The Curse of the Grandfathers and Other Revenue Mishaps

There’s a guy at my gym who annoys me. His name is Mike or Mark or something like that. He really, really likes to talk even when I have my headphones on and I’m staring intently at Dr. Phil’s Family Disaster du Jour on the monitors.  That isn’t what bothers me, though. He never wipes off the equipment when he’s finished using it. Which is gross, but that still isn’t what bothers me. Even when he waves his issue of Men’s Health in my face while I’m dislocating an ovary on some machine, I’m still okay with him. What ticks me off the most about Mike or Matt or Murray is that he pays less than half of what I do for his gym membership.

Here’s how that works: Years and years ago he joined some gym and paid far too much but the agreement he signed locked in the rate permanently. When that gym was acquired, the new owners, not wanting to lose loyal customers, grandfathered the contract pricing. And when that gym was sucked up by its current owners, they did likewise.

This is what we call legacy pricing. The other words for it include stupid, profit-sucking, unnecessary and fine print. Don’t’ laugh: you probably have a bunch of it kicking the snot out of your balance sheet too.

Blindly honouring dumb pricing is one thing, but it’s mercifully avoidable. A far worse problem is make-good pricing. This is the commercial equivalent of six Hail Marys and a bunch of Our Fathers, and it generally begins, as these things do, with a transgression on your part. You muck up some deliverable for your client, they get a little testy, you waive a fee here, discount a product there and the next thing you know, your little penance has become a permanent feature of your relationship that one side pretends it can’t see and the other is terrified to discuss. Kind of like poor topiary choices.

Another favourite way to get your shareholders to convert their investments into casino credits is to screw up your billing. I’m not talking about the over-billing, inaccurate statements or phantom invoices that any good 1947 billing software is capable of producing. I’m talking about a big old hole in the plumbing that makes a noise like “Ooops we forgot to charge you for that”.

I can’t begin to count the ways billing omissions happen, but the usual suspects have to do with poor customer set-up processes, sales people who are not entirely truthful and multiple systems that interface with the help of Hello Kitty bandages, string and damp paper towels.  This sad group is compounded by the human beings who, confronted with an invoice that doesn’t make sense or a billing report that doesn’t match an inventory report, do what most of us would do: hope it all goes away like an annoying guy at the gym.

Lords and Ladies of the Spin Cycle, we know that stuff doesn’t go away. We know that stuff festers and festers until it’s finally so expensive or the quarter is so behind plan that it actually becomes an attractive problem to solve.

The first to “discover” these things are usually the Hand-Wringers. There they are, out for their morning stroll, looking for all the improbable lawsuits, when all of a sudden there it is. A giant hole in the earth into which we are pouring revenue by not billing customers for things they are either using or at least contractually obligated to pay for. Some of them even smile when they figure it out.

But our Hand-Wringers are not the ones who need to go and get this money. Our Sales Squirrels are also not the people who need to go and get this money. Our Customer Abuse Departments are often the people who need to go and get this money, but somehow, it’s the marketing department that has conversations beginning with: “I know this really isn’t your thing, but we sure need help communicating with the clients…” That’s code for “get your ass to your desk and write up something that tells our customers they owe us a ton of money but that makes them feel good and doesn’t cause them to look very closely at our services and put it out to tender.”

Having fun yet?

It all feels so unfair while it’s happening but we need to admit that it’s kind of our fault, or at least that we have some responsibility, as P&L owners, to find and remove senseless assaults on revenue.

Happily, my experience suggests that in B2B Land, you can probably go out and recover most of this money without ending up with pitchfork-wielding customers at your doors. For your grandfathered pricing, it’s time to just suck it up and tell your customers the truth about how unsustainable that level of pricing is and to propose a plan that gradually brings them into line with what other customers pay. They’ll play along, if for no other reason than replacing you will cost even more and you’ve demonstrated goodwill and given them some predictability.

For the penitent pricing stuff, same thing applies. Assuming you’ve solved the issue that caused it all, it’s time to go and ask for absolution and present the plan to bring the pricing back in line. Remember to act contrite. Take a Sales Squirrel along; they’ll know what to say and probably don’t move as quickly as you do.

Where it’s just dumbness on your side, it’s a little harder but it’s also incredibly common. Go ask your Keebler Elves if they’ve ever received a letter from a supplier correcting an under-billing. I will bet they have a stack of them. And while it’s inconvenient, even Keebler Elves understand that if they are  obligated to pay for something and they have not been paying for it, then sooner or later someone will come to collect.

Now that we have a shiny new year to play with, I think all good marketers should dispatch some smart, expendable analyst into the customer billing system with a pith helmet and a price book.

Related Posts:

No Cookies for You
Time to Get Your Pricing House  in Order

BizMarketer is Elizabeth Williams
You can reach me at escwilliams@gmail.com
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