«www.businessweek.com» (BusinessWeek.com, Winter, 2006) is always tough. To do it right, you have to have a basic indication of what the client is willing to pay, and you’ve got to have data on the benefits the product will provide. But how do you do it if you’re starting from scratch? And how do you decide whether or not to lower a price you’ve already established when you find yourself in a competitive situation? Those are two of the most common pricing dilemmas facing entrepreneurs. In the examples below, I offer advice on how to handle them.

Pricing Dilemma No. 1: How to Price?

One of my consulting company’s clients, Company X, is getting ready to go to market with its first product. This robotic machine improves the lock manufacturing process, relieving a major «www.businessweek.com» (BusinessWeek.com, 4/23/07) for its users—a must for any business. Based on the studies Company X has done with one of its clients, the machine will save the client up to 75% (about $750,000) in one year. The client will need at least four machines. Company X has arbitrarily determined a price point of $140,000 per machine. It cost about $40,000 to make it. At this price, the client’s return on investment (ROI) period will be two months. Company X is leaving too much money on the table. It needs to up its price. But how does it justify the selling price?

1) Set client ROI standards. First of all, Company X shouldn’t say ROI is two months. That’s too short a period of time, and the client will be disappointed if the ROI ends up taking longer. X should double or triple the expected ROI period, as it is making three assumptions:

The client will use the machine in an optimal fashion immediately, which it likely won’t.

The client will do the training/read the manual—again, this is unlikely.

The client won’t have any staff turnover—it’s pretty likely there will be turnover. Better to under-promise, over-deliver.

When launching a new product, triple the anticipated ROI period if you expect it to be three months or less. Double it if you expect it to be four months or more. After a few client installations, you’ll have more accurate ROI data and can set expectations more appropriately.

2) Set pricing standards. I’d like to see a higher profit margin for Company X, because the estimated cost of building the machine likely doesn’t involve all the true costs of it, or cost of goods sold—such as the cost of the salesperson and office overhead. I like to price at five times the total cost of creation, or more on “hard” products. For “soft” products, such as information or training, I like to set the price at 10 times or more.

For Company X, instead of its arbitrary $140,000 price, I’d prefer a price of $200,000-plus (that’s five times the total cost of creation), with a limited offer of a lower price to get people to make a decision faster. Also, X could offer a “bundle” price—to buy one unit, it’s $180,000, while two units result in a 5% discount, and three to five units means a 10% discount. Also, everyone does love to price below an even number. So Company X could try $179,995 instead.

When you don’t have a basic indication of what the client is willing to pay or data on the product’s benefits, such as with a new product launch, set the price higher and offer a “special introductory price” that is 10% off the “real” price.

Pricing Dilemma No. 2: To Lowball or Not to Lowball?

Let’s say you’ve nailed your ROI and proper pricing, but you’re in a competitive situation. What do you do? Consider this scenario: Your company is in a heated selling bake-off. Your competition’s pricing is similar, but you have healthier profit margins. You know you can lowball and offer a price way under the competition. Should you do it? That depends. Here’s how to determine what to do.

1) Be aware of what differentiates your company from its competition.

RESPECTED architect Malcolm Fraser is drawing up new designs that would allow a Capital high school to be expanded on site.

Mr Fraser, whose daughter attends Boroughmuir High, has lent his support to parents campaigning for the school to be rebuilt.

Boroughmuir is one of five at the centre of a row between the city council and the Scottish Government over a bid for 100 million in funding.

Plans that would enable Boroughmuir High to be rebuilt on site would clear one of the few other remaining hurdles standing in the way of it being redeveloped and would put added pressure on the Scottish Government to find the money.

Until now, the council had believed it would have to find a new site for Boroughmuir as the land it is on was considered too small.

NHS Lothian’s Astley Ainslie Hospital and part of the Fountainbridge development had both been considered as new sites for Boroughmuir, but it is likely both would prove to be too expensive.

However, Mr Fraser who lives near the school in Viewforth, which his eldest daughter Issey, 13, attends, and his younger daughter Mhairi, ten, hopes to go, believes redeveloping on site is a distinct possibility and one parents would accept even if it means great upheaval for their children.

“Boroughmuir parents are aware finding a new site will be enormously difficult,” he said.

“There’s a realism and people are looking at the school site at the moment and seeing how it can be improved.

“We’ve talked to the council and had a good reception and also talked to politicians and had a good reception from them.

“There are several options that we could look at on the site.”

Mr Fraser, who looked at the buildings along with Neil Stewart, who is a Boroughmuir parent and a chartered surveyor, is now in the process of drawing up more detailed plans, although he was reluctant to go into specifics about his proposals before presenting them to parents and the council.

He acknowledged the main school block was “a very fine building”, which he would not want to alter externally, so any work is likely to involve the internal design or buildings on the outskirts.

Meanwhile, Polly Purvis, chairwoman of Boroughmuir High School Board, said the Darroch Education Centre, in Merchiston, could be used for any decampment of pupils while building took place.

St Thomas of Aquin’s pupils moved to Darroch before their new school was built in 2002.

Ms Purvis said: “A decampment is always problematic, particularly from the teachers’ point of view.

“We could move one half of the pupils at a time, and they would not be going miles across the city. For the parents there is a recognition that if you have more than one child attending the school they could have an association lasting 12 years, and each year it becomes less and less fit for purpose.”

A council spokeswoman said: “We are continuing to explore a number of different options for the redevelopment of Boroughmuir High School.

“Before any decisions are made we are awaiting the findings of a feasibility study which has recently started.”

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(Editor’s note: This is the first of three stories on the challenges and opportunities faced by the Homeland Security Dept. as it develops technology aimed at keeping the U.S. safe.)

It was a game of “catch me if you can” with the U.S. Border Patrol—and the guards couldn’t win. Just over a year ago, a man traveled by car along a stretch of Canadian road so close to the U.S. he could cross the border by hopping a roadside ditch. He stopped at what looked like an unmonitored area, left the car, and crossed over carrying simulated radioactive material in a red duffel bag. He walked several hundred feet into the U.S., returned to the Canadian side and waited 15 minutes for a response from law enforcement. None came.

The illegal crossing, carried out on Dec. 5, 2006, is one of three instances late last year when government investigators passed undetected into the U.S. from Canada, each time carrying packages that could have been, though weren’t, contraband. All were part of a U.S. Government Accountability Office investigation into security vulnerabilities in unmonitored areas of the American border.

The Homeland Security Dept. is responsible for keeping the country safe from such breaches, and it has been spending billions of dollars on information technology to accomplish that mission. But the department’s investments have come up well short of the country’s needs, according to a growing chorus of critics. When you talk about the Department of Homeland Security, its not only a loss of money but it may well be a loss of our national security interests if we dont have the work done that needs to be done, says Rep. Henry Waxman (D.-Calif.), chairman of the House Committee on Oversight & Government Reform. All told, some $3 billion in information technology contracts, accounting for 60% of the agency’s 2008 IT budget, are underperforming—whether because they’re behind schedule, over budget, or lack a qualified project manager or definable parameters. In dollar terms, Homeland Security accounts for about half of the troubled government IT projects tracked by the Office of Management & Budget, which helps prepare the federal budget.

Those findings are based on a BusinessWeek.com examination of federal budgets, Congressional testimony, and more than 1,000 pages of government and industry reports. They also are the result of interviews with more than three dozen company executives, congressional legislators, government watchdogs, academics, and current and former agency officials. Security Gaps Unaddressed

Critics point to an overdependence on outside contractors and a shortage of qualified program management and IT personnel at the department. Civilian shootings by «investing.businessweek.com» guards have shone a spotlight on the military’s reliance on contractors in Iraq, but the tendency is no less entrenched at Homeland Security, which became especially reliant on outside contractors in its haste to jump-start myriad projects in the aftermath of the September 11, 2001, terror attacks.

In many cases, contracts lack well-defined parameters and yardsticks for success, contractors are given too much leeway overseeing outside help, and many jobs are not put out for competitive bidding. The upshot: The U.S. does not yet have an effective technological means to secure the border between ports, can’t keep close tabs on people who overstay visas, and has not improved a flawed system for screening airline passengers against a no-fly list. “When these contracts go awry, it’s not just a question of millions of dollars or tens of millions or billions of dollars wasted, but it also means that the security gaps that those contracts are intended to address are left unaddressed,” says Clark Ervin, who was the agency’s Inspector General from January, 2003, to December, 2004.