Sometime around the late 1990s, someone told me that "once you reduced your premium you can never get it back." What he was trying to tell me was this. When you released a new product into the market, you can charge a premium for it. He was trying to tell me that if you do not take advantage of that and do not markup your price to include a premium, you will not be able to do it later.
Late last year, I was advising a few friends starting up a business. They were negotiating their very first contract and there was a huge difference between the quotation and what the customer was willing to pay. I told them that it may be better to do it at a lost then not having any income. In other words, going backward at half the pace is still better than going backward at full speed. Not having any other option, they took up the project. After the system was deployed at the customer's place, they then wanted to add a few more new features. Sounds like a good thing right? That initial discount is now leading to more business. Guess what, the customer expect the same lower pricing as before and will not pay for something additional where its costs is disproportional to the overall system costs. There is no ROI in such a customer and will not be profitable and so my friends had to drop this.
In their subsequent projects, my friends still give discount to first time customers. Confident that these customers will be satisfied and happy with their work that they will come back next time. However, the discount will not be as "silly" as their first deal and is stated in their quotation as a discount.
The same would go for pricing oneself. Will post stories related to this soon.
2 comments:
Dunno how true the statement said once you reduce your premium, you couldn't get it back anymore.
But it happened on me as well.. customer negotiated hard and I tolerated and proceed to work on the project. End up, customer refused to pay because there is some very very minor flaw in it! @$#$@#$!@#$@#$@!
The statement is not 100% true! I have come across cases where they are able to raise price. But these are very rare. Your case is very similar to what contractors in the contruction industry face. The contract they get will come with some kind of detail specification that they need to meet. And some of these specifications can be very difficult to meet. They will get paid along the way but will have difficulties collecting their last payment as the customer will at that point say that they have failed to meet some specification stated in the contract. What most of these contractors will do is to consider if they will loose more to redo the work or to forgo the last payment.
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