I recently had an extended conversation with a client about a pricing issue she was wrestling with for two prospects.
The background
My client quoted for two jobs and both prospects came back and asked her to give a breakdown of the costs she had outlined for the projects.
They wanted to know how much time each part of the campaign would need and what the rates were for each.
A common (yet slightly offensive) request
I’d bet we’ve almost all had similar requests from existing clients and prospects, and yet it never fails to put business leaders in a difficult position. It often feels disingenuous, like the prospect is looking to shave out some costs. It may even feel somewhat offensive – a request for ‘cost breakdown by hours’ begs the question ‘don’t they trust us?’
So what can you do to tackle the ‘cost per hour breakdown’ request?
The first thing I encouraged my client to do was to ask the client why they wanted this information.
- Prospect one said that they might take a component in-house at some point in the future, so they wanted to understand the time/cost for that component – in case they didn’t need it.
- Prospect two was more ambiguous, saying that he just “likes to know this stuff” because he’s “inquisitive”.
In my view, neither of these answers justified the request. Let’s take their points at face value and look at them in turn:
- In-house prospect: probably true. They may want to reduce the services they buy from you in the future. But they may not know the implications for them, or you, if they unplug a single service from the mix.
- Inquisitive prospect: clearly looking to squeeze prices and get ammunition for a haggle. In some cases, prospects are simply compiling cost comparisons. Sometimes it’s because a prospect is inexperienced and doesn’t know how to buy services of this type. I’m yet to come across a prospect who wanted the information purely because they were ‘inquisitive’.
Broadly though, both reasons for a cost breakdown show a fundamental lack of understanding of my client’s value and process. The principle behind both answers is the same – these two prospects don’t understand that they are buying a package, a totality. We might calculate the resources required to supply this package by using hours and a rate card, but what the prospect gets is the service.
The Cake Analogy
Prospect one – fruit cake versus sponge cake
Let’s imagine that the prospect contemplating taking some services in house is looking to buy a particular type of cake, for the sake of this story let’s say a fruit cake. This cake has been created with the best ingredients, involves a number of cooks and takes an awful lot of planning. The fruit cake costs more than just the sum of its ingredients, it is the cooks’ expertise, the delivery, the service.
If at some future point the prospect wants a simpler cake – a sponge perhaps – then this will happily be supplied. The cost will change.
What we won’t do is make the fruit cake, pick out the raisins and deduct the price of the dried fruit.
- The cost of the fruit cake is X
- The cost of the sponge cake is Y
- The two are entirely different cakes.
In this case, it was an education job. The prospect had assumed that by taking some tasks in-house, the cost would come down. In fact, by removing that task, they were likely to create more work for my client’s team and there wasn’t the cost reduction impact the prospect had hoped for and expected.
My client had a great conversation with their prospect and they’re going ahead with the fruit cake.
Prospect two: cheapening the ingredients of the fruit cake
My client’s ‘inquisitive’ prospect is a little simpler in some ways. And again, it’s a question of my client doing some teaching.
Let’s return to our cakes. Inquisitive prospect wants the fruit cake but might want less sugar, or cheaper raisins. They want the same cake (pretty much) but for less – and they want to achieve this by haggling over the quality, quantity and cost of the flour, eggs, dried fruit and so on.
That’s OK by the way. If they haven’t got the budget to buy a Harrods fruit cake, then we can supply a Waitrose one, or a Lidl one. They are still fruit cakes that will do the job, but they aren’t the same thing – and you can’t expect the same experience.
In this case, not only did the prospect acquiesce, but they loved my client’s approach and openness and have since found additional budget.
Integrity, empathy and authenticity go a long way I find. And if they aren’t working for you – then it’s probably the other guy’s problem to deal with in the long run.
What can we learn from all this?
- Whilst as an agency or freelancer you may cost up the components of a campaign or project, you provide a service and charge for that
- If prospects want to cut costs, they can. But they get a different service
- If prospects want to haggle, then they are entitled to, but let them do so by understanding what it actually is that you do and the value you provide, not just the time you take to do something
- We all need to get better at educating our clients’, so they understand the value of what we do – and so that they value it
- You can push back at prospects and clients if you do it for the right reasons
- If you don’t value what you do, no one else will
I hope you got some value out of the article, and that the cake analogies might make you think twice about providing a cost breakdown every time you are asked for one.
I’d love to hear your thoughts.
Andy.
Every Wednesday I book out an hour to hold a FREE agency leaders surgery. If you have something on your mind, a challenge you’re wrestling with or just want an alternative point of view, I’d be very happy to lend an ear and maybe help you start to unpick the issues. You can help yourself to my calendar, here. Speaking to a diverse group of agency leaders helps me stay current and contextualise the issues I’m seeing with my clients. So please see this conversation as a genuine collaboration where we both hope to learn something new.