One of the common reactions to our pricing optimisation SaaS demos is “oh, you are integrating competition and customer value in the proposal writing process. We are not really doing this now!”.
A lot of sales people in the industry complain about the competition, saying that many players sell with low prices and it’s difficult to compete with that.
I’ve even seen many comments online about the threat this poses to the industry as a whole.
But most software agencies use competitive intelligence incorrectly.
Here is how to do it right.
Keeping track of competitors’ prices
Pricing information about the competition is useful in 2 moments:
- When setting the rate card (usually the beginning of the year)
- When setting the price and budget for each proposal
Most companies have this backward.
They let fear about the competition influence them when setting the prices in their rate card.
They end up setting lower prices than they should.
And then they ignore the competitors’ pricing when calculating the prices and budgets for each customer proposal.
Doing this significantly increases the risk of losing the project to a competitor.
Comparing apples to oranges
One of the basic mistakes is ignoring the quality and value delivered by different suppliers.
Everytime you hear “company X sells team augmentation services for 40 EUR/hour and our prospective client chose them”, the first question to ask is: what are they selling at that price point?
When you are setting your rate card and take into account the competition, it’s imperative that you do a relative comparison.
Look at the rates, yes, but also at their quality and compare it with what you are delivering.
You might realise you really are too expensive for some types of clients.
But you might as well realise you are too cheap, when quality is taken into account.
The best way to solve this issue is to set your rate card as an interval.
Use the financial information you have about your costs and the competition to set a minimum rate.
Then quantify the value created for customers to calculate a maximum rate.
The moment of truth
For every new potential customer there comes a moment when someone in your team sets the price and sends a proposal.
Or they might have to give pricing information during a sales call.
It’s an important moment:
- Give a price too high and you might lose the project
- Or give a price too low and you might regret winning the project.
To find an optimum level, the calculation of this price level needs to take into account the competition.
Unfortunately, there is a lot you don’t know about them in each particular project.
With a bit of effort and discipline, you might be able to extract enough information from the prospective customer to inform your pricing decision.
You will probably not be able to learn the names of the other suppliers on the short list. As a consequence, it will be difficult to estimate how much the others are charging for the same project.
But there are many details you could learn, if you ask and pay careful attention.
What your customers are saying could be valuable.
Their reactions to some of your remarks or questions could equally give you useful information.
For example, you should be able to learn for each particular proposal you are about to make whether your competition is:
- Companies you consider to be direct competitors (same level of quality, working for the same types of customers)
- Other generic software companies (and how many)
- Suppliers from low cost countries (and how many)
- Suppliers from the customer’s local market
- No other suppliers (if the lead came through a trusted referral)
Knowing which of these is true will help you adjust your project pricing and budget to maximise your chances of success.
WHAT THIS MEANS FOR YOU
The global software services industry is a very competitive market.
Customers have many options and they can choose from a wide range of prices.
This might seem like a recipe for disaster for anyone looking to sell quality software development at fair prices.
It’s not as bad as it looks.
On the contrary.
It’s an opportunity to use data and competitive intelligence to your advantage.
The more options there are for customers, the more difficult their decision is.
This opens the door for you to present your case in a way that leads the customer to work with you.