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!

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2 comments ↓

#1 Bharat on 12.03.15 at 10:55 am

???? ??????????? ??????? ??????? ????????????? team player ?????????? ????????????????????? ??????? ?????????? ????????? ???????? ?? tlempeayar ????????? ???? ??????? ???? tlempeayar ???????????? ??? team ???? mentor ???? ? d ????? ? d ???????? ?????? ??????????? ????????? ??????? ?????? ???? ? ICAC ?????????????????? top ??? star players ???????????????????? ????????????? ???????????????? ??????? ??????? ??????????????????

#2 Fernando Santos on 12.21.16 at 5:08 pm

nice post! thanks for sharing
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