Forum Moderators: LifeinAsia
Most recently, some of the side chatter in the thread Three Warning Signs of a Nightmare Client [webmasterworld.com] brought this issue to the top of my mind once again.
Essentially, this is an issue that has been around since the opening days of internet development. Even in the halcion "Bubble" days of web development, when the predominant means of generating a quote was the WAG method (Wild Arsed Guess - pick an obscene number out of the sky and then try and justify it), there was always somebody else out there willing to do the same project faster and cheaper.
As the web has matured, and more importantly for us, the business of developing for the web has matured, pricing of services has become more formalised, and the "race to the bottom" conditions typical of any marketplace has also become more formalised. WAG pricing doesn't go very far anymore. And we're not competing against some 14 year old in his mom's basement with no real expenses, but against formal discounters in the form of "out of the box" agencies and overseas outsourcers from India, Romania, and other nations with rock bottom labor costs.
So, how do we survive and maintain an indy business, using a pricing scheme that can support a decent living in a Western, 1st World Economy, with a high cost of living? Especially when more and more of the marketplace is aware of the discount services available?
This is an important, long term planning business issue. And if we are unwilling to ask ourselves hard questions about it, then we probably shouldn't be in the game.
For an answer, I thought it best to (*gasp*) step away from the keyboard, get my head out of the code, and actually think about how this issue fits in with historical market trends. Which lead down the road to analogy world.
People here are bound to disagree with me, but here are my thoughts.
Selling Web Development is essentially a retail business:
If you're in the business of selling, you're a retailer. It doesn't matter if it's Oil, Running Shoes, Rubber Ducks, or Web Development.
We're all selling a product, we're all retailers. Therefore, the rules of retail apply.
Sit back a minute and let that really sink in to your head. Consultant is just a fancy word for "retailer of a service."
There always has been and always will be, discount retailers.
And this is not a bad thing. Discounters promote a healthy marketplace by showing how cheaply and efficiently a product can be delivered to the market, and this forces other retailers to eliminate bloat and inefficiency in their practices, benefiting the market as a whole.
Every time some new big discounter comes along, older, established retailers gripe and moan about them cutting into their business. Too often, they try and fight the discounters on their own turf, by cutting prices, but at the same time failing to look closely at exactly how it is the new discounter is managing to deliver at such low costs.
The emergence of Wal-Mart as the king of discount retail (in North America) is a prime example of this.
Existing retailers gripe about how Wal Mart keeps their prices down by buying cheap goods from oversees and paying their staff as little as they can.
This is a smoke screen. All retailers buy cheap goods from oversees, and pay their staff as little as the market will allow.
Wal Mart's real strengths are in reducing their costs in the following ways:
1. Tight overhead cost management:
Example: Every Wal Mart in North America has their climate control (air conditioning and heating), and lighting controlled from their head office. Individual store managers can't keep all the lights on after hours just because their overnight stocking staff gripe. Likewise, they can't crank the heat or ramp up the AC to suit their own tastes. On a store by store basis, the cost savings are minimal. On a company wide basis, the savings are in the millions.
Ask yourself: How much of my overhead costs are extraneous? How can I manage my overhead costs better?
Are you renting fancy office space for better access to your clients? To present a professional image? Or is that high-rise office just a means of satisfying your own ego?
Take a few hours, at least every other quarter, to go through your list of running overhead expenses, and really think about ways of reducing them. Remember, in the end, you're not paying for that corner office in the most expensive part of the business district. Your customers are.
2. Extremely efficient management of their supply chain:
I live in western Canada. I happen to live in the city with the Wal Mart distribution center for all of Western Canada. I had an opportunity, a few years ago, to observe their distribution center operations in action for a couple of days. The efficiency and organisation of the DC was, quite frankly, mind shattering. At one end of the DC, their supplier deliveries arrived. These bulk freights were broken down into individual parcels, loaded onto a computer controlled conveyer system that separated the freight and distributed it, at the other end, to lines of Wal Mart delivery trucks destined to individual stores. In this way, if store 5492 needed 3 Phillips TVs for the next day's shelving requirements, they received 3 Phillips TVs. Not 2. Not 4. Also, through extensive use of mechanisation and computerised sorting, 1 receiver could unload the equivalent of 2 eighteen wheelers a day worth of freight. At the other end, it took 1 shipper to load 2 eighteen wheelers for delivery.
Ask yourself: How can I manage my supply chain better?
As a development consultant, you still have a supply chain. Perhaps you have an outsourced hosting service. Are they providing the best, fastest, hosting at a reasonable cost? If not, why are you styill using them? If you're managing your own hosting, when was the last time you looked at the cost effectiveness of doing this? Would it be cheaper for you and your customers if you went to a third party host?
How do you manage your FTP? I'm amazed out how ineffeciently many people manage this simple task. Look at ways to automate your FTP so you can reduce the amount of man hours dedicated to the task.
There are many aspects to a consultancy supply chain. If you look deeply at your processes, you can determine what processes are truly "supply chain" issues. Knowing what they are, you can ask yourself intelligent questions about how to better manage the time and cost associated with each supply chain issue.
3. Never lose sight of the fact that your customers pay for your expenses:
Wal Mart, and all discount retailers and service providers, are sucessful because they understand this on a deep and intuitive level.
Never, ever, lose sight of the FACT that you don't pay for your expenses, your customers do.
I've reduced my costs and am running as efficiently as I can, but I STILL can't price compete against the discounters, now what, smartypants?
First off, remember that while there has always been successful discount retailers, there has always been plenty of room in the market for premium retailers.
Premium retailers survive and compete against discounters in the following ways:
1. Providing premium goods.
You could spend $10 for a "safari" hat from Wal Mart. Or you could spend $100 for a Tilley Hat that looks almost exactly the same.
Personally, I'm a "Tilley Hat" kind of guy. I'd rather spend the extra money on a hat that's going to last. I'm a bit of an outdoorsman, and I know the value of having a really good hat that isn't going to fall apart at the seams at some inconvenient moment.
When it comes to web development, there are plenty of buyers out there who are going to be willing to pay extra for a premium product. The trick here is to make sure you truly are delivering a premium product, you can't just pay lip service to quality.
Are your pages truly more properly SEO'ed for their market? Are you really doing a better job of adhering to web standards? Is your information architecture truly more efficient and intuitive for the end user? And on and on and on...
To ensure that you're delivering a premium product, you're going to have to look closely at what the discounters are delivering. Where are the weaknesses in their stitching? Only by knowing the deficiencies of your competition, can you truly deliver a premium product.
2. Deliver premium service.
We've all been there. As much as discounters like to balyhoo their service, the real truth is, discounters invariably have crappy service.
I could go to Wally World to buy a computer. Odds are, I'm not going to. Some 19 year old high school dropout working in a pressure pot like Wally World just isn't going to have the time to answer my questions, even if (unlikely as it may be) he has the knowledge to answer them.
A very big part of what our customers are paying us for is the ability to sit down with us and really discuss their needs. Make sure you give them that time.
Premium pricing and premium service go hand in hand. If you don't give it to your customers, you're going to lose them.
3. Deliver niche products.
This is different from providing premium goods. here, it's not a matter of delivering a better quality product than the discounter, it's a matter of delivering a product that the discounter doesn't even offer.
Discounters can make money of their thin margins only iff they deliver products en masse. If Wally World can't sell millions of something, they can't make money off it.
There will always be consumers who need that special product that there simply isn't a mass market for.
Going back to outdoors gear (I have camping on the brain a lot recently):
Wally World sells camping gear. But I'm not likely to find specialised technical gear like crampons, ice axes, pitons, etc. there. It's just too specialised. Fortunately, I live a city close to the rockies, with a number of specialty technical gear retailers who are going to have these goods.
Look at your consultancy. What specialised products and services are you offering that simply aren't available from the discount overseas consultancies? Remember, they're going to make their money on an economy of scale. There's a wide range of products you're going to be able to deliver on a small scale that just aren't offered from the discounters.
4. Know your local market. Use the cultural knowledge advantage.
I don't care what anyone says, I know the Canadian Culture, and the culture of my home city, far better than someone in India or Romania ever will. This is a key advantage.
A Romanian SEO outift can sit and sift through keywords and SERPS all day long, and get some good data. They'll learn what Canadians are typing into the search engines.
They will never, on a deep level, understand what's motivating Canadians to type those things into the search engines. Therefore, they will never be able to truly present something that resonates with the Canadian consumer on a web page once they click through.
Don't believe me? Then you're a fool. It's been proven time and again in many retail businesses.
When Wally World first came to Canada, consumers responded with luke warm enthusiasm to their discount pricing. The chain failed miserably to meet sales targets for years, much to the consternation of their management.
Until, that is, they discovered just how irritating most Canadians find the American version of customer service. The differences were subtle, but extremely significant. Now, if you shop at a Wally World in Canada, you will find yourself treated quite differently than if you shop in one of the stores in the US chain. This is by design. They hired Canadian Consumer consultancies. The corporation stood back and did survey after survey, study after study, and when they realized just how they were pissing us off up here, they changed.
And become equally as much of a retail juggernaut up here as they are south of the border.
Unfortunately for Wal Mart, they didn't learn an overall lesson from this. They tried to export their brand of customer service to Germany and other European markets. And have failed miserbly, and largely pulled out. For this, they blamed market conditions, the high level of unionization, everything but the real cause of their failure.
Their inability to recognize and adapt to the culture in which they operated.
In Conclusion:
"Know your enemy, and know yourself. This is the path to victory."
- Sun Tzu
'nuff said.
One quick question, with probably a very long answer: how do you set about making your own web site serve your business, so as to avoid being seen as a me-too supplier, competing only on price? Again I have some ideas but they rather ill-formed as yet.
As an aside I happened to see an ad on elance today where the client wanted a shopping cart for $20-$70. In my cynical view that's like wearing a shirt saying "please rob me, I am an idiot".
Selling Web Development is essentially a retail business
If you want to make like a lemming. Otherwise Web Development is a contract business. It is normally B2B (business to business) not B2C (business to consumer - individual). Price is most important in B2C. Value is most important in B2B.
You can always look at other business models for inspiration, however, volume retail is not directly comparable to Web Development unless you are providing software/templates for something like the B2C blogoshere. I may not care that my neighbours and I all have the same towels/TVs/etc. or even cloned personal blogs but I will be very unhappy if my widget ecommerce site is identical to my competitors.
A Web Developer is more of an artisan, a craftsperson, with no two offerings quite the same. Perhaps a better analagy is the difference between ready to wear and custom tailored 'bespoke' clothing. The lemmings are in ready to wear, the contract professionals are in custom.
Web Development is not generally a 'mass' market, it is a 'custom' market of unprecedented size. And if you work without an appropriate contract you deserve your life as retailer to the customers from down below.
The key is to find, not only what they don't provide now, but what, in addition, they can't provide without damaging their key USP (price?).
What about doing the work on your client premises for an extra fee. That would make the feedback loop really quick. An outsourcer bringing in an engineer from abroad sure will crank up their costs.
Employ your talents to build a diverse income stream.
Work for some clients. Build some products that can be sold "in a box". Write an ebook on a subject near and dear. Do some affiliate work. Build some websites for sale.
And so on.
Diversify is the word of the year. This year and next. And the one after that too. :)
