Every business has to be sensitive to costs, but focusing only on finding a lower rate is not necessarily the best way to ensure you get the best value.
Value goes beyond price – it’s about weighing the benefits against the cost. Sometimes that’s hard to do, however.
The psychology of price
Most of us see saving money as a badge of honour – even the very wealthy may get a kick out of a bargain deal. Why do we think this way? Probably because money is a limited resource.
We all have an internal meter around the pricing of things we know and understand. That’s why two-for-the-price-of-one deals do so well in grocery stores – we know that if one product normally cost X, and we’re getting two of those products for the same price, it’s a win. It’s also why sales work. People look at getting a discount as good value and sometimes think that if they would have spent $100 on something that’s now available for $75, there’s $25 they can spend elsewhere.
Even when we know we’re being manipulated (when something costs $99.99 instead of $100.00), our brains are still conditioned to pick the lower number.
However, cost analysis becomes more complex in a business environment, where pricing is part of the bigger picture. The marketing budget can’t be seen in isolation, for example. If the marketing department overspends, it may affect cash flow for the whole business.
Companies are often forced to make trade-offs – should they hire two junior staff members or one more senior one, for example.
This pressure and complexity mean that organisations tend to avoid taking risks, and this sometimes translates into chasing bottom-dollar prices.
However, this may not yield the best results, especially when it comes to products and services critical for the business's successful operation.
Why determining value is complicated
Value is easy to understand when comparing like with like. If one supermarket is selling mushrooms for 10% less than another supermarket and the mushrooms are from the same farm with the same best-before date, packaging and size, it’s obvious that the cheaper one is better value.
But the more variables, the more complex the equation. Let’s say a business is evaluating laptops. Decision-makers will look at price and technological specs and considerations, which could include processing speed, compatibility, or warranty. One company might see on-site warranty servicing for a marginally higher price as better value because it means less time out of the office for key employees if something does go wrong. Another might prioritise trusted relationships with a supplier, even if the price is slightly more.
The value is unique to the business and is dynamic. Something might be deemed great value today, and overpriced a year down the line. A new product feature could change everything, or a fresh business goal could shift how value is perceived.
So how do you ensure you’re getting the best value for your money when it’s not just about price? Here are some pointers:
» Weigh risks against opportunities
What trade-offs are you willing to make? Perhaps the latest, greatest software offers far more capability than you would ever need, at a price that’s hard to justify. Perhaps employees will be as productive and effective if you save money with streamlined software.
Technology is updated and upgraded often. In some cases, it pays to keep up (when it comes to cybersecurity, for example) but in other cases, changes are cosmetic or superfluous to your needs. Consider your objectives and review existing capabilities before buying new ones.
» Decide upfront what you need
Imagine you’re comparing voice over internet protocol (VoIP) phone systems. A small business with no international customers and no intention of expanding internationally may not need international calling as a feature. However, if international expansion is something you’re actively targeting, it’s worth spending the extra funds for that feature.
» Shop around
It’s easy to stick with suppliers you know, but there might be better options on the market that you’re unaware of. Make sure you look at all your options before making a final decision.
» Think ahead, but remain flexible
Thinking only of the now means looking only at price. Thinking ahead means you understand that value can be delivered over time. Putting too much faith in your long-term plans leaves you no room for flexibility if things change. It’s important to balance all of these things.
You might buy a system you’re not yet ready to use because you are planning to get to that point in a few years. But technology might have changed by the time you get there, meaning the system is already outdated. That’s one of the benefits of cloud technology – you can scale up or down as your needs change.
» Choose the right IT services model
A break-fix model is a common approach to business IT, where the IT service provider will perform a specific service when required (e.g. repairing a computer) and bill the company for that service as a once-off.
However, this is a reactive approach. You can't anticipate lost productivity costs while you wait for technology repair. A service vendor may also be busy, which could mean downtime while you wait for them to reach your business.
Another option is a managed service provider (MSP) – a third-party IT services provider that partners with a business to manage its IT requirements on an outsourced basis, usually on a month-to-month or fixed-term contract. This is different to on-demand outsourced IT services,
MSPs will cover part or all of a business’s IT requirements, as agreed upon in a contract or service level agreement (SLA), which defines the exact services the MSP will render. This is a more proactive approach to IT.
However, you need to understand whether the MSP is offering you good value or not. Again, the value will differ per business, which is why good MSPs often offer a range of packages to cater to different needs.
It’s worth flagging that you may also derive more value from engaging IT professionals who know your industry. This ensures they can offer you beneficial insights into tech advances, and help you to find a competitive advantage.