Entries Tagged 'Negotiation' ↓

One sales question isn’t enough

sales-questionsWe’re all taught in Sales 101 to ask ourselves “Why would our prospect buy this product/service?” I’m here to tell you that this question is only the tip of the iceberg and if you leave it at this you’re only doing your competition a favor.

I can’t lay claim to the two follow up question that I’m going to put here, but I can’t quite remember the exact sales source either – I think it might have been from the SalesRoundup show. At any rate the follow up sales questions to ask yourself are:

  1. Why would they buy this product or service right now? and
  2. Why would they buy it from you?

By understanding why they need it right now you really get at their painful needs and can better control the pending sales negotiation.  And you certainly need to know why they would buy from you and not your competition … so that you can educate them on this very matter.

Don’t move in even percentages

sales-percentageYou’re about to close a deal with an enormous company and the buyer tells you that the $100/widget price must come down if the deal is to go through.

You’ve let your sales funnel dry up and you need this deal to make the quarter.  Without hesitation, you drop to $95 (5%) and assume the deal will go through.

Ah, but what does the buyer see?  He sees that you just took a seemingly arbitrary 5% off your price – quite an arbitrary amount don’t you think?  If you had 5% to give up, you probably have 7%.  So the buyer waits two or three days and says that the deal is yours if you just back your price back an extra 2%.  Deal done.

Now imagine you cut your price from $100 to $98.35 instead of the round $95, what is this message saying to the buyer?  Well, it says that you don’t have much room to move at all, and there isn’t much margin to give up.  The buyer comes back demanding an even $98 and you’re still $3 ahead of where you were in the first scenario and everyone’s sales ego remains intact.

Bottom line: don’t telegraph that you have excessive sales margin by moving your price in predictable amounts.

Playing hard to get marketing

Hard to get marketingPlaying hard to get is an accepted, and effective, way to lure a potential mate into a relationship – so why not apply it to your selling strategy.

I first picked up the subject several years ago from an article in the Harvard Business Review, I think they called it “retro marketing”. It essentially means that you lay out what you have and then revert to a take-it or leave-it attitude with your prospect.

I’ve come to rely on this sales approach rather heavily over the years and will lay out a hard example in the next post, but the main ideas follow:

  • being hard to get doesn’t imply that you can be arrogant
  • you need to have the best quality and customer service to pull this sales strategy off
  • you need to be prepared to walk away from any deal you try this on
  • you need to believe that your proposed solution is the best solution for your client
  • you (might) need your boss’s agreement to deploy this strategy
  • you need to understand your competitors offerings before trying this

The main point is to be careful, because once you put this idea out there, it’s tough to claw back to another starting point and alternative strategy.  The idea is to extract what your solution is worth and to keep your prospect’s best interest at heart – that can be a fine line to walk.

The next post will have a real world example of this strategy in action.

Dealing with purchasing agents

Here’s the scenario – I’m dealing with a major company selling a certain widget to them. This widget is quite difficult to make and we went through a six-month prototype/approval sales process with them. We agreed on pricing and delivery and got the order, along with their terms and conditions – therein lies the problem.

These T&C’s were so onerous that I couldn’t even pass them up the line for review. There were clauses in there that stated that they own any IP used on the project (even if you invented it 5-years ago), production couldn’t stop for price adjustments even though they had the right to refuse shipment at any time for any reason, and the list goes on and on.

I was on the line with the purchasing agent and she finally gets disgusted with me and blurts out that they already let a purchase order out to a competing firm. Now, I’m pretty good at doing my sales homework, so I know that the engineers haven’t talked to anyone else for at least five-months. I hide that knowledge and graciously accept her statement and tell her that I hope we can work together in the future.

I hang up the phone and immediately send an email to my three main engineering contacts wishing them luck with their new supplier and I wish them luck bringing their ambitious schedule in on time. This is no exaggeration – by the end of the day, there were over a dozen emails sent to me and the buyer asking how this was possible and saying that I’m the only supplier and finding another one will take several months and ruin their program, and on and on.

The buyer called me the next day and said that she misunderstood what was going on and she is now willing to work with me on the T&C’s. I of course was a gentleman and thanked her for her consideration and we’re now moving forward.

Bottom Line: Make sure that you are detached enough from your deals so that you can play the ‘walk away’ card when you think it’s appropriate. If this was the only deal in my pipeline, I probably wouldn’t have been as brave (stupid?) and might have caved in on some of the key terms of the deal.

Don’t argue with clients

Arguing with customersMike Smith had a great post last week called “5 Reasons Why Arguing with Unruly Clients Will Get You Nowhere“. While most of the work is directed at Internet workers, I’d say that he’s just about right on the spot even in complex engineering sales.

The main point is that it wastes time and typically doesn’t gain you any money. You have to be selective in who your customers are. Any time you spend with a certain customer is time away from another potential customer.

So ask yourself if you’re better off bickering with a jerk in a losing situation or spending that hour calling up a customer that you’ve lost touch with over the years – should be a pretty easy call.

Try this, “Well Mr. Prospect, it seems pretty clear to me that your business would be better off not dealing with us, perhaps we’ll have a chance to work together in the future.”

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 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.

Negotiating With the Bean Counters

This post focuses on dealing with the business and financial people in your prospective company (i.e. the bean counters). You’ve been working with the key technical people all along by following the preceding posts in this series. Those technical contacts helped you get your foot in the door and develop a practical and affordable solution and accepted your proposal the day it was delivered. But they seem to always lose their clout at this layer in the sales funnel to the powers that be.

Negotiation layer of the sales funnel

No matter how hard you work to uncover all the right people in the buying process up front, a bean counter always seems to slither in on you at the last minute. You go from the euphoric high of getting ready to close a major deal, to the basement low of realizing you might have to start over from scratch again.

The problem here isn’t the bean counters per-se. Rather the problem is what they seem to stand for. They typically don’t care how technically eloquent your solution is. Their measure of success is simple. They’ll tell you ROI this and ROA that and payback this and lifetime costs that. But I’m convinced that they get rewarded by a more basic and simple formula.

quoted price – negotiated price = saved dollars

They want to be able to tell their bosses that they “saved” the company $25,000 on this deal. And they did it by beating down their supplier; not by re-scoping the statement of work – that would be way too much work.

Negotiation Tactics

Negotiation by itself is not a dirty word. In fact it’s a necessary part to any healthy relationship. I often negotiate with my wife about where to eat dinner on Friday night – although I never seem to win that one.

I’m going to break up the strategies based upon where you are in the sales cycle even if some of the strategies get repeated for different cycles. This way you’ll know the most appropriate time to use them.

Sales Cycle Scenario 1: Bean counter is in the technical meetings

This is really the best situation and what I preach is to integrate the bean counters into the mix from the very beginning. This way they will be educated in the economics of the situation along with everyone else. You will get less overall resistance and greatly compress your selling cycle.

The advantages to this strategy are numerous; unfortunately it can be difficult and time consuming to pull off. Here are a few of the pluses to working this strategy.

  • The buyer can voice incremental cost concerns as the solution is developed and you can deal with them piecemeal.

  • You can educate the buyer on the economical and technical repercussions of each decision point along the way. The beauty of this is that you will lay out the technical consequences to the buyer in front of the engineers.

The engineers will suddenly become your ally and fight to keep the best technical solution, regardless of the cost.

  • With the engineers fighting on your side, you can revert to a more humble and helpful role that only wants to do what’s best for their company. After the engineers pitch their case and things quite down, look directly at the buyer – and only at the buyer and ask, “I’m glad this discussion came up now rather than later. The original solution is certainly the best and what I would recommend, but if you can get away without that level of quality/service/purity we can work toward a cheaper alternative. How would you suggest we proceed?”

  • Finally, there won’t be much to negotiate at the end. You and the buyer have been keeping a tally of all the associated costs along the way, now you just have to sum them up. How can they argue with that? They can’t.

Sales Cycle Scenario 2: Bean counter is brought in at the end to negotiate price

This is the more typical scenario that you’ll find yourself in. You’ll work with the engineers and come up with a smashingly good technical proposal that will “sail through procurement” only to get a call saying that “there’s been a snag in the purchasing department, can you come in for a visit?”

There are a few things that you can do beforehand to better prepare yourself.

  1. Call your high-level engineering contact and do some detective work. Does she know what the situation is? If it’s price, what technical features are most important to her so that you’ll know what features you need to keep in the proposal? Can she join you in the meeting? Is this typically done? Has anything changed since the last time you spoke to her?

  2. Call the buyer a few days before the meeting and ask what specifically they want to cover. Try to ask a few specific questions about your proposal. Your goal here is to see if they’ve even read it. Many times, they haven’t. That’s killer information that means this is just a typical negotiating step and you can play hard ball.

  3. They will most likely try to make you break up your proposal into line items so they know exactly what everything costs. This is a pain in the butt to do and you can fight it to some extent. “I can’t really do that because this price is based on our costs of doing all the items in one project. If things need to be broken out in a menu fashion, it will substantially add to the overall costs and it will take me some time to put that together. What portion of the proposal seems to be causing you trouble?” Even with that, make sure that you know the line item costs relative to the overall project costs. If there is something that they deem unnecessary, know what that would do to the price and delivery schedule – as well as its impact on the technical merit of the project.

  4. Research your competition. If you don’t already know, find out how your product or service is superior to the competition. Don’t ever bash them, but concentrate the talks on areas where you know you are strong.

  5. Role play the meeting with someone at your organization. Have them play hardball and ask you difficult and even unfair questions.

  6. After the meeting, update your engineering contact with exactly what happened and what the consequences of that meeting will be.

The main strategy to follow here again isn’t much of a tactic at all. You simply need to have a conversation with the buyer and take their temperature. What are his main concerns? Get them all out on the table – don’t let him talk about each one individually. Start the bulk of the meeting off with:

“Can we please list all of your concerns out on the whiteboard? [physically walk up there right now] I’ve found that getting everything out in the open from the start will let us both focus better on moving this program forward.”

You then want to make them rate their issues in order of importance. You should know your rating scale also, but keep that to yourself for now.

What did we just do here? We took about 70% of the negotiation tactics that a buyer can use against you off of the table.

The white board issue strategy really is a great way to take back control of what can be a sticky situation.

Sales Cycle Scenario 3: Secret bean counter is a surprise near the end of the negotiation

I consider this negotiating in bad faith, and I’m not afraid to tell them that if things get hairy. What usually happens is that you’ll get your deal worked through engineering and the identified bean counter. Everyone seems happy. Engineering is excited to get going and the bean counter seems relieved that he can move on. And then all hell breaks loose.

The mystery man comes into the picture, usually two days after you think the deal is going to close, and says that they can’t come up with the money and if you want the work, you need to drop your price by 5%.

And my response: “Mr. Mystery Man, I certainly wish you would have been in all our previous meetings to voice your concerns. I have a few problems with your new position. First, I was negotiating in good faith and offered the lowest possible price to your company that makes this business possible for my company to accept. And secondly, your seemingly arbitrary 5% discount certainly implies that I have excess margin built into the price. I can assure you that our price is based on cost and not excessive margins. If my final proposal is not acceptable, I’m afraid we’ll have to walk away from the business.”

Sales Cycle Scenario 4: Bean counters beating you up at an annual review

This is quite common when dealing with large companies. They will meet with you on an annual basis and tell you that you need to decrease your costs by 5% or you risk losing their business.

There are two ways to go here. The first way, which you might expect me to recommend, is to tell them to shove off and that you not raising prices is actually like you decreasing prices because you didn’t adjust your prices for inflation. I’ve gone as far as graphing consumer price index (CPI) data against my historic prices to show that my prices have effectively fallen over the past few years. The problem is that while this sounds good on the surface, it hardly ever works. People just don’t buy it. So that’s why I don’t do it much anymore – although there are certain times it can be effective.

A second and usually more effective strategy is to anticipate this situation (do your homework and find out if they do it to other vendors) and build a case over the year to hold in your quiver for your annual meeting. During the year offer the buyer that you’re dealing with possible ways to reduce costs. There are always ways to do this, even if it means purchasing capital equipment.

I struggled with how best to write this strategy up. I’m afraid that in reading this you will think that it’s high level talk and not useful or practical. I work quite hard to make sure that my strategies are practical and can be implemented tomorrow. The feedback I’m getting from folks is that they don’t have these types of cost savings. I can tell you that in 100% of those cases that we explored further, we were able to identify numerous cost savings and put together a very effective summary document to take to the annual meeting. Specific examples can be found in the accompanying article to this post.

At any rate, once you have your litany of cost saving suggestions listed, put together a professional summary document to take with you to the meeting. Never send it ahead of time; you need the element of surprise here.