Why Cheap Prices Will Destroy Your Business
Many of the MSPs, VARs and IT consultants that I encounter seem to be hell-bent on lowering their prices.
Their focus, unfortunately and tragically, seems to be on providing superior service at a price lower than the other guy. This race to the basement, as far as prices and fees go, is a business-killer. Let’s explore what happens as you start to lower your prices.
First, obviously margins shrink.
As margins shrink, the availability of money to fund the growth of your business starts to retard. As you see the available funds for growth reducing, many MSPs, VARs and consultants resort to working harder and longer. Ultimately, as they start to approach a maximum weekly workload (close to 24/7), they then resort to attempting to multitask.
I’ve seen this phenomenon in my office, when previous IT consultants came in to service our technology.
Essentially, while they were in my office and working on my dime, they took phone calls and performed help desk functions for other clients. In several cases, this infuriated me to the point that I discontinued using three different IT consultants, over the course of the past five years.
This multitasking reduces the quality of work that you can do when you’re at a client’s location.
Also, speaking from a client’s point of view, it’s offensive… plain and simple.
Now, you’re working as hard as you can, your margins are continuing to shrink, you are inadvertently chasing some clients away and/or encouraging them to look for another IT guy. You are becoming, if you have not already, the bad IT service provider that you were competing with prior to lowering your prices. Weird, isn’t it?
- Now, you are faced with the onslaught of increasing prices from your vendors and reducing margins from your activity.
- And, there’s no money nor time available for you and/or your team to go gain the certifications needed to add even greater levels of service to your client base.
- So, over time, you have lowered your fees, lowered your profit, lowered your quality of life, and lowered your client base.
- Other than that, there’s nothing wrong with lowering your fees. I hope you get the irony in this situation.
You are a professional, and you should charge professional fees.
You are undervaluing the impact of your services on a client company dramatically, if you discount your fees. Also, you’re screaming to the customers that your services are no better or worse than the competition. In many of my workshops, I talk about the fact that all of us have to make decisions to hire service providers from time to time.
If we feel that the service is mundane (for instance, changing the oil in your car’s engine), you may look for the lowest priced mechanic.
For the short term, that low-priced mechanic putting low-quality oil in your car may suffice. But, over the long term, that low-priced may not catch another problem developing under the hood which, in the long run, will reduce the value of your car and/or cause added inconvenience.
I have spoken to many workshops about the fact that I love to fly aerobatics.
When I’m flying aerobatics, I wear a parachute and, believe me, I did not buy the cheapest parachute available. Rather, I bought the best. Why? Well, if you have to ask that question, then you won’t really understand the consequences of jumping out of an airplane and falling several thousand feet to the earth.
Your services are invaluable to a “civilian” (one who does not understand technology at your level), and you can help them run their businesses better.
So, what I’d suggest you do is reevaluate your pricing to determine what it would cost someone to not have a relationship with you.
- How many extra minutes of productivity have you given each employee of your client companies, because of the way in which you’ve maintained their IT infrastructure?
- How much is that extra time worth to your client?
- How many additional customers have your clients been able to acquire, without hiring additional staff, because you’ve optimized the effectiveness and the efficiency of their IT infrastructure?
These are the things to worry about, not the price of the other guy.
When our industry stops competing with the bad guy and inadvertently becoming that bad guy, then you will be in a much better position.
Don’t lower yourself nor your fees to compete in that marketplace.