Entries from April 2008 ↓

Managing your customer’s business

Customer sales managementDon’t ever forget that your customers are juggling many business issues that you aren’t privy to. It can be tempting to scream at them because they aren’t doing the logical thing – from your point of view anyway.

For this example imagine that you sell raw material, say plastic pellets, to a company that makes plastic injection molding machines. They buy relatively small quantities, because they don’t manufacture parts in production. Their business plan is to sell machines to industry and allow them to make the parts. So your target here is their customer base, but they are difficult to account for and reach.

On the surface, this might not sound like a set up for a recycling sales example. What you need to realize here, however, is that getting recycled sales with your machine maker friend is orders of magnitude easier than tracking down all their customers and selling to and servicing them on a continuous basis.

So how would you handle this situation?

The Idea

Your idea is to sell large quantities of plastic pellets to the machine maker and have them turn around and directly supply the material to all their customers. Both you and your customer get a cut and you’ve helped your customer create a predictable and repeatable revenue stream. They no longer have to wait for a huge cash windfall from selling a million dollar machine a few times per quarter. They can now count on all their customers ordering raw materials direct with a steady cash flow.

You would not know that your customer has issues with holding out for a big sale and then stocking that money away in case the next machine has a delivery problem, if you weren’t so engrained in their organization. They trust you and value your input to solve their most pressing problems. And that’s what you’re going to do.

The Idea in Action

Assuming that you’ve built a strong level of trust with your machine maker customer, call them on the phone and ask for a visit to discuss “uncovering new growth and business opportunities.”

They will ask exactly what you have in mind and you can reply, “Well, we’ve been trying to think of ways to try to create more repeatable and predictable revenue streams for our company and one idea is to distribute our pellets through you directly to your customers. Of course, you’d get a markup on every pound sold – it would probably make a nice complimentary line to your machine sales. Your customers get the satisfaction of knowing that they have a reliable source of quality raw material at their fingertips.”

Hmm, that actually does sound like a good idea – I think we’ve talked about this before.

“That’s great to hear. Do you think we should tie in anyone else at this time? Since I’ll be flying out there and spending a few days, I think maybe we could nail an agreement down on the spot if your upper management could be involved.”

OK, let me set something up.

Do you see what just happened here? You went inside your customer’s business and saw an opportunity for a better business model and acted on that idea. You had your customer’s best interest at heart and found a way to increase their bottom line – and yours in the process.

If you do get invited, be ready to close and sign an agreement because they are obviously interested. So you’d have to do your homework and get the correct level of authority to give you a range of circumstances in which you have the freedom to sign the company up for a binding agreement. You don’t want to get into a situation where at the end of the day, they sign up and you have to say that you’ll take it back to your boss for review.

Example purchase order

In our last post we provided an example of a simple email sales quotation that you might send a prospect. In this post we’re going to review the hypothetical purchase order (PO) that came in response to that quote. Click on the below thumbnail to open up the PO.

Sample purchase order

Now what’s wrong with this PO? A quick look reveals two discrepancies with your quotation.

  1. The delivery date is two weeks after receipt of order instead of your stated four week delivery. Typically this can be explained by the fact that the engineer gave the correct delivery data to the purchasing agent and it just took two weeks to actually get through purchasing. If you can’t physically handle this delivery, you need to call purchasing and your engineering contact and get this fixed.
  2. You quoted your per unit price of $100 based on an order of 25 widgets. Your customer only ordered 10, but kept the same per unit price. If they are well qualified and you think that there may be future fruitful business, I would recommend ignoring this issue and simply fulfilling the order.

Example sales quotation

For all the sales talk that we’ve been doing, I realized that we’ve never shown an example of a simple sales quote. So here is an opportunity to purchase an example of a short quote that you might email someone. I’m a big fan of emailing quotes out to prospects rather than faxing – it’s the fastest way to fill up the sales funnel.

Please CLICK HERE to download a sample sales quotation for you to use as a template in your sales efforts.

Pretty straightforward. Our next post, however, will analyze the resulting purchase order (PO) and give tips on what to look for when you get it.

UPDATE: This example sales quote post is by far our most popular, if you want to learn more, visit our products page and purchase the 74 page eBook.

Example sales call

Sales callFor this example, let’s use an engineer salesman pitching a new stronger and lighter material than steel and he is focusing on landing a major aerospace account to kick the business off. The sections follow the list of questions from the post “Ask the right sales questions“.

Sales questions to ask yourself

  • Why would they ever accept a call from me?
    They are interested in using lighter materials to save weight in the airframes. Less weight means less fuel costs and more payload capacity.
  • Is my solution the best choice for them?
    Don’t know for sure at this point, but it certainly seems so.
  • Do I have high intent here?
    Absolutely, we could both benefit if this works out.

Sales questions to ask your prospect after cold call but before sit down meeting

Me: Hi Sally, I was hoping that you’d have a few minutes to talk about our upcoming meeting. I just want to make sure that I cover some of the high-level topics that you’re expecting me to cover. So what would be say the three key topics that you want to make sure I cover?

Prospect: Well, we really want to see property data showing how your material stacks up against what we’re currently using. Another important point would be price, we have to justify any cost increases with corporate, so we need to give them a heads up early in the process. Thirdly would be your ability to keep up with our production needs.

Me: Fantastic, you mention mechanical data, what properties most interest you and do you have any minimum values.

Prospect: Our main concern is tensile strength and low cycle fatigue properties and the minimum values are X and X.

Me: OK, sounds good so far, you also mentioned a cost justification – I’d like to start providing you with that information right from the start. Can you tell me a little about how you measure costs and what they typically are?

Prospect: We say that we only care about life cycle costs, but the initial purchase price is what really drives our purchasing decision.

Me: Hmm, I doubt that we’ll be competitive when the initial purchase price is the main purchase discriminator. Is there someone in your organization that we could invite to this meeting that could help explain how we could better position our life cycle cost advantages.

Prospect: I’ll ask our CFO to sit in.

Me: Alright, you also mentioned a concern about our production capacity. Valid concern. Do you have a feel for what your annual demand would be?

Prospect: We use about 10-tons of material and that should stay steady for at least the next five years.

Me: Well, as you know we’re a small company, but I think I’ll be able to adequately convince you that we won’t let you down when delivery time comes. Perhaps later in this process you and your team could stop in for a tour of our facility.

Me: I don’t want to take up much more of your time. Is there anything you think I should have asked you or anything else that you’d like me to prepare before our meeting?

Prospect: No, I think we’ve pretty much covered everything.

Again, I could go on and on with this example, but I think the main point should get across. You are feeding off of your prospect’s previous answers to fuel your follow up questions. Your goal is to understand their technical and business issues at least as well as they do.

Satisfying cost reduction requirements

Cost reductionsIn a previous post on sales negotiation, I talked about dealing with the annual drudgery of meeting with your whale accounts and ponying up the demanded cost reductions. I got a few emails asking for more details on possible cost reductions – so here they are. Follow these and keep the whale accounts flowing out of your sales funnel.

What irks me most about these demands is that they are typically totally arbitrary. “We want a 5% annual discount!” Where did that 5% come from. Anyway, we went into details in the previous post, so all we need to do here is list the cost savings. As I mentioned, a lot of clients complain that they don’t have the cost savings to give up; and I argued that we never failed to find them – here’s some of the detail of that.

It’s difficult to give generalized statements here, but cost reductions can include:

  • getting them to agree to a lesser quality standard that you know would still be acceptable to their customers,
  • acquiring larger overall purchases from them to take advantage of economies of scale,
  • having them give less orders per year in favor of fewer larger orders, this can save on tooling switches, handling, etc.,
  • getting them to make slight product or design changes so that manufacturing costs can be reduced, or
  • having them agree to allow less quality studies if your quality has been stellar; in other words if you experienced a 1 in 100,000 failure rate over the last five years and you’re pulling 1 in every 5 widgets off the assembly line to test, that’s an unnecessary expense.

Now you need to be strategic as to how you present these to your buyer, but that can be different for each situation.

I’m up for a challenge if you think you don’t have cost savings – let me know!

Example sales scenario

Knowledge is powerThere are so many purchasing scenarios that it might seem difficult to choose a representative example. If you really look at this layer, however, the steps don’t really change much regardless of if you’re selling chewing gum to Wal-Mart or heating shields to NASA.

Setting the stage for this example requires you to picture yourself as a raw material provider to a medium size business that is making a lot of money by turning your material into finished goods. You have competition, but your two advantages are that you are the only domestic source and your quality is second to none. Your weaknesses on the other hand are price, and lead-time.

Based on all your work up to this point, you know that they really want a domestic source for this product and it might even become mandatory in the future. They like your quality, but others are also acceptable. You need to work on lead-time, and then there’s the price issue to deal with.

You go in with your zero-surprise proposal and go over it in detail with your contact Sally. No surprises are found and she assures you that it will fly through procurement and you should see an order in about a week.

A week passes by.

Another week, still nothing, but you don’t want seem desperate, so you don’t call.

Finally on the third week you call Sally and she doesn’t even know where it’s at in the process. Perhaps you should have scheduled a call two weeks ago. At any rate, she checks into it and Jack the CFO has it. You’ve never met or even heard of Jack, but he now controls your destiny. You ask Sally for permission to call on Jack and she gives you his number.

“Jack, this is Eric on the line. I’m calling to check and see if you have any questions on our proposal.” To be honest Eric, it isn’t that big of a priority to us right now and I haven’t even looked at it. “Oh, I see. I must have misunderstood Sally; I thought you needed this material delivered by the end of next month in order for you to win the GE account?”

Complete silence…how could you possibly know that!!!

As the oft quoted saying goes – knowledge is power.

Jack thought he had the upper hand because you’ve never met him and he has a big scary title. But if you did your homework, you have the leverage because he doesn’t know exactly how much you know.

“Jack, are you still there?” Uh, yes. Well would you be willing to come in next week to present your best and final offer.

Oh how the winds of desperation have shifted.

You now have the leverage, don’t give it up. You are providing a valuable service and helping your prospect get a large amount of business and deserve to be properly remunerated for it.

Example Whiteboard Sales Negotiation

Whiteboard sales strategyAs mentioned in the general post on sales negotiation, keeping your sales funnel full depends on a continuous flow of successful negotiations with engineers and their buyers.

A quick example of the whiteboard strategy follows. The scene is that your buyer just said they want to negotiate your proposal and you walked up to the whiteboard to list out the issues and had them rank them in order of importance – you secretly know your own rankings.

whiteboard5.png

Looking at the relative ratings reveals instant compromises that can be made to move the sale along quickly. For instance, it appears that you might be able to offer holding a certain level of their inventory on consignment if the price could be increased by just 0.2%. Also, you might be able to work in a second shift to expedite lead times if their minimum order levels are raised 10%.

See how it works? You simply exchange what’s important to you for what’s important to them. It’s all done in good faith, but I like to keep my ratings secret to have a little extra leverage.

The final proposal – best and final offer

Befriending your buyerIn our last post, we talked about how your customer might bring in the big guns with Jack, and how you can mitigate that situation. Now that you’ve dealt with Jack, we’re most likely back to the original team, possibly with jack as an observer. You will probably be asked to come in for a final proposal with your “best and final offer.” Translation: “You better discount your price if you want our business.”

What happened to all the camaraderie that you built up with everyone? It’s out the window for now my friend. But don’t fret, after slushing through this process, your relationship will be right back on track – business is business after all.

At any rate, oblige them and go in for a presentation. Only we’re going to do it with a twist. All of your competitors are going to offer a price break and have a professional presentation bragging about how many divisions and people they have and showing all their glorious equipment with pictures taken at least ten years ago. You’re going to do something quite different.

Your sales presentation, in contrast, is going to be professional but understated. Your presentation is going to focus on what could go wrong during and after the project.

What? This probably goes against every fiber in your being. You should be boasting about how big and great you are and how happy they will feel with you. Why would you want to bring them down with a dreary presentation about everything that could go wrong? Because:

While you’re thinking of how great it will be to receive all that money, your prospect is thinking of how much she is sticking her neck out by spending all that money.

Put yourself in her shoes (and take off yours first). She has probably had nightmares about all the things that could go wrong and doesn’t want to talk about them. Ignoring them and hoping that they won’t happen is much easier than fleshing them out and dealing with them. But by you bringing them up and confidently displaying how you would deal with each situation, you will show experience and, more importantly, competence.

You can close with, “And as fro the best and final offer, that really what we originally presented to you. If you need me to shave 0.5% off to close the deal I can probably do that, but we came in with that offer to win this business and solve your needs, so we don’t really have any wiggle room.” Again, remember that anything you give up here will be the defacto norm for all future dealings with this company.

I once told a bully buyer that instead of honestly quoting work in the future, I would quote it higher so that I could subsequently discount it and make it look like he was doing his job. He promptly kicked me out. I’m now often welcomed back – and he’s not.

Evaluating your sales solution

Tough sales negotiatingIn “Positioning Your Proposal” we reviewed the basic steps on how to make sure that your prospect and you were on the same page in terms of your proposed sales solution. While that all sounds fine and dandy, Sally (the engineer) and her buyer may only be the beginning of the chain of command that you need to wade through.

Oftentimes, in larger companies, they will bring in a ringer at this point in the sales process. You’ve never met this person and have never even heard of their name. They will be brought in “because we are placing a lot of emphasis on the project and Jack has a lot of experience in this field.” Translation: “Jack is here to kick your butt until you give up some margin!”

I don’t want to get into too many negotiation tactics here, that is for the “Negotiating With the Bean Counters” series, but the above tactic is so common that it’s worth mentioning here. At any rate, you just tell Jack that you are happy to meet him and you wish that you have been able to fold him into the mix earlier on and that you’d be happy to answer any questions that Sally wasn’t able to handle.

You see Jack is used to people rolling over because they aren’t prepared and don’t have internal buy-in like you do. When you push back ever so lightly, Jack will usually drop it because there is much more low hanging fruit elsewhere that he can go after.

Remember that once you give something up in the buying process, they will expect to get that every time – forever.