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Onsite Pricing (Pt. 1): How To Charge For Instructor Travel And Living Expenses.
"Onsites" are instructor-led courses delivered at a customer's site.
Onsites let customers avoid the travel-related expenses of sending course participants to your training location. However, you have the additional expense of sending your instructor to their location. So you must somehow reflect this incremental expense in your price. The question is, how?
Below are 3 alternative approaches, together with their pros and cons -- followed by my overall recommendation.
ALTERNATIVE A: BUNDLE IN THE COST. That's right, simply raise your standard Onsite list price a consistent amount, say $1500, to offset average instructor travel-related expenses and protect your margin.
PROS: Why complicate an already complicated selling process by tacking on an additional "extra" for your customers and your salespeople to worry about. By bundling in instructor travel related expenses you are able to say "we don't nickel and dime you for that." This can help tip the scales if your competitors do. Also, it's easier for a customer to cut a PO when they know what the total price is going to be in advance. Finally, you avoid any contention associated with your customer having an interest in where your instructors stay or how they travel.
CONS: The major downside when you bundle in instructor travel related expenses is that a naive or careless customer could shop your price without fully understanding what your price includes. So if your Onsite price includes the works and your competitor's doesn't, they could walk off with the business before the customer catches on. This is especially a problem when customers are purchasing based on catalog or Website information and your salespeople never get a chance to make their case. Another issue associated with bundling is that there is no incentive for the customer to help you save travel related expenses.
ALTERNATIVE B: PASS ALONG THE COST. Yes, bill your customer after the event for your instructor's actual travel associated expenses, be they $50 or $3550.
PROS: Passing along instructor travel related costs as incurred lets you advertise a low list price. So price sensitive customers won't fly the coop before you can speak to any unique qualities or services you may provide. Also, you're not obliged to "eat" travel surcharges and premiums when a customer decides they need you to run a class at their Aleutian Island sardine cannery beginning tomorrow at 8:00 AM.
CONS: Since travel related expenses can't be known until after the course, your customer may have problems figuring out what amount to put in the PO. And you may have to delay your final Onsite billing notice until well after all services have been provided. Passing along as-incurred travel expenses is also an issue when you're competing for business in a far off metropolitan area or geography with another firm that is local to that geography. Or when you must fly in an instructor from 2000 miles away to teach an Onsite that's fifteen minutes from your office. Try convincing your customer to pay for that! Finally, if customers have visibility to your instructor's expense reports, you risk hearing "I'll be damned if I'm paying for the Marriott or for any $17 breakfasts! -- and I don't see why your people can't travel by Trailways like our people do."
ALTERNATIVE C: TACK ON A STANDARD SURCHARGE. Figure out a reasonable average for instructor travel related expenses, say $1000, and apply it as an uptick to all Onsite deliveries.
PROS: This approach lets you advertise a bare bones price, to compete with other firms that treat instructor travel expenses as an "extra." It also makes where you source your instructor -- or where they stay and eat -- your business, not your customer's. Furthermore, since the fee is fixed, it's easy for your customer to build into their PO -- and easy for you to bill in advance, or upon course delivery. Another plus comes should you need to make a price concession in a competitive auction. By waiving the surcharge, you are able to reduce your proposal without having to compromise your standard Onsite course price.
CONS: Occasionally, a customer will object to paying a standard travel related surcharge if they learn you sourced your instructor locally. If you can't appease them by explaining that they will save the next time when you have to import an instructor from Timbuktu, then you may need to waive the surcharge. There also can be an issue if a customer takes advantage of your good graces to make last minute changes in venue that drive up airfare expenses.
D. MY RECOMMENDATION: As you may already have guessed, I'm partial to alternative C. But since Onsite pricing is frequently carried out in a wheeling and dealing way, you may also decide to vary your approach corresponding to customer preferences and competitor tactics.
Whatever you do, remember it's always better to concede on travel expenses as compared to course fees, especially if you can come up with a face saving excuse. Once you've caved in on your course price, you've pretty much set a precedent.
MORE ON ONSITE PRICING: Should you publish Onsite prices -- or keep them confidential? Should you bundle the cost of course materials in your Onsite course price? What should you do when a customer feels they should pay for your instructor at a low-ball, per diem consulting rate? Should you price Onsites as a multiple of your public course tuition? What multiple? What should you charge when a customer wants to send additional trainees or auditors? When should you begin charging extra for requests to customize an Onsite to a customer's specific business situation? What's the best volume discount approach to use for Onsites?
We'll address these tricky issues, and more, in future E-Visorys.
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