Everyone loves surprises. Except when it’s a nasty surprise. And sales people know this: customers hate price surprises. They feel like it’s a bait and switch.
I see a clear opportunity for my clients to increase profits AND reduce customer pain and price sensitivity by ensuring expectations are clear up front for issues that may arise during a project. I recommend publishing a rate schedule up front that covers unlikely but possible changes, problems, fees, etc. when the customer is agreeing to the project. Customers notoriously plan for perfection. Of course they will give you all the data on time. Of course they won’t change the requirements mid-way. Of course they will provide approval in the allotted number of review cycles. They aren’t nearly as price sensitive about problems or changes that they consider very unlikely at the rosy, honeymoon time known as The Start of Everything.
- Scenario A: Customer needs more time to gather and cleanse data and your project team is stuck waiting around for it. You try mid-project to negotiate a change order or fee to keep your team mobilized while this customer-driven delay costs multiple weeks.
- Scenario B: Your rate schedule outlines a fee for customer-driven delays to maintain a mobilized team. When the data delay occurs, you can say to your customer, “Of course we are happy to respond to your need to extend this project because you need more time to gather the data. We will keep our project team assembled while you do this, and per the fee schedule you signed, this will incur a minor fee of $X (or Y%) so we can keep your top caliber team at the ready the instant you have data ready to go.” (Messaging is critical here. It can’t feel like a gouge fee ‘just because.’ Justify fees, charges, and higher pricing!)
Which scenario will be more effective? Which scenario reduces customer agita and price sensitivity? Scenario B!
Clear expectations reduce price sensitivity and surprises increase price sensitivity. Publishing a fee schedule up front for events a customer doesn’t expect to ever need is great because the customer isn’t as sensitive about them at the time a contract is signed (before the problem actually occurs). Then when the problem happens, you can refer back to a fee schedule they already agreed to vs. asking them to agree to a higher price at that point, which can feel like a surprise or like you are gouging or playing pricing games. Consider the following fees, for example:
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- Custom order charge
- Rush charge (Pain is high, price sensitivity is low!)
- Change order fee
- Fees for customer-driven delay
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(Let me be clear: the customer is still not excited to pay you. Of course they will still have some price sensitivity, but it will be less with clear up-front pricing. Clear expectations will increase your ability to be paid for project changes, rush, scope creep, delays, and other problems. Without them, you have no chance.)