Case study: Implementation Pricing
Our client, a major enterprise software provider was in the process of a transition from on-premise to cloud as it built a new partnered channel with ERP providers such as SAP, Oracle, etc. The push to align with ERP partners’ per employee per month pricing model uncovered additional opportunities to also overhaul their deployment and implementation pricing structure.
Our client operated across four business units that historically struggled to recover the deployment costs where the business units recovered less than 30% of the costs associated with the implementation services.
Given our client’s growth goals, the unrecovered costs could increase 15-25% year-over-year. High levels of customization for customers' business rules and workflows can be packaged and priced differently.
Limited value positioning
No value proposition existed for the high levels of customization, time to value, or different SLAs
Sales automatically discounted implementation
The perception that full-fee implementations would negatively impact sales was not validated
Financial model challenges cause inaccurate margin realization
There was no system in place to track, attribute, & estimate the real costs of customization and deployment
New pricing and packaging needed for cloud
Unrealized opportunities exist from delivering a superior ERP implementation experience
Clients valued customization and higher SLAs
70+% of the customers indicated high SLAs improved time to value by three months – avg. $170K/yr
More than 30% of customers paid at or above list price
The perception of customers’ low willingness-to-pay was not supported by sales data
Deployment was reported as cost of acquisition
New cost accounting system might help report deployment as cost to serve and inform the margins more accurately
New pricing strategy and structure needed for cloud
Opportunities exist to justify deployment activities for various service levels and align pricing of the service levels and recover more than 80% of the costs
The break-through and the pricing innovation came about when we identified an entirely new pricing metric for monetizing deployment services. We developed a new pricing model where the price of deployment could be adjusted up or down depending on the client preferences for customization and involvement
Strategy, sales, and finance teams received the proposed strategy with enthusiasm and committed resources to start tracking and implementing the new model in the new fiscal year. Our client has the opportunity to recover its implementation costs up to 48% in the first year and continue to increase its cost recovery as it shifts its growth strategy