We’re a 10 year old web design/dev company (approx 15 people in two offices) and our hourly rates have risen over time to the point where we’re (debatably) too expensive for the little guys, and too cheap for some of the bigger guys (e.g. government and corporates).
How have others dealt with this scenario?
More or less, we quote a single hourly rate for all work that we do. I’ve explained why here.
Now call me an old softy, but I like the fact the we still have lots of “mum and dad” businesses on our books, and it pains me (slightly) that for some we’re becoming a little too pricey. But I know that it’s not possible for a company to be all things to all people. You’ve got to pick you target market, and adjust your quality/service levels and pricing accordingly.
Here are a few approaches we could adopt.
Forget about the little guys. If the bigger profits lie at the top end of town, then price yourself out of the little guy market and don’t worry about it. Those that can afford you and appreciate your service levels at that price will stay, those that can’t/don’t will naturally go.
Split pricing. Let’s say we quote a lower hourly rate for small business (e.g. less than 10 employees), not for profits and charities. We quote a higher rate for government and bigger business. Under this regime we’d be obliged (I think) to state different service levels for those organisations paying the higher rate, e.g. 24 hour guaranteed response for the higher rate clients, 72 hours response time for those on the lower rate.
Separate company. Create a new business targeting the budget end of down with lower prices and service levels (e.g. email only communications). Raise prices still further in your ‘high end’ company so that you’re no longer perceived as ‘cheap’ by the big boys.
Would love to hear other people’s take on this dilemma!
I don’t know the best way to structure this, but some version of option #3 makes most sense to me If it works for car companies like Toyota and Honda with their luxury brands Lexus and Acura I don’t see why it wouldn’t work for you.
> we’re (debatably) too expensive for the little guys, and too cheap for some of the bigger guys (e.g. government and corporates).
your description of the spread of customers implies that there’s only small and large guys; two big clumps at either end of the graph with a gaping gap between. surely that’s not how it is. there’s probably many customers between the small and large guys – no gap. loads of small guys, medium number of medium guys, small number of large guys (it’s a power curve graph – a straight, or curving progressively, line – no gap)
so my suggestion is you’re priced just right for the larger than small guys, and the smaller than the large guys. aim at the companies between small and large. e.g. “mum and dad” businesses who have made it big (big by small business’s standards), or big company down on its luck heading for disaster in the not too distant future, or just medium sized companies.
Absolutely. Error of omission on my part by not pointing out that yes, of course, there are plenty of organisations who are comfortable with our pricing ‘as is’.
So really the point of the article is about discussing ways to be more flexible (than a single rate for all) in order to do better business with an even larger spread of tolerances to various rates we might quote.
right. presumably, so far as the large guys go in particular, there’s more to it than price. i don’t know but i wouldn’t have thought putting your price up would land you big guys.
what about a kind of mixture of #2 and #3: two different separate services (from the same company though), one a fixed/flat price offering of some sort (for small guys), and a by the hour more ellaborate offering for the bigger guys.
the good thing about offering something which caters for small guys, is that that offering can act as an in-road into your company for bigger things, so not bothering with smaller ticket jobs may result in less big ticket jobs down the road.
If only there were this ultra-inexpensive medium – then you could put up two sites catering to the needs and desires of each very different Market Segment.
A medium like, say, the web.
Small guys shun the “agency” shops because they think you’ll charge Fortune 1000 prices. Big guys shun the developers who can’t support the strategic goals of bigger businesses.
And they’ll use the “we’re everything to everybody” hodgepodge found on most sites to object to you ever doing business with them.
It’s not about price. Price is an excuse for what’s really going on. It’s about the value you articulate on your site. Slapping up CMS installs doesn’t work for corporate buyers determined to cover their rumps. Strategy briefs don’t work for small business people playing a hunch.
What might work is two very different kinds of sites, each targeting specific users. This is, in itself, a tricky proposition for the web shop who spreads Drupal into every niche like bondo.
But then you can do very different themes: “…Hey gang, let’s put up a website” 'lil Rascals style. And “Whatever we do, let’s make sure it never tracks back to me” corporate politics. This goes right down to different kinds of invoice deliverable descriptions.
Also known as branding, more to the point Brand Positioning, for people who thought it was all done with a logo.
“Our business is doing great. Rates keep going up, and we’ve moved from dealing with small clients with smaller budgets to larger clients who accept higher hourly rates! Wooohooo!”
Or it could be:
“We got bigger clients and raised our rates, but now we miss our mom and pop clients. We want to go back!!”
or anything in between. What you are saying isn’t really a problem statement because you haven’t stated your goal.
If you want to make more money, ditch the little clients and go with the higher rates. Figure out what YOU WANT and back the solution into your objective, not the reverse.
I think that issue here is it still profitable for you to work with smaller clients and do you have a capacity to do it.
In the case if “yes” - a classical approach is a segmentation. You offer 2 (or 3 or 4) types of products, each with set of features that target market value most. I am not sure, should it be separate legal entities, separate brands or just separate products, this question require deeper thinking. From one side there may be brand diffusion, from the other there are many examples when one company under one main brand successfully serves both large corporations and small businesses.
it pains me (slightly) that for some we’re becoming a little too pricey.
That’s just not consistent with good business, except in the movies. If you want to help out smaller clients with lower budgets, try to come up with a service model that is less expensive to the client. But, if you try to provide something of high-value for a low price, you’ll get killed on it.