Today's topic: Learning to Quote Profitable Jobs - Lessons Learned
When I first started, I had lots of experience being the buyer of technologies. Of course, I bought lots of supplies, and the occasional small equipment. But I had also designed entire new office setups in remote offices and bought everything technology-related that went into the office, from telephones and servers to desktops and surge protectors.
Selling all that stuff was another story. As the buyer, I was sometimes given a budget. But most of the time, I had to develop the budget, which meant that I had to fish around and figure out what needed to be included, then get some idea of pricing, and THEN develop a realistic budget.
As a seller, I normally designed the whole operation, and then had to figure out where to get everything. Then I had to figure out how to get a decent price. And, most importantly, I had to find the balance that would both sell the job and be profitable.
If I could go back and start over, this learning process would be a lot faster and a lot more profitable.
Here are the three biggest mistakes I made:
One: The quote must have an expiration date.
While sales people think this increases urgency (I don't believe it does), I learned that people will come back to you six or eight months later and want the old pricing. That's great if something dropped in price, but bad if it increased. Most often, however, the old equipment was no longer sold because it was based on last year's processor or memory.
Two: Volatile pricing needs an asterisk.
Around the turn of the century, memory chips fluctuated like a volatile stock market. Prices generally went up, but often went down. And something could double in price in a day or two. I remember a very big job that went from profitable to unprofitable because of the timing of when I had to buy chips.
You've been to restaurants where the price of some seasonal food depends on availability. You need to do the same thing if you can't guarantee the price of what you're acquiring. Just put an asterisk. "*Price not guaranteed until date of payment. To lock in this, price, prepayment is required." THAT creates urgency.
Three: Ignore what everyone else is charging.
This is one of the most important lessons I've learned over the years. It applies to labor, contracts, managed service plans, hardware, software, projects, and anything else you can think of.
I mentioned this in an earlier episode, but we started out trying to charge no more than what the client would pay at a big box store. This was a futile and frustrating experience. As a new reseller, unknown to the distributor, and with no volume to speak of, my wholesale price was often higher than what I would pay at retail.
We finally settled on a simple formula:
Wholesale cost x 1.25 (for example, $100 x 1.25 = $125)
Thus, my profit is twenty percent of the final price (for example, $125 x .2 = $25)
Note: Some people just double their cost. So they pay $100 for an item and sell for $200. Good for them. That seemed a bit extreme to me, but it reinforced the lesson that you can totally ignore what anyone else is doing.
I set up my system so I get a decent profit and guarantee that I never lose money.
Some IT consultants argue that they can't sell for more than retail, suggested retail, or what the client would pay at Staples. That is a false belief and a self-imposed limitation! Ignore this belief! Tell yourself and your client these two truths:
1) We will only sell the right thing. We will do the research, find the right products and services, and create a combination that maximizes performance and lifetime value.
2) We warranty everything for at least a year, and our preference is to only sell business class equipment that's warrantied for at least three years.
In other words, you might be more expensive, but they definitely get value from it. If you sent the client to get something, they'd go to Costco and buy the wrong thing - guaranteed. I'll never forget when I quoted a new desktop setup for a client and he said no. He went out and bought something that looked the same to him. It was the slowest new machine I'd ever seen. He said, "This is the same machine you were going to sell me."
I said, no. The machine he bought had ZERO level two cache. I didn't even know that was possible. But it was half the price of what I quoted. It was junk. He was too arrogant to learn a lesson, but I got a story I can tell to demonstrate this point.
Bottom Line: If you sell the wrong thing, you might lose money up front. If you price it wrong, you will lose money up front. And if you sell the wrong thing, you will gobble up your profit down the road as you have to fix and repair something again and again.
Luckily, losing money is painful enough that I figured it out with just a few bad experiences. The lessons here are simple, but extremely important.
Bonus Tip: In your financial tool (QuickBooks, Xero, etc.) you should have categories/accounts for hardware, software, and services AND these should align with COGS - Cost of Goods Sold - categories/accounts for hardware, software, and services. Then, no matter what adjustments or weirdness happens, you have a clear set of numbers to compare. For example, Hardware sales should be about 20% higher than Hardware COGS.
What lessons have you learned when it comes to creating profitable quotes?
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This is Episode 17 of the ongoing Lessons Learned series. For all the information, and an index of Lessons Learned episodes, go to the Lessons Learned Page.
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