Archive For May 30, 2017

Stop Giving Away Your Profits

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We call it “scope creep,” that inevitable change in project scope that adds more time, more effort, and just more to the service your business devotes to a client’s project. Scope creep arises from not knowing what you don’t know and later discover during the project. Let it go unchecked and you’ll find yourself working at a loss. For instance, in building renovation, the contractor may discover an interior wall that used to be an exterior wall covered in asbestos siding. That discovery mandates additional time and expense for proper removal of the toxic material. Another service provider may find that a client assumes a service not otherwise specified in the contract.

The trick is to manage project scope despite such unforeseen add-ons to the work. That entails defining the project as clearly as possible at the outset. Set your boundaries. Specify what is and is not included in the agreement for service. Be cognizant of a client’s assumption that if something isn’t excluded, then it must be included.

Lacking a crystal ball that actually works, a project manager must master the arts of negotiation, analysis, and informed decisiveness. QuickBase sets out three options for managing project scope: 1) Swap a requested change for a contracted deliverable; 2) offer to bundle requested changes into an extra service added on to the contract for additional fee (and extended deadline); and, 3) develop and implement a formal change process.

Before deciding which option works best, you must first determine whether the change is reactive or requested. A reactive change is required to correct a problem, such as a technical failure, resource problem, funding shortage, etc. Such changes don’t allow businesses the option to decline, unless the project will be abandoned. Requested changes are just that: alterations in the scope of services or deliverables being provided. These changes may arise from new information, advancements in technology, new ideas, changes in perspective, etc. Such changes usually result from client demands. While the vendor may be tempted to incorporate small changes into the project scope at no additional fee, those small changes add up quickly to swallow unpaid hours of effort, break deadlines, and demolish project budgets.

When confronted with a scope change, consider these four conditions before determining your course of action:
1. Value and priority
2. Timing
3. Cost
4. Impact.

Those four considerations affect the project and your business and should be limited by the boundaries of what you’re willing to accept.

Of course, the best way to manage scope creep is to rein it in from the get-go. As stated earlier, this means carefully setting the project boundaries. This involves understanding the client’s requirements for the project and the project’s requirements for completion—not at all the same thing. Writing for Liquid Planner, Tim Clark advises against “gold plating,” which is “a tendency… to over-deliver on the scope.” Gold plating falls under the losing scenario of under-promising and over-delivering—the insidious “added value” concept that undermines profitability.

Scope creep isn’t all bad. Compile a list of requested changes and the time and costs associated with their delivery to offer the client another contract for the service. Says Clark, “Your scope creep then becomes the customer’s cost creep.”

 


Knowing Your Competitive Advantage

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Just for a moment, let’s be brutally honest about business. No business likes rivals. Every business wants to operate in a vacuum of competitors–to be the only option. However, nature abhors a vacuum and the Federal Trade Commission hates a monopoly. Therefore, your business has competitors and it’s up to you to distinguish yourself from your rivals in such a manner that potential clients see you as their best option. That’s your competitive advantage.

Before you can wow the world or even your local neighborhood with your competitive advantage, you must first know how to determine those traits that distinguish your business in a positive sense. Kimberly Amadeo, writing for The Balance, states that three “determinants” distinguish your business from everyone else: benefit, target market, and competition.

Benefit relates to a good or service that your customers need and provides real value.
Target market implies a critical understanding of the customers who need your service or product. What does your product or service do to make their lives better?
Competition refers to anything else–product or service–that will also satisfy the needs of your customer base

Business Queensland, published by the Queensland Government of Australia, addresses this topic, showing that the importance of competitive advantage concerns businesses worldwide. Their market research determined that “When customers buy your product or service, they are buying the benefit that it gives them.” Benefit need not be singular. In Business Queensland’s example of a sandwich shop, the stated competitive advantage of using “fresh, local ingredients” to make gourmet sandwiches offers different benefits to different customers, such as avoiding ingredients that trigger their allergies, the high quality of “gourmet” sandwiches, and warm fuzzies of supporting a local business.

Let’s carry on with the Australian example. Have you ever been to a food truck rally?

Often organized as a special event featuring dozens of fiercely competitive rivals, each food truck brings something unique to the crowds eager to sample their wares. Some cater to specific diets, like vegan. Others tout unusual and tasty flavor combinations: pineapple and jalapeños on a hot dog, anyone? Others offer innovative preparations, like macaroni and cheese on a stick. Still more will advertise unusual ingredients unfamiliar to the local populace, such as she-crab soup in the American Midwest. And a few more will promote sourcing their raw materials from local producers, showing a willingness to buy locally and support the local economy that supports them.

Regardless of the complexity of your business and the multiplicity of the services and/or products your business provides, discerning your competitive advantage oftentimes poses difficulty. It’s not enough to claim that the quality of your product is better or that your service is faster, because your rivals make the same claims. Identifying and defining your competitive advantage often requires an exploratory and investigated process, such as a SWOT analysis. The information gleaned from that investigative process can then be summarized into your statement of competitive advantage.

Writing for EyesOnSales, Tony Allendra identifies the four components which comprise that statement: your name, the company’s name, a statement about a problem in your market, and how you and your product/service solve that problem. This becomes your 30-second elevator speech that you use to wow potential clients, sets your business apart from the competition, and make a great first impression that sticks.

 


Know Your Value, Hold the Line

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Vendors and customers work toward opposite purposes. Customers want to acquire the most at the best quality for the lowest price–or free if they can eliminate the obstacle of money. Vendors want to deliver the least at the highest price. To see this dichotomy at work, head to any automotive dealership, refueling station, or supermarket where price-based competition reigns.

Price-based competition reduces services to commodities. Pricing on services may be more difficult to explain. Vendors must establish their brands and position themselves in the market. In short, vendors must know their value and confirm it. Mark Ritson, writing for Branding Strategy Insider, states, “If your quality is good and your targeting and positioning are right, have confidence in the price you have set and do not consider dropping it.… Something cannot be good and cheap. Don’t be afraid of a premium price or maintaining it in the face of market pressure.”

Tim Cummins’ article “What Price Integrity?” states, “The data consistently shows that politicians and business executives are struggling when it comes to the issue of integrity.” Those executives lose integrity–trust–when they underbid projects for prices they cannot honor. The argument that undercutting the price is necessary to win the project due to unreasonable customer expectations certainly has validity. In such an argument, however, both the customer and the vendor display a lack of integrity.

All other things being equal, value may not depend so much upon the type or quality of service, but upon other intangible aspects such as proximity (“buy local”) or affiliation (membership in a certain organization). Regardless, something must distinguish the chosen vendor from the rest of the competition.

That something is value. Customers who value a service or commodity will pay the vendor’s price. This ties into managing customer expectations. Gurus who advise businesses to under-promise and over-deliver miss the point. That tactic adds often excessive value to the service delivered to the customer who then quickly grows to expect more than what he pays for, which then morphs into the vendor becoming the low-bid provider when competitors’ prices rise.
By establishing one’s value, one sets a price on the service and holds firm, promising only what can be delivered. Says Tom Reilly, author of Value-Added Selling, “Buyers want equity—they want to feel that they get at least as good as they give. Equity strikes a balance between expectations and performance.”

This means stopping customers from fixating on price. Writing for the Harvard Business Review, Marco Bertini and Luc Wathieu state, “Constant price undercutting can damage brand equity and erode profit margins. Meanwhile, customers develop low expectations and become disengaged.” In their article, they cite four strategies to establish value and avoid underpricing.

Entrepreneur magazine says, “Thinking about price and value… is at least a two-dimensional problem. That is, you can change the pricing and leave the value alone, or you can change the value and leave the pricing alone. You can also change both value and pricing or leave them both alone.” Each of the three options has an impact upon customer perceptions. Your job is to establish and maintain a perception of good value that balances expectations and performance.

 


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