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EG21: The high cost of free parking

Written by Emanuel Martonca
on November 4, 2021

That is such a good headline. I wish I had thought of it. I didn’t.

It’s the title of a video from Vox, a Youtube channel with 10M subscribers owned by Vox Media.

What does free parking have to do with software services?

I think it’s the perfect analogy for systems thinking in pricing.

Pricing is not about setting the price. You already know that. 

Pricing is about creating a system to capture back some of the value you create for your customers.

For a software services company, the business model has 3 major cogs and many small ones.. 

The major cogs are:

  • The pipeline of customers.
  • The team.
  • The process by which the team documents customer requirements, builds software, delivers it and bills the clients for the work.

Any decision you make has an impact in one, two or all three areas.

Unfortunately, pricing is the common thread that ties all of them together.

The main takeaway for me from the Vox video about free parking is that:

  • Citizens want free parking
  • Politicians mandate free parking through laws and regulations
  • Everyone pays the price later for all the negative, unintended consequences and all the ramifications these decisions have
  • It all starts from what is seemingly a benefit for citizens
  • And the tragedy is that most people don’t even see the links in the system and the cause and effect forces that lead to those negative outcomes

WHAT THIS MEANS FOR YOU

It’s exactly the same with software development services.

For many of the challenges and obstacles you might be faced with:

  • employees demanding large salary increases
  • relative low win rates with the proposals you make to potential new clients
  • unhappy customers who demand that they receive more for the price they agreed to pay

The probable cause is typically further up the stream that the first thing that comes to your mind.

It’s the whole system that you have to think about and manage, not just individual small cogs, one at a time.

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