Early in my prior business, I learned a valuable lesson about why it’s important to focus on results. This lesson cost my team the deal in the short term and cost the client a ton of money in the process. My company was bidding on a government agency project.
We told the buyer that we could deliver the completed project in less than a month for a fixed cost of $20,000. They asked how many hours it would take to perform the work. We mistakenly provided an estimate of about 150 hours. The government agency decided to buy from another vendor. When we asked the client why they choose another vendor, they explained that our rates were too high. We thought, “What rates?”
Eighteen months later, the agency contacted us and asked if we would do the project as a subcontractor to the other vendor. We discovered that the other vendor was billing the agency only $67 per hour. They had four people working on the project on and off over an eighteen month period of time, and had not delivered a solution. In total, the agency had spent well over $200,000 for more than 3,000 hours of labor. The mistake was that the agency focused on the hourly rate, not the results during the bidding process.
The agency ultimately directed the vendor to subcontract to us for a fixed fee of $25,000. We delivered the completed solution in less than three weeks.
The Hourly Trap
For some jobs, hourly pricing is the only thing that makes sense. If I want a security guard, their presence for a period of time is fundamentally what I am buying. I might also feel the same way if I am hiring someone to watch over my children. In a factory, if the assembly line dictates the level of production, then paying by the hour might make sense, too.
Recently, politicians have vilified “executives making too much money.” To what are they comparing the compensation? If the person earns $2 million and increases shareholder value by $2 billion is that too much, or is she being underpaid? Focus on the results, not the hourly calculation.
When you visit the doctor, you don’t want to be billed by the hour, you want someone to cure what ails you. Similarly, I don’t know of anyone who wants to hire twenty-seven hours of time from an information technology expert. I’m guessing most people just want their issues to be addressed efficiently and effectively.
Customers Want Results, Not Resources
You might be your own worst enemy in this area. When you are selling your products or services, where do you focus the discussion? Do you talk about how much your product or service costs in terms of your resources, or in terms of the client’s results? In Same Side Selling, we have a chapter that talks about how to shift the conversation with your client to results over resources.
Let me share the abridged version.
When your team sells a resource, the buyer feels that it is up to them to figure out how to apply that resource to generate the results they need. The buyer will naturally be concerned about whether or not you are selling what they really need. However, when your team sells the results, two important things happen:
- The buyer sees the responsibility of delivering results shift to the seller;
- In comparison to the results, your price can be evaluated in terms of value not the underlying cost.
That’s right… when you focus on results, your clients will often be less price sensitive than when you focus on resources.
If you want to read more about this concept, check out Same Side Selling.
In the opening story, what I should have said when asked about the number of hours is “We are not sure how many hours it will take. We are assuming the risk of delivering the results. Can we spend a few minutes just to confirm how we will both measure success and what achieving those results might mean to the organization?” We might have saved the customer some headaches, and saved tax payers wasted dollars.
The next time your team feels a need to discuss hours or units, be sure that first they have confirmed the results that your company and your client expect to achieve. When your team sell results over resources, you’ll end up on the Same Side of the table with your customer, and just might see shorter sales cycles and better margins.
Share a time when you felt like you were on either side of the resources vs. results concept. What happened, and what did you learn?
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