How to deal with the Customer’s objection “Why is it so expensive?” in IT projects?
In previous posts, I wrote about what to do if the Customer constantly generates new “wish lists” during the course of the project (click), and what to do if he asks to do this work for free (click).
In this post we will talk about what to do in a situation where you have convinced the Customer that his new wish list is worth the money, but he does not agree with the cost.
Introductory:
You are in a project, you have a limited scope of work, budget and deadline. The customer comes and voices some kind of wish. You collect requirements, describe them (TOR, FT, TR, whatever), coordinate them with the Customer and calculate the cost of this work. But in response you get the objection “why is it so expensive, a programmer can do it in a day.” At the end he can add his favorite: “You are experts.”
That is, this post will not talk about sales techniques. We do not consider the option when we need to sell something from scratch to the Customer. Completely different tools work there, completely different people talk about them, and it’s not the project team that needs this, but the sales team.
Therefore, this post will be useful to those who may encounter such a situation in the project. And this is any employee interacting with the Customer. Usually this is a project manager, less often an architect, even less often a business analyst.
My recommendations are based on my own experience in large and complex IT projects with external corporate customers. Freelancing, government jobs, small projects and other areas may have their own nuances; I don’t have much experience here.
And the last thing: we are talking about the fact that for the Customer you are the only Contractor. If new works are submitted to a FAIR open competition, where they will choose ONLY by price, then the absolute majority of the points below will not be applicable.
Options for handling objections:
First we try to agree on the full price:
1. Compare with similar works. Give an example, known and understandable to the Customer, in which you completed work of a similar volume/complexity for the same cost.
2. Justify the complexity of the task. In 90% of cases, the Customer does not understand why a seemingly simple task costs so much. It is necessary to form this understanding among the Customer. How much detail this needs to be justified depends on the Customer – for some, an explanation at the business level is enough, but for others, all the technical details will be needed.
3. Show the labor costs to complete. The cost of the work itself does not tell the Customer anything about the labor costs that you will spend on this work. You can sell 5 man-days for 100,000 rubles, or you can sell them for 1,000,000 rubles. Therefore, sometimes the Customer can make a budget estimate, which will detail the list of works and labor costs, broken down by specialist. For example, task No. 3 “Implementing a custom form on a web portal”, the labor costs of a manager are 1 hour, an architect is 5 hours, a developer is 10 hours, an analyst is 1 hour, a tester is 3 hours. From this breakdown it already becomes clear that in fact there is not a week of work for the developer, but two whole weeks, and besides the developer, 10 hours are spent on other roles in the project.
The Customer must be very careful when demonstrating labor costs. You should always check this with your management because it may not always apply. And if you do this, be prepared for the fact that the Customer will find out the rates of your specialists, and be prepared for the questions “why does your developer cost 50,000 rubles a day?”
4. Continuation of the previous paragraph – explain to the Customer that you are not just selling some feature, you are selling consulting. This means that you have collected requirements, assessed the current situation, thought through a technical solution, described it, agreed upon it, assigned a task to the developer, monitored implementation, tested it, demonstrated it, etc.
Usually the Customer does not see or understand all this work. He always thinks in the paradigm: “It’s a week’s work for a developer, why is it so expensive?”
5. If the customer does not understand why he should pay for all other specialists and believes that these are our problems, not his, then offer him to “sell” your specialist for the agreed number of days. For example, you agree on 5 hours for a developer at a fixed rate, and then let the Customer assign him the task, test and accept the functionality, and the rest of the employees do not participate in the process. Not a single Customer will agree to this, but it will help “sober up” their head. In fact, this is more of a manipulation, but it works well with such an objection.
6. Offer not a fixed price, but payment by Time&Material. This is when the Customer does not pay a pre-agreed price for a fixed volume (Fix Price), but pays for actual labor costs at agreed rates. Working under T&M is beneficial for the contractor, as it removes the risk that some work will require more labor than planned. But the Customer, on the contrary, can spend more money than at the Fix Price if some work does not go according to plan. And the Customer will no longer be able to generate comments and wishes so easily – he will have to pay for them.
7. Price is not the only selection criterion. Perhaps the Customer understands that other Contractors can do this work cheaper. You must demonstrate your professionalism to the Customer and explain that you have a lot of other advantages. After all, you do the main project and know better how and what works.
Moreover, highlight to the Customer that attracting another Contractor involves a huge number of problems: who will coordinate the technical implementation of what the new Contractor will do? Will archival supervision be required on your part so that they do not break what you have already done? And who will pay for it? And who will be responsible if something breaks? You can always point your finger at each other and say that it was because of them that everything broke. How will several developers from different companies develop simultaneously on the same environment? What about testing? In general, hiring another Contractor for some atomic tasks on your project is always bad; you need to explain this to the Customer if he is considering this option.
8. Wholesale is cheaper. Offer to do some more work. Yes, the overall cost of the work will increase, but the price of the specific modification you are discussing may be reduced.
9. Stop wasting time bidding. Also more likely from a series of manipulations. Highlight the Customer that the more time you spend on bidding, the more labor you spend on it, which actually should be paid for (yes, the presale is not free, but be careful when conveying this information to the Customer, not everyone can perceive it adequately). And also highlight that “time is money” and instead of already doing this work, you spend time discussing it.
10. Offer a discount on the following works. Now you are working at full price, but you promise that you will offer a discount for future work. It will work especially well if the Customer puts pressure on the fact that he is focused on long-term cooperation with you and promises a bunch of more projects in the future.
11. Explain to the Customer that you – a commercial organization, and working at a disadvantage is not profitable for you. If you make a discount, then these works will be unprofitable for you. Therefore, it’s easier for you not to do them at all than to do them at a discount.
12. Get personal. If the Customer is an empathetic person, then you can explain to him that your manager will not praise you for giving a discount and generally coming to him with such questions. They will scold you and may deprive you of your bonus, so suggest to the Customer to agree somehow differently. If no one deprives you of your bonus for this, then this will be pure manipulation, so this option is very rarely applicable.
If it was not possible to agree on the full price, and a discount still needs to be provided, then the following steps are possible:
13. Suggest alternative implementation options. It often happens that one problem can be solved in different ways. Therefore, think in advance what implementation methods are available, and give the Customer a choice. It may turn out that the Customer will choose the most “crutch” option, as long as it works.
14. Throw out “expensive” requirements. It often happens that some requirement greatly increases the complexity and cost of the work. And it may turn out that the Customer does not particularly need this requirement. He may not understand the complexity of this work, or voice a requirement without fully understanding how it will work or whether it is necessary at all. You, as experts, must understand what work can be thrown out or changed so that this does not affect the solution to the original problem, but would reduce the cost.
15. Offer options with restrictions. If all 100% of the work costs 1000 rubles, then we offer options: 1. We do 90% for 900 rubles, 2. We do 80% for 800 rubles, 3. We do 70% for 700 rubles, etc. You can also explain to the customer that finishing 10-20-30% sometime later will cost not 100-200-300 rubles, but at least 110-220-330 rubles, because doing it right away is cheaper.
It is important that these “thrown out” 10-20-30% of the scope of work are clearly stated in the restrictions, so that later the Customer will not be tempted to make a claim to you as to why you didn’t do it.
In part this is similar to point 14. But there we are talking about the fact that the Customer and I agree on what requirements can be thrown out in order to get a lower cost of work. And in clause 15, we ourselves think through the restrictions and offer the Customer several options at once. Let him choose which restrictions are less important for him.
16. Break the task into several. Corollary of the previous point. But you don’t just transfer part of the work to restrictions, but immediately agree that 70% of the work is done now, and the remaining 30% of the work is assessed separately and included in the budget for the next reporting period. The advantage for you here is that if you understand that with a high degree of probability you will still do this work, you can immediately take this into account when implementing 70% of the work, so that later it will be easier to implement the remaining 30%.
17. Justify the risks to the Customer. Here we need to be very careful, because we cannot say that “we added 10% here, because who knows how long the developer will do this task – either 8 days, or 12. But here we added 10%, because we are afraid that you will make a bunch of comments on the results of the work performed.” We need to find those risks that can be communicated to the Customer. Perhaps the Customer will be able to remove some of these risks and then the estimate will be lower.
18. Do the task head-on. Agree with the Customer that you will coordinate the implementation with them, do the task as agreed, and that's it – do not accept any comments, do not conduct PSI. To be honest, we have never tried this ourselves. But this option is applicable if the Customer is sure that the requirement is clearly interpreted, everything is clear to everyone and believes that there is nothing to do there. In this way, you can reduce the cost a little by removing the risks included in the revision based on the results of the demonstration/OPE. The danger of this point is that the Customer can then change his tune and say that this is not what he wanted at all, everything needs to be redone. And try to prove that you did not include revision in the cost.
19. Give a discount now, but add the amount of this discount to future works. This point is less comfortable for us than point 10, but may be applicable for Customers with whom there is a history of relationships and an understanding that there will be more contracts in the future.
20. Ask for something–something in return. If you make a discount, let the Customer simplify your requirement somewhere else, take your side in some controversial issue or remove some restrictions. It is normal when both you and the Customer give in
General recommendations:
21. If you understand in advance that the Customer will ask for a discount, then immediately include a small percentage in your estimate so that it can be discounted painlessly.
22. You can try to transfer the issue of discussing the cost of work to a higher level – to your manager or sales. If you are responsible for the labor costs that are necessary for implementation, then your area of responsibility is to justify to the Customer why it costs so much in terms of planned resources. But to discuss the cost of these labor costs and the discount directly, you can call the sales. But this is only applicable if the sales will make a discount not at the expense of your labor costs. Here, everything depends on how your pricing looks.
23. If you nevertheless agreed to reduce the cost of work:
· Keep in mind that now the Customer will always ask for a discount, since he will know that he can “knock it out” of you.
· Be sure to record somewhere that the cost of the work is this precisely due to the fact that a discount was offered (you can display this directly in the CP).
· Use this as an argument in the following controversial situation: “well, we met you last time, let’s meet us here.”
· Suggest increasing the duration of these works or lowering their priority. It is clear that this will not affect your labor costs, but you will be able to better manage the workload of your performers.
24. Try to find out why the Customer says it’s expensive. Someone promised them a cheaper price? Or is there really no money? Or someone simply has kpi to bring the price down from the Contractor’s initial offer (we had such examples). Or maybe a person just likes to bargain, there are such people too. If you can get this information, it will be easier for you to come up with arguments.
25. Prepare very carefully for meetings at which you will discuss money with the Customer. You must think through your arguments in advance, prepare alternatives, etc. This entire list of points that I listed above can be used as tips. Naturally, not everything can and should be used, but it is advisable to know all the possible options, so you will have more chances to defend your position.
If you are interested in posts with similar tips, as well as posts about increasing the productivity of your work and practical tips on effective ways to combat procrastination, you can subscribe to my channel on self-development.
