Cost to Serve

Give your free services a price tag

If services are free customers do not perceive them to hold much value. So even if you give away services for free you should still have a price tag on them. Customer will then better understand that it is something you might sell, and which does cost you something to deliver, and in the end appreciate the service value. In doing so, customers also learn what they actually get for free, and this can be used in your future negotiations as a way to reduce the price pressure on your other products and services. Do make sure that the price tags you set are perceived to be realistic.

Let the customer know what he is getting for free

The people that negotiates or approves the invoice is not always those that receive the free services. So make sure to tell them about all they are getting.

Write each free service in the proposal, the order confirmation and the invoice, along with the price tags and the 100% discount. If this is implemented it is also likely to be captured by your systems, which allows for transparency as to the extent of the free services. Inform the customers about the extent of the services as part of the negotiations and otherwise, so that the customers know should they be tempted to talk to other potential vendors.

Enforce some limitations to your free services

Some customers just keep on asking for and using more of your free services and gradually moves some of their own tasks to you. This may help in tying the customers but you also have to earn a profit.

Therefore, define some limitations, and make sure to enforce them. It may well be that some customers should get more than other, but by having some policies you make to sure that each get what is fair, and that you earn some money in the process.

Manage customer behavior through alternatives

To reduce service expenses it is often wise to offer alternatives, which incentivize customers to choose the service that is cheapest for you.

Many services, including the free ones, can be offered at different levels. One of the classic examples is how fast you quickly you address a technical service issue. Within 48 hours may be for free, but if the customer wants it quicker some charges apply. The same principle can be applied to a great number of services. Think through your options and then follow the advice of setting a price tag on each alternative. This will help you manage customer behavior and most likely also generate new income as many customers want the better services options and are willing to pay for them.

When you negotiation use the free services

Use the free services during negotiations, provided of course they are captured in your systems. Otherwise it just becomes your word against the customers’ which won’t bring the sales rep far.

But if the freebees are registered (and the value fair of course), you can demonstrate to the customer how much they already receive free of charge in addition to the discount they are likely to already be getting. This usually surprises the customer and reduces price pressure, as the customer negotiators may not have deep insight into the daily business.

By | 2018-06-25T10:53:42+00:00 November 17th, 2014|Blog|Comments Off on Cost to Serve