Case study: Implementation Pricing
Enterprise software

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.

Current state

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.

Future state

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. 

Problem

 

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 

Insight

 

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

Break-through

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

Results

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

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