Back in the early days of outsourcing, cost used to be the primary reason why companies decided to outsource in the first turn. Intense competition on the local market, considerable overheads associated with putting IT staff on the payroll and other related factors made businesses seek software development services overseas to cut costs and make software development easily manageable and flexible.
As a result, several world regions became synonymous to outsourcing and remained so for years. However, prices haven’t been just as stable - as national economies grew stronger and the quality of services increased, rates started to go up. Today, the situation on the international outsourcing market is nothing like it was some 15 years ago. Rates are no longer linked to geography, but are rather the indicators of skills, specialization, experience in a particular domain, availability and combinations of all of these factors.
We at Cortlex have been in numerous situations where rates were used as an argument in negotiations and the way it was presented was more or less the same: “Your rates are higher than the ones I found elsewhere.” This is perfectly normal and we always accept the possibility of either of the following scenarios taking place:
- The customer has really found a good individual or a small team offering lower rates due to their size and overheads
- The customer may have been in touch with developers from India or South-East Asia, whose rates are traditionally lower
- The customer may have come across a real talent with a superb price tag, which is a truly rare occasion
Whatever the case may be, there are simple and straightforward financial explanations behind any price. The hourly rate is defined by the market the vendor is operating on, their company’s economy, the professional level of their developers, competition, the rarity or uniqueness of the expertise in question and other factors contributing to the value of the vendor’s proposition.
Defending vendors' position
Unless pricing is completely random, which is unlikely, rates are based on vendor’s expenses plus profit margin. Here are some of the most reasonable arguments explaining the position on the cost of our (and most vendors’) services:
- Our rates are that high because we operate in a highly competitive local IT industry and need the financial capacity to secure top talents for your and other projects. Multiple sources are available to verify average rates for our country/region.
- Our rates are that high because we want to fight attrition and keep people in the company. If our rates are just above the base level, we will soon be unable to motivate our employees and will likely see their resignation notes soon.
- We never meant to make our rates a market differentiator. Instead, we wanted to shift our focus to quality and expertise – things that are traditionally valued above raw costs and that actually help save your money in the long run.
- We are not going to drop our prices to match our alleged competitor’s rates just to win your contract – we value our reputation and have a quality-based strategy to follow. Lower rates will not let us evolve as a company, create better working conditions and fulfill our strategic goals.
- We are ready to consider lower rates if you commit to a longer period of cooperation (6+ months), which will allow us to stabilize our cash flow and, perhaps, reduce sales and marketing costs accordingly to compensate for the discount.
If your potential customer remains deaf to these arguments, then it may just not be your customer after all. In the B2B world, people tend to understand the business mechanics and respect each other’s choices, so being transparent about your pricing and motivation may be quite a good idea.
I have a question to the potential customers: Do you really OK with getting LOW quality for a LOW price? As for me, quality always goes with corresponding reward
The bottom line is this: stay true to yourself, stick to your price (if it’s justified and not a random number), be transparent and open with your customer, don’t be disrespectful in relation to your competitors on the local market and abroad, highlight your selling points, focus on quality and expertise, aim for growth and improvement. This is what all healthy businesses pursue, so if a particular prospect shares these values and principles, too, there is a good chance it will turn into your customer.
Thank you for reading!