Attack of the Scope and Margin Creep

Margin Creep, Scope Creep, Scope of Work, SOW
August 17, 2017

scope & margin creepIt comes from out of nowhere. One minute your team is closing deals and you’re on top of the world. But you still have to deliver on what was sold. Next thing you know your implementation team is going crazy, your customers are constantly reaching out to you, and your sales margins are almost non-existent. Looks like you’ve been struck by the twin terrors: scope and margin creep.

It might be difficult to tell if you’ve been hit by scope and margin creep. You may notice that you’re having some of these issues but not directly correlate them to scope or margin creep.

We’ve put together five indicators that your scope of work is out of control and your margins are shrinking.

1. Implementation is a Nightmare

There are some common signs of scope and margin creep that you need to watch out for. One such sign is constant issues during the implementation phase. If there’s confusion between you, the customer, your engineers and your implementation team about what is and is not included in the project, you’re going to see some scope or margin creep. Either something critical was overlooked (i.e. infrastructure updates), ancillary technology that the customer assumed would be included or the project is more complicated and requires more time from your team. So you either charge your customers for the additional requirements, which could lead to a customer satisfaction problem or you eat the costs and watch your profit margins die a slow and painful death. It’s not good either way. The final problem is having a project that simply cannot close. Even if your customer is paying for the continued work, this is far from ideal. Happy customers, the kind that refer your business to others, are the kind with projects that close on time and on budget.

Discover how Cors Pro saved one customer over $100,000 in margin[read more]

2. The Solution Doesn’t Fit

Once the project is implemented and (hopefully) finished, the next sign you’re having scope creep issues is that the solution never does fit the organization’s needs. If you’re constantly getting calls that something isn’t working as anticipated or there are frequent issues with the technology, it means that solution may have been a bad fit for the organization. Your support team is flooded with tickets on a daily or weekly basis (almost to the point that they have difficulty helping your other clients) and the customer is constantly frustrated with having to submit tickets. Because if it doesn’t fit, you can bet your bottom dollar that your project scope is going to expand and your profit margins are going to shrink.

3. Your Customer Didn’t Understand What Is and Is Not Included

We’ve said this before but it bears repeating: telling your customer what is NOT included in your proposal is almost as important as telling them what is included. If you don’t specify, you run the risk of getting calls about ancillary products and services, putting you in the uncomfortable position of either adding to the price tag or losing money on the deal. Either way, your customer will probably be unhappy. It might even feel to them like you’re trying to pull a bait and switch. Then there’s the lost time you will experience going back and forth between implementation, engineers, and the customer. This is why it’s so vital for you to document what you’re selling from a functionality standpoint and mention clearly if anything they might need is not included. This will help your customer understand what you’re selling, what it does and what they might need to purchase in addition to the core solution for best results and saving the technicians from having to take the heat during and after installation. [Discover how we did it for a customer just like you.]

4. Your Profit Margins are Non-Existent
This is an obvious sign of margin creep: you don’t have profit margins that are sustainable or adequate. This is different from not closing enough business. The areas to watch for margin creep are in implementation and customer service areas as well as repeat business or monthly recurring revenue services. Some organizations are even tying commission payouts for sales managers to profit margins. And it doesn’t take much for your margins to go down the tubes. With the large technology solutions you’re implementing, even a couple of misquoted deals can mean hundreds of thousands of dollars in lost revenue. On the flip side, if you don’t eat those costs and you pass them back to the customer, you risk your long-term relationship with them. It’s not a good deal any way you look at it.

5. Deals Don’t Close

The only thing worse than scope or margin creep is not getting the deal at all. Sometimes you lose deals because you didn’t catch something on the first proposal, quote or scope of work. You then have to go back and add it in, changing the price of your bid and losing credibility in the process. Your customers will ultimately become confused with the process and how these items seem to keep being tacked on to your quote, and they’ll work with another solution provider. Remember: the more confused your customer is, the smaller the likelihood that the deal will close. Then you’re stuck in a constant state of confusion with your engineers, implementation team, your customer service and the sales reps. It’s a very fine line between having adequate information and being overwhelming to your audience. Once that happens, your customer is very likely to work with someone else.

Avoid an Attack of the Scope and Margin Creep

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