3 Costly Mistakes to Avoid When Pricing Out IT Services with Nicole Lefsky

In this episode of Smart Tech Spending, I share 3 mistakes that businesses make when pricing out IT Services.  I point out where companies can go wrong in their evaluation process which can cost them time and money.

What you’ll learn in this episode:
- Why bigger isn't better when it comes to the number of IT service proposals obtained
- The best type of IT service agreement for small and mid-size businesses
- What type of IT services deliver the best ROI

Contact Nicole:  nicole@jerseyitgroup.com
Connect with Nicole Lefsky: https://www.linkedin.com/in/nicolelefsky
Jersey IT Group’s Website: https://www.jerseyitgroup.com

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Chapters

• 1:41 Reasons most change IT Providers
• 2:21 Requesting IT Service Proposals and Mistake #1
• 3:51 Types of IT Service Contracts
• 5:47 How many proposals is enough and Mistake #2
• 6:36 Comparing Costs of IT Services
• 8:20 Making the Choice and Mistake #3

Transcript

[00:00:00] Nicole Lefsky: This is where a lot of companies go wrong. They use the proposed price to carry more weight on their decision than the strength of the processes used by the IT company to manage the technology and the security risks. The real differentiator among IT companies isn't the pricing structure or how many techs they have to support your needs. It's the processes they use.

[00:00:23] Jersey IT Group: You're listening to Smart Tech Spending, a podcast designed to help businesses gauge the success of their technology investments. If you're looking to overcome the challenge of measuring the ROI of technology, tools and services, avoid unplanned expenses and uncover hidden costs, you've come to the right place. Let's get into the episode.

[00:00:45] Nicole Lefsky: Hello, and welcome to episode seven of Smart Tech Spending. Today's focus is the costly mistakes that businesses make pricing out IT services. Oh! This is a good one.

[00:01:00] Now, look, switching IT companies is hard. It's scary. It's time consuming. And as much as you feel like you have your hands wrapped around it, and how to evaluate it, IT contracts are confusing. And to add to it, each proposal looks different. Wouldn't it be nice if there was a standard, one way, one format, written in plain English?

[00:01:27] So with that being said, let's talk about where most small and mid-sized companies go wrong and how you can avoid these common mistakes if you're given the fun task of having to find a new IT company. So it's time to make a change. Maybe your IT guy is taking a full-time job and can't keep the moonlighting gig going on anymore, or they left the area. Maybe you've been working with an IT company and you're frustrated with ongoing problems and never getting them resolved. And after years of hoping things would get better, it's time to break up. Or maybe you've outgrown your IT company and it's just a better business decision to make a change.

[00:02:08] Regardless of the reason that you got to this place, you want to avoid the mistakes that tend to pop up during the process of evaluating new IT companies. This will save you time and it will save you money.

[00:02:21] Here's what most businesses do. They invite a handful of IT companies to send in a proposal. Send me a proposal. We're looking for a new IT company. That's often what they say. They provide a general description of their technology and they request a price to manage it.

[00:02:37] Or they ask for pricing for a project, something, you know, the house is on fire or something needs immediate attention. And they figure, they'll see how things go after the project.

[00:02:47] Instead of calling for proposals, meet with IT companies. Review your company's goals and your needs. Then discuss how they do what they do, not from a technical perspective, but a business perspective. Ask them about how they can help you leverage technology and lower your risk. Both of which affect the bottom line.

[00:03:10] Now let's talk about the proposals - the plethora of proposals. Some think the more the merrier. Now why, why so many proposals? Well, for most people, reviewing IT proposals is not the focus of what they do. They're a business owner, a managing partner, CFO, or an office administrator, and they're deemed with the task of finding a new IT company. No pressure there. And changing IT companies is scary. It's the unknown. It's a big undertaking that typically is a challenge for most. Given the technical jargon and the plain fact that it's just not your area of expertise. And frankly, you don't want to get taken advantage of.

[00:03:51] This brings me to the types of IT service contracts that are out there. And there's a ton. I mean, it's a lot. So there's the retainer, you know, you pay up front for a block of hours and you use them and spend it down and then you replenish it. Then there's what we call time and materials. That's kind of an old school approach. The IT company is not as familiar with your needs and your system. You know, they come on site, they fix a problem, they learn a little bit more about your system and then they're gone. You know, you call them when you need them. When you have a problem, they show up and because you have a contract, you get a bit of like priority service over others who don't.

[00:04:27] Then there's what's very common, the monitoring and maintenance contract, or a proposal I should say. Usually it includes basic maintenance, monitoring of your network. It gives you the feeling that it probably will prevent or work hard to ward off cyber attacks. Key word there, it gives you the feeling. Not necessarily accurate, but can help here and there. It also gives you comfort in knowing that you have got something proactive in place. Typically it has a fixed fee per month, but nothing outrageous. Anything outside the scope of the monitoring and maintenance has an additional cost, but this is probably where most micro, small businesses are.

[00:05:08] Then you have what we call managed IT. This includes the development and management of a technology success plan... and budget. Budget usually spans 12 to 18 months out. In addition to the proactive type of monitoring and maintenance, it includes security tools and services. Manage IT service providers known as MSPs use industry security standards and company goals as a guide to drive technology decisions and projects in a partnership with the company. This usually is a higher priced type of service and this is really where most businesses today need to be.

[00:05:47] Now let's get back to the amount of proposals requested. I touched on that for a second. Time and time again, I'll speak to someone and I'll ask them, how many proposals are you reviewing? Or they'll ask me, how many do you think I should get? Used to be the number three. That was always popular. I'll get three bids. I'll get three proposals. Just last week, someone told me they were looking at eight. Instead of having this enormous amount of proposals, streamline the quantity of proposals by requesting pricing only from companies that fully manage the IT needs of small and midsize businesses. You will weed out a ton. And for the greatest cost benefit, having an it company that knows the ins and outs of your company - the cost drivers, the goals that will deliver the best ROI.

[00:06:36] Now, the next step in the process is the cost analysis. First, businesses will determine, you know, if the proposed amount is more, less, or the same as what they've been spending. Then they'll try to do a side-by-side comparison of the services and the prices compared to what they've been spending. This is tough given the complexity of most IT contracts. It's hard to do that comparison. Then they'll try to determine what they're comfortable with spending.

[00:07:04] Since many haven't priced IT in a while because a lot of companies stay with their IT companies for a long time, they'll typically, you know, feel comfortable spending a little bit more because they don't really, they haven't been paying market price. Maybe they were locked into a price from several years ago. So they know they have to pay a little bit more.

[00:07:21] They'll get pricing from a colleague. They'll ask a friend, "What are you paying for IT services?" Maybe if they're in the same industry and they're generally the same size firm, they'll feel good about that number.

[00:07:32] Of course, you have no way of knowing with your friend or colleague what type of technology setup they have, their needs, their security risks, and what it'll take to reduce those costs for them. So doing a direct comparison isn't always the best option.

[00:07:48] Most will decide to pay a bit more though. They'll pay more than they do now because they want something better. And when I say better, I mean they'll usually interpret better as more attention, better customer service, faster response to the IT issues. More knowledge coming from the IT team because the prior ones maybe didn't get the problems resolved. Or faster service. These are all different aspects that will kind of substantiate why the company's willing to pay a little bit more.

[00:08:20] Now we come down to the choice. This is often determined by price as a major factor. Most companies will eliminate the highest priced proposal because the IT company may be gouging them. That's the feeling they get. Many companies will eliminate the lowest because they've accepted that they need to spend more. So the lowest makes them feel like, Oh, I'm not spending enough.

[00:08:43] Most will pick one that falls within the majority price wise and feels the best. This is where a lot of companies go wrong. They use the proposed price to carry more weight on their decision than the strength of the processes used by the IT company to manage the technology and the security risks.

[00:09:03] The real differentiator among IT companies isn't the pricing structure or how many techs they have to support your needs. It's the processes they use. Their processes will work to prevent system interruptions. They'll dictate where the company needs to be from a security perspective. Their process will identify all IT costs as a company grows. They'll mitigate risk for the company. They'll incorporate the company's goals and guide its technology decisions moving forward.

[00:09:35] So, to summarize, there are three common mistakes made when evaluating new IT service companies. Evaluating proposals before discussing processes. Obtaining a large number of proposals instead of choosing from the right kind of providers. Prioritizing price over process when making decisions. If you look at these common mistakes and you avoid them, you will have a better result and a better ROI for your company.

[00:10:03] Jersey IT Group: You've been listening to Smart Tech Spending hosted by Nicole Lefsky. Make sure you never miss an episode by subscribing in your favorite podcast player.

[00:10:12] And if you enjoyed this episode, we'd appreciate it if you'd rate and review the show. Thanks for listening.