Presale Cost
Companies that deliver fixed-scope projects and custom services can count on higher profits from those services.
More custom services or project is more presale cost is spent to close the order and start delivery and billing.
Every company offering projects needs presale. Even staff augmentation services need some presale, at least at beginning of cooperation.
Presale activities are necessary and management of it is sometimes quite a headache for management. Specifically sticking to the presale expense plan and where the cost of those activities is located.
Presale activities require highly skilled and experienced personnel therefore they are expensive.
But the biggest issue is its planning and control or rather lack of it, which drives often cost overruns and therefore lower profit overall.
Here are 2 main models (from my experience) of how companies manage their presale cost. Both have pros and cons.
Let us discuss it.
Fixed Presale Resources
In this model, the presale activities are performed by a dedicated team, which over time formed as optimized presale resources.
Those resources are primarily dedicated to presale activities. They rarely but can still participate in billing services.
When is the best to have this model?
If You have continuously presale activities and or your offering is focused on specific solutions.
The PROs for this model are:
- It is a fixed cost (cost of the team) to an organization for presale activities – easy to plan and manage.
- The team can focus on presale not to be destructed by delivery (like coming milestone).
- It is a good place to group most experienced people, who do not necessarily want to work in projects anymore – as a career path strategy.
Presale activities are effective and focused.
" Presale activities are needed and management of it is sometimes quite a headache for management - sticking to cost plan and where the cost of those activities is located "
The CONs of the model are:
- It costs a lot as presale resources are often expensive, and every year there is pressure on this cost item in the planning process.
- Presale resources are rarely billable as they are working on presale. Even there will be an opportunity to sell the person is maybe not easy to convince that person.
- Over time presale resources have less and less practical ' hands-on' experience on projects and delivery.
Where is a team cost located? Quite often this is a separate team in a sales organization or outside delivery organization.
This way it does not disturb the delivery P&L. And projects performance can be measured more transparently.
Presale as part of the delivery
On the opposite side, there is a presale organized as part of delivery. In this model resources doing presale is used for delivery as well.
This is used when there are not that big presale activities over a year, or there are many different solutions so there is no one group that can support presale activities.
The PROs for this model are:
- Presale is planned as part of project or services delivery; it is calculated with final profit in mind.
- There is no big/visible cost component in organization P&L for presale
- The presale resources are close to customers and solutions as they are part of delivery.
The CONs of the model are:
- Resources on projects often don’t have time to do presale activities. It has to be often a decision that has higher priority now.
- Could be frustrated to resources to be part of presale and delivery at the same time.
- The cost of presale can be higher than expected, leading to lower profit.
- Management of presale may need a lot of small agreements between Partner / Account Manager and Project Manager
In this model cost of presale is part of the delivery team and often part of a specific customer delivery team.
In theory, this makes total financial cooperation with a customer possible to measure: is it profitable or not.
Final Conclusion
How to manage presale costs is not an easy topic. I have seen companies who switch presale management back and forth from year to year, never finding the best model for them.
Whichever model is selected there is always some blend of those two models.
What matters is where the cost of presale is located. In an organization as total or as part of projects, services (as part of P&L).
Regardless of the model, the visibility of presale activities is critical.
This is where automation tools like pricell.io can help to visualize the magnitude of presale activities.
