Saturday, 14 March 2009

Pricing and Negotiation in a Recession tactic #2) Reduce cost to yourself and #3)

Sometimes Tactic 1, increasing Return on Investment doesn't work (previous blog entry); clients can't see the benefit (slightly more cost for a proportionately greater benefit) or they are committed to slashing budgets.

In that case you have a number of other choices.

Tactic 2) reduce your costs disproportionately.

If you reduce costs of delivery more than you reduce the price to the client then you increase profit margin % for yourself.

This is a rather selfish approach and so you should combine improvements in efficiency with this method rather than just rip-off your client.

Tactic 3) charge out separately for variable and fixed costs

By charging out separate, visible rates for fixed and for variable costs then you can match any price changes to the actual cost of delivery

example: one price for carpet fitting (fixed price) plus one price for type of carpet (variable unit price).

This is good way to show the client where you are cutting costs and how and where they can make savings.

BUT... negotiating on price and stripping down the price in these ways is a slippery slope.

Remember to make your negotiation conditional... In other words "We can do this if you will do that...".

Remember what people buy...

... usually they don't buy what you think you sell: many accountants think they sell accurate year-end accounts but clients buy a low tax bill or peace of mind that the Inland Revenue can't get us. How do you value/itemise that benefit in the customer's mind???
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