Taste The Bin Juice
For those of us in business-to-business world, there’s nothing quite like your long-term corporate client telling you the purchase decision is out of their hands, and is now in the sinister clutches of the procurement department.
So their corporate memory of those times you saved their ass from self-inflicted disaster has evaporated, replaced by cold benchmarking of you against a clutch of cut-price randoms.
The procurement people use all the right words. They promise to take a “holistic” view that values “quality and service metrics”, not just a brutal reverse auction down to the lowest, bottom-feeder price.
After due consideration of the 200-page document you prepared over nights and weekends, they choose: the lowest, bottom-feeder price.
I’m sure the Institute of Certified Procurers would argue with this, and could send me a raft of case studies where some company chose quality at a higher price to better meet their needs. But in 100% of my tendering experiences, and those of people I know, those procurers are down on all fours like raccoons, scratching down to the absolute bottom of the scraps bin, lickin’ up that tasty bin juice.
(Hi to the several nice, professional procurers I know, you do not drink bin juice but you know exactly who I’m talking about.)
Stop Saying Quality and Service. Focus On Risk.
It’s partly our own fault for letting our product fall into exactly the same decision category as ring binders and paper towels – apologies if you actually are in those fields. Those are seen as low-risk decisions, with no serious consequences if the product fails. And risk is at the core of being able to sell your stuff at a decent price.
Not quality. Not service. Business people love to talk of their quality and service. They honestly believe it, and it may even be true. The client doesn’t believe a damn word of it, thanks to the wild exaggerations of all the supplier sales people who have come before you. Corporate clients assume that all the competing suppliers are 100% the same.
Their motivation is risk. The art of selling, pitching and tendering is all about creating fear of the uncertain. If all your business is tendering on a level playing field, you will have a break-even business, forever. Unless you’re in fields like construction, where you tender at razor margins, then give the client a savage waterboarding on every slight variation.
To understand risk, you must be able to put yourself in the shoes of the client. Most suppliers are too close to their own product to do that. To use my own field of events and conferences as an example, suppliers always focus on the expense budget: the actual money spent on airfares, venues, food and beverage, AV and all the other items they juggle around the spreadsheet trying to meet the magic number.
And if the raccoons think they can get that number down another 2.5%, you’d better believe they will. Their bonus is riding on it.
What’s The Opportunity Cost?
But how much cash is actually at risk when they choose the cheapest supplier? Consider a two-day sales conference for 500 people. With travel, they’re out of the office for three days. Let’s be conservative and assume an average sales salary of $80,000. With on-costs, that’s about $60 per hour. Multiply that over three days and the client is spending $720,000 on salaries alone.
That’s the opportunity cost of the event, putting a value on all the things those staff aren’t doing because they’re in a ballroom being motivated. It’s quite a chunk of cash. Plenty can go wrong, and it’s a one-off event. There’s no “come back tomorrow, it’ll be all good then”. Miss that window and the client has burned north of a million dollars.
A bad batch of paper toweling procured on the cheap can be sent back to the distributor with little consequence. There are no documented instances of a company brought to its knees by paper towel failure (which sucks because I’d really like to write about it). An event? Keynote presentations can be killed stone dead with a chip failure in a single device, the sort of thing that happens around the office every day.
Even if nothing goes terribly wrong, an event that’s just drab and pedestrian means nobody’s behaviour will change as a result. If I was the client spending that much, I’d want them walking out of there punching the air with excitement after two days of inspirational thrills.
The client’s upper management care about these issues. The procurement department thinks you’re just scaremongering to jack up the price.
You Have More Competitors Than You Think
So it really helps to have a relationship with upper management. Then you can understand their real commercial motives. Follow the money trail. Find out how people get their bonuses. Ask your client to get you meetings with the people above them. It takes time, you can’t establish trust overnight, but it’s an essential long-term project.
Because in the example above, their goal isn’t a conference, it’s a fired-up sales team to shift more product. If they could spent the million dollars on increased commission payments, espresso machines in their stores, or incentive trips to Disneyland, any of those things might achieve the same result.
Those are your competitors as much as the companies that do the same thing as you.
If you can talk to upper management about higher-level strategic issues, you become more of an adviser than a sales hustler. You begin to understand their real risks better. So they’re far less likely to put the next decision through the procurers.
Upper management have the power to do a raccoon bypass if they really want to.
Big 4 Accounting Shows How It’s Done
This is why every service imaginable that generates chunky fees is now being vacuumed up by the Big Four accounting firms. They’ve now started to eat advertising and marketing, promising an accountable, businesslike alternative in a profession that terrifies clients with its madness and witchcraft.
They’ve managed to go direct to the boss across corporate and government. I’ve lost track of the number of people I know — expert consultants in advertising, project management, quantity surveying, construction, engineering, education and other fields — who have had corporate clients move their work to the Big Four.
Where those clients happily pay much higher fees for the work.
It’s a genius business model, and given the Big Four’s ability to sniff out heavy-fee opportunities, it’s only a matter of time before they come for the plumbers.
The Art Of The Deal
For some actual expertise (for once), I spoke to Cian Mcloughlin, whose company does win-loss analysis for major tech and telco tenders. He has actually witnessed a decent number of sales won by higher-priced bidders, “when they were able to draw a direct correlation back to their ability to manage and mitigate risk.”
His advice: every client likes different things. They have different ideas of what “value” is, and it might not be what you think it is. Take the time to get to know what those things are, and build your pitch around them.
“Then when procurement comes in swinging the axe, you can loop in your key sponsor and ask them which of those hard fought concessions they would like to remove in exchange for a 2.5% additional discount.”
Your client probably still wants all of the things, so you can negotiate on the basis that you’re the best option. And those raccoons can stay behind the wire where they belong.
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