EG153: demonstrating value to secure a 34% rate increase [case study]

Hans* was losing money on one of their best projects.

On the surface, this was the ideal client.?

They had been working together for more than 8 years.?

The technology was a critical piece of the client’s business model. They were growing nicely every year.

The developers liked the project, even though they had been working on it for a long time.

They had a very good relationship with the product manager on the client side.

It was the perfect case study to showcase the team’s technical, communication and collaboration skills.

And yet, the project was losing money.

The team’s salaries and the overheads had increased very fast in the past couple of years.

And the rates did not keep up to compensate.

What was supposed to be the perfect project (7 FTEs, entire team with all roles, long-term contract with a good client) turned into a liability.

The fix was simple when finance made the calculations.

They just needed to increase the rates on the contract.

By a lot.??

More than 30%.

Easy to calculate.

Much more difficult to put into practice.

Imagine yourself having to go now to one of your best clients and tell them you will increase the price on their contract by 30%.

So Hans called me.

We worked together to prepare the negotiation, based on my 8-steps plan to renegotiate rates with an existing client:

1. Document the why?
2. Decide which clients
3. Assess quality delivered
4. Calculate the new price level
5. BATNA: yours, theirs
6. The Negotiation Team
7. The Meeting
8. Follow-up & Negotiation

There were 2 important decisions we took during the preparations.

First, we did a competition benchmarking exercise, to understand what are the options for the client.

If they decide to switch to another vendor, how much would it cost them?

We tried to estimate how much they would have to pay to a vendor that would provide the same level of quality.

We also quantified the risks associated with such a switch, how long it would take, what impact it would have on the client’s business.

Secondly, we chose to play the value card, not the “our costs have increased too much” card.

The main message used in the negotiation to justify the price increase was the higher value that the team was delivering to the client.

For this, we documented in detail what the team was doing, using the Value Creation Scorecard.

This is a tool I have developed for B2B software companies.

It can be used in many ways: one of them is communicating value to clients.

There are multiple ways to describe your services, benefits and “features”.

But how can you measure objective quality delivered?

To objectively compare you with other providers, we need to define some different levels of quality.

Here is an example for Level of Technical Expertise:

> No experience

> Have done 1-2 projects in the past

> Have done multiple projects, with different levels of quality and demands

> Expert

> Innovator, capable of doing R&D level of work with given technology

This is a Minimum to Maximum scale, from the clients’ perspective.

To fully describe a company's offering, the list of quality attributes can have anywhere between 30 and 50 attributes, each of them with five levels of quality, from minimum to maximum.

For this negotiation, we choose a list of 12 attributes that were most likely to be important for this client.

The result?

Hans and his negotiation team secured a 34% increase of the rates on the contract.

For a 3-year contract.

I will let you do the calculation of the impact for yourself.

You can use your own rates:

A team of 7 people, full-time for one client.

3 years.

34% higher rates.

From one negotiation.

*Hans is not his real name. My clients don’t allow me to use their names for these case studies, because they don’t want their clients to know they have used pricing techniques to charge more.

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PS.?

Do you need to re-negotiate contracts with some of your existing clients?

I’d be happy to help.

We can do this with a 4 hours workshop

or a 2-week sprint.

In just a few well spent hours of work you can increase the profitability of your project(s).

Reply to this email to schedule a call with me (or DM me if you are reading it on LinkedIn).