Problems With Customers Saying Pricing Not Fair

Hello ,

I am facing some problems with my customers, usually I add 30% on the cost of equipment, and some it is not fair, because between IP and analogue the price can be easily double, but the analogue installation difficulties are bigger.

Another thing our installation we can consider it as professional comparing to others in the same country, so the customers can't imagine the difference until we finish the work, then I used to hear, you really deserve it after a big despite on margin from the beginning.

Is there any tricks to do or advice, a friend told me to remove 15% of the installation value and add it on equipment or create a fake line such accessories.

Finally, as you are experts what is your proposal for standard margin, and the difference between IP and analogue value if it is considerable.


Good question, thanks for sharing.

I see two elements here: Where to 'put' the money/costs? and How to sell your value?

You mention that your work is more professional compared to your competitors. Presumably, your costs and price reflect that. I'd start with focusing more on educating your customer what specific things you do that is more professional, itemize them up front so that they understand what you are including that a trunkslammer may not.

That's probably the biggest factor because ultimately most customers decide on the total quote price rather than the individual pieces.

That noted, there are a number of ways you can shift money / costs into different areas of the proposal, such as:

  • Only providing a total price and no breakdown to avoid that nitpicking (see: Should Quotes Include Line Item Price Breakdowns?)
  • Change the name of the models listed so the customer cannot price check (e.g., if you are selling the Axis Q1615, name it the FHD-WDR-LL-15)
  • As you mention, create other miscellaneous costs and stick money there.
  • Increase your hourly labor rate.
  • Add more total labor hours, especially if you are doing a more professional job because you can justify that better.

Ultimately, though, I'd focus more on convincing the customer of what you do specicifically that your lower end competitors do not, to justify your overall premium.

As for analog vs IP, do you mean NTSC / PAL / SD analog? Because people buying that in 2015 are probably super price sensitive and are going to be hard to justify / sell premium integration services.

Thanks John , the link you shared Should Quotes Include Line Item Price Breakdowns?) is very usefull .

your points are enough important i wil try to apply that .

Yes in general customers they take the amount of th invoice and divided it on the number of cameras and easily says 750$ per camera , its expensive . last project i faced strange case it was for the bank , i was discussing the project with the financial manager not the technical manger or IT .

concening the IP vs analogue , i tried to ask about the installtion fee , because as i explained the total amount of IP system can be much higher that the price of analouge systme knowing that the Ip is easier to be installed , so is it fair to take less money while you install analogue system just because the equipment is cheaper while it takes more time to be installed .

Is there any tricks to do or advice, a friend told me to remove 15% of the installation value and add it on equipment or create a fake line such accessories.

It is worth pointing out that for many customers, doing this can get you fired!

There are a few line items that might have some leeway to mark up more steeply (ie: connectors at $3/ea vs. actual cost of $.55/ea) but fabricating a line item to tuck away money will burn you.

If the customer wants to quibble over why you're charging them so much for real goods or labor, then that is one thing, but if they ask you to explain charges for something that doesn't exist, you are really in bad shape.

there are many great points listed above and in the links provided... one thing I have learned is that if you are providing an IP based solution vs. another dealers analog solution you will most likely not be able to compete on price... ultimately though your goal isn't to have the lowest price but the best solution, if you manage to have both then great...

as mentioned above educate your potential customers on the benefits of your equipment and services... if possible arrange demonstrations, make recommendations and get a good reference list to hand out as well... you did say that many of your customers recognize the quality of your installations once complete, that right there will help you sell your systems/services... no better advertisement than a happy customer...

Where I work, 30% gross profit (43% markup) on a project is the Mendoza Line for the profitability of a project. Generally, I do not do not provide line item breakouts (only provide an equipment list) on proposals and apply the same 43% markup on equipment and labor across the board, resulting in 30% GP.

However, for customers that require line item pricing, I cannot put 43% across the board as that puts the camera pricing over MSRP for most IP camera manufacturers. Savvy customers will check online prices and then question why I am charging over MSRP. In this case, I mark up the cameras, mounts, and accessories to MSRP price and adjust the markup higher for other materials and/or increase the labor rates to reach the minimum required overall 30% gross profit margin.

Don't put fake line items in your proposal, that's not good. But do include all of your costs in line items including transportation, manlifts, per diem/lodging if a distant project, permit fees, inspection costs, sales/use taxes, and any other miscellaneous items and make sure you mark those up appropriately. Far too often, those are overlooked by integrators and negatively affect the bottom line.

B, very informative, thanks!

Also be sure to include freight (I typically add 2-3% to equipment costs for this) which you can break out as a line item if needed.

Where I work at we also have an allowance built into the estimating software for first-year warranty labor costs. Most manufacturers have at least a one-year warranty for the equipment, but it doesn't include the labor to replace the faulty item.

Don't forget to include misc. items such as patch cables, fasteners, connectors, etc. in your costs.

Also include project management and estimating costs if you don't already have those built into your overhead.

I'm totally going to use Mendoza Line in the manner you do from now on.

You're welcome...

Here's an example: The Mendoza Line for writers at IPVM is three articles per week. ;-P

Easy now ;) .....

To provide one end user viewpoint (although maybe not an "average" customer), a standard markup on equipment hardly seems objectionable. Somehow, a vendor must support costs associated with equipment procurement, receiving, performance verification, returns, and vendor payments, and markup is one such tool. 30% seems pretty tame. In my uneducated opinion, 50% over market might begin to look a little opportunistic, but must be considered as a part of a complete proposal, not in isolation.

In addition to equipment mark-up, personally I find that quotes that list independent installation costs and equipment costs are very easy to understand and, as noted above, how could one critize vendor-supplied gear costed within MSRP + freight? We find business freight can vary widely and can be a very significant percentage of an item's unit cost, and this may be unappreciated by the customer when they're not doing the procurement themselves. Web purchases seem designed to reinforce this oversight, since freight isn't attached until the very final step before payment, and many "price shoppers" never get to that final step.

Some customers may not be satisfied with the "FHD-WDR-LL-15" approach if they want to understand what it is that you're installing. For example, if they think they're paying for Axis but wonder if you'll deliver Dahua (or even a less capable Axis), would they explain the problem or would they just look elsewhere? When prospective customers may wonder exactly what it is that you are delivering, is it possible that sales could be facing challenges because a quote is interpreted as unclear or possibly even evasive?

This has been a good conversation. I always appreciate threads improve end user understanding of elements of costing and pricing. Thanks, OP, IPVM, and contributors!

Here's another customer viewpoint. Hardware is a commodity, I didn't come to you to buy overpriced hardware. I'm buying your expertise in installation, design, and support. I don't mind paying a premium on install and project management to get the job done right. Don't give me bogus line items or part numbers. I want to know exactly what I'm buying and why it's what you recommend for the location. Although your average customer probably isn't an ipvm user so they probably won't have an educated opinion.
Here's another customer viewpoint. Hardware is a commodity, I didn't come to you to buy overpriced hardware. I'm buying your expertise in installation, design, and support. I don't mind paying a premium on install and project management to get the job done right. Don't give me bogus line items or part numbers. I want to know exactly what I'm buying and why it's what you recommend for the location. Although your average customer probably isn't an ipvm user so they probably won't have an educated opinion.

The Mendoza Line can vary from project to project. On very aggressive bids, the less expensive product lines will be selected. At this point, the warranty is usually less and the failure rate also tends to be higher. Many clients don't know the various brands and manufacturers. An item description usually suffices. On lower cost items ("wholesale" pricing), I usually double my cost to determine resale pricing. This is the only way it will make economic sense in the end, as the added labor cost for replacement (under warranty or not) as well as the aggressive installation cost quoted requires it. At the end of the day, it will make sense for both the installation company and the customer because the customer will get what he was looking for: a professional surveillance system at an very competitive price.

I also want to support the inclusion of all the elements of a project (parts, labor, warranty etc.) in some form of document to make it very clear what the customer is getting from your company.

I tend to be very detailed in the proposal/bid document because you can say a lot more in a "scope of work" or "system description" page than you can in a line item description field (though this will be as detailed as possible even if it is redundant). Presentation & perception matters a great deal at this stage.

I'm not sure most clients are willing to pay a premium for "expertise" and professional installation with excellent support. Some do. The overall budget matters a great deal for most customers. Truth is, they want it all: best product, best price, best service. Why not? So I tend to tailor proposals and system designs based on balance from my assessment of what's needed, and what the client's expectations and wants are. No hard and fast rule, but a case by case approach works best for me. Which means I can miss the mark as well... Move on to the next opportunity/proposal...