptable risk, and that you can trust the customers to come through with their orders as promised.
  • If you produce products or subcomponents critical to these customers, ask whether they will extend a bridge loan or make a payment against future orders to assure their place in your production queue once their orders resume. You may have to escalate this request within the customer companies if you are currently dealing with purchasing personnel or lower level management.
  • Can you redeploy excess labor to other projects during the cash crunch? You will have to do this carefully so that you can rapidly redeploy these resources to priority projects once a large order comes in from one of these customers.

How Do You Reset Pricing When The Game Changes? Five Parameters

Situation: The Company sells customized products and pricing has been per product/per customer. A large client has proposed to purchase product rights across a number of products and uses. The technology is early in its expected 5-year life span. How should the Company set pricing to this customer?

Advice from the CEOs:

  • Start with a series of questions:
    • What is the value of your technology to the customer?
    • How much competition do you face?
    • What other solutions are available to the customer?
  • Based on this framework, ask contacts within the customer company open-ended questions that will reveal what is important to them including:
    • Licensing objectives,
    • Planned use of the technology, and
    • Any protections that they seek.
    • You need to understand these before you can make decisions on pricing.
  • There are several pricing scenarios:
    • Set up a scale with a declining pricing driven by volume.
    • A large lump sum payment now, non-transferable if the customer is acquired by another company.
    • A large annual fee to cover a preset number of uses and volumes, with small increments for additional purchases.
    • The final arrangement will depend on the priorities of the customer.
  • Find out what the customer is willing to pay, but you set the terms.
  • Ask what guarantees they desire to protect their position. This includes:
    • The customer’s key risk factors.
    • Whether they want exclusive or usage rights. Exclusive is worth more.

Key Words: Pricing, Custom, Technology, Life-span, Value, Competition, Licensing, Objectives, Protection, Scenario, Scale, Lump-sum, Annual Fee, Guarantee, Exclusive, Usage