Competitive Pricing

Written by Rick Schissler on February 18, 2016. Posted in Article

The old expression says, “Beauty is in the eye of the beholder.” I suggest that applies to pricing of a product or service. The price should be dictated by what the buyer is willing to pay and what the seller is willing to accept. This relationship between buyer and seller creates a market for the products and services every business buys.
Unfortunately, many times sellers and occasionally buyers complicate and distort this simple formula. Many sellers, particularly in the small business community, do not know how to properly price their products.

A typical approach to pricing is to take their cost or what they think is their cost and add some mark-up or margin on. The mark-up or margin is supposed to cover their overhead and include a profit. Many times this simple formula either does not work or factors change which causes what they “figured” in their heads or on paper to be inaccurate. Most of the time the mistake is in the buyer’s favor and the seller loses money or leaves money on the table in the transaction.

IT Services are particularly prone to mispricing. A major cause of this is that they are a service and services are often more difficult to price than a product. The real questions for the IT business owner/manager should be, “what is my service worth to the buyer?”

The first place to look for the answer to the question is with the buyer. The seller needs to take the time to build a profile of the buyer. The key to the profile is to understand where the buyer’s IT system fits into their business. How important is the IT system to the success of the buyer’s business? I will submit there is no one answer for every buyer. Sometimes a buyer just does not relate to or understand how important their IT system is to their business. Other times the buyer has experienced one or more major crashes of their system and they put a much higher value on the system. Every potential buyer has one way or another put a value on their IT system.

This means the IT Service company needs to build flexibility into their buyer profile to allow for the range of value that different buyers put on their IT systems. Once the seller has its flexible profile in hand then it can better evaluate where it wants to compete in the market, in the low, middle or high end. The seller has the real opportunity to evaluate its own cost and profit profile and compare that against a potential buyer’s profile. This brings us back to the original statement that a market for products or services is created based on what a buyer is willing to pay and a seller willing to sell at. The difference, under the scenario I have suggested is the Seller is much better prepared to sell at a price that will help it build a profitable business.

The answer to the question of why the pricing for IT Services is so competitive is found in the fact that too many small IT businesses do not have a well-grounded pricing formula. When they enter the marketplace to sell their service they base their price on what they think not on what they know. Therefore, you end up with a market that has very inconsistent pricing, which typically ends up with the sellers providing inconsistent service as they are unable to cover their cost. What starts with a price the buyer cannot believe becomes just that as their business is impacted by poor service and maintenance delivered by their IT service company.

Pricing is a critical part of the IT service market. A price must work for both the buyer and the seller; otherwise the market gets out of balance. Once this happens, as in the case with IT service pricing, then ultimately both buyer and seller suffer.

A well-priced IT service offering will give the buyer at least the following benefits:

• Peace of mind –The hassle and worry out of technology is taken care for you. You always have a friendly face at WesTec Services to call for advice and assistance.
• One-Stop-Source – A good IT vendor will eliminate the headache, wasted time and exhaustion of dealing with lots of different technology vendors. – they will work with these vendors liaise on your behalf.
• Eliminate wasted business time – outsource day-to-day low margin technical support tasks so employees can focus on higher-level, revenue producing activities.
• Fixed prices – get all the Houston IT Support that your business needs for one low, fixed monthly subscription without any extra surprises or hidden costs.