It is a Marketing 101 idea, the “value pricing” concept — that you should not price your services by the hour or on the “lowest bid wins” basis, but because of the value we actually deliver to them. You’ve all heard the argument (and tale) of the engineer who visits a nuclear power plant to solve a problem, flicks a switch, and then bills $10,000 because he knows which switch to flick.
The challenge for most business owners, however, is discovering enough clients willing to accept higher-price value proposition. So, generally, we price more in line with industry norms (or below them), and — if we do things right; if we truly deliver “great client service” — we can build our brand/reputation and charge more, gradually elevating our incomes to reasonable levels (at least until the next business-destroying recession.)
Periodically, and usually because of technological change, the marketplace experiences a pricing jolt. Fortunately, despite the agony expressed by some in the AEC industry, it has been relatively immune from these jolts. You aren’t a daily newspaper, that for years earned significant sums of money from classified ads. Why pay for these ads now, when Kijiji and Craigslist are free?
Worse, even, is the price collapse for recruiting and help-wanted advertisements. Originally, online services held the line with “value pricing” somewhat in line with the old, conventional print media. Now these ads (on sites such as Craigslist) are generally free — though you’ll happily pay $25.00 for a listing in a major urban market, to reduce clutter and have the freedom to repeat the ad as many times as you wish.
Yes, technology is changing the AEC landscape — BIM and modular building concepts can truly reduce design and construction costs, but none of this is earth-shatteringly disruptive compared to what has happened in the print (and now broadcast) media world.
I live in the media space, where pricing challenges caused by disruptive technology are forcing me to rethink my business. My business certainly cannot operate on the new prices — at least with the staff size and skill-sets we currently use. Yet, we don’t see a need yet to give up on pricing our advertising the old way — though we are modifying our price grid, especially for colour ads, to reflect new options.
Part of the answer, I think (and this applies for your business) includes figuring out and testing ways to reduce internal costs by adapting to global labour markets. I’m continuing tests with odesk.com to see how low we can go on input costs. Writers for $1.00 an hour . . . data entry and website management services for 40 cents an hour . . . on and on. This is truly a race to the bottom.
The goal here is not to displace North American workers and run a sweat-shop, but is to add some new capacities and resources to our systems, without draining the budget. For example, I have decided to develop an online directory resource with much brute-force data entry (with a bit of brainpower to speed it up, of course). This work would be hard to justify at even a few dollars an hour, but I can see its potential at less than 50 cents.)
Obviously, these offshore services won’t be useful to reduce your site labour costs, or to ensure great client first impressions when people call your office (sure, you really want to speak with someone half-way around the world in a poor-English call centre). However, you might be able to introduce a data/labour intensive add-on or client gift, and add real value to your services without increasing your costs.
Most importantly, you should be thankful that you don’t need to deal with this technological pricing blow-down in your own business. You can, indeed, still aim for real value pricing. You don’t need to give away the store.