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Here’s a great example showing just how much you lose when you discount services or consulting efforts.

Let’s assume you quote a job, fixed price, but calculated by estimating your time.   Here are some considerations you use in your quotation process:

1. Engineering rate: $150/ Hour.  (example rate).

2. Company’s published burden rate: $75/ Hr.

3. Hours estimated to do the job: 8 (one full day)

4. Total proposed price (Fixed Fee): $1200

5. Expected burden cost on the deal: $600

6. Expected gross profit (GP) on the deal: $600

So you put together your proposal and submit it to the client along with whatever products are to be installed.  The client looks at it and figures there’s no harm in asking for some discount.  “How about if we just go with $1000 even?”  Well,  that’s fair.  After all, it’s so close.

Assuming your engineer does complete the work in 8 hours, the client get’s billed $1000.

Looking at the numbers more closely:  That is about 17% off.  Not a huge discount, so you’re not worried.  However, let’s look at the GP discount:

Your fee: $1000

Actual burden cost: 8 X $75 = $600  (Same as above)

Realized GP: $400

Whoa, you gave away $200 right off the bottom line.  That’s a 33.33% discount which is about twice the discount you thought your were giving!  No wonder the numbers don’t work at year end…

© 2010, Dave Stelzl

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Twelve things that define a consultative sales person

1. They improve the client’s position – a business level improvement.

2. Product is never the business driver; it is simply a tool being used in the improvement process.

3. Money is not at the center of negotiations, likelihood of successful improvement is.

4. Discovery is an integral part of the selling process; fees are not quoted until the project is understood.

5. The discovery process involves both technical and business people, and the sales person is intimately involved with each business discovery meeting.

6. The primary targets involve people who have predictable needs, not those shopping for widgets.

7. The projects show specific improvements in operational efficiency, risk levels, competitive advantage, or return on investment.  They are measureable and understood before the project is sold.

8. High-end consultants and engineers are part of the delivery process.

9. Projects are sold with a scope of work, not quoted as a line item with an associated discount.

10. They consider business people to be their peers, not IT.

11. They are continually learning, investing time in reading, and attending educational offerings.

12. They differentiate their offerings with intellectual capital, not discounts.

© 2010, David Stelzl

Sometimes calling high (meeting with CIOs), works out and you get the deal. Other times they make you feel stupid and treat you like dirt.  When this happens, remember:

  • You are a profit center (if you are in sales), they are a cost center – overhead
  • You get paid on commission, generally commensurate with the work you put in
  • They are reliant on circumstances largely out of their reach, to make their bonus
  • If they display this type of inhumanity toward you as a sales rep, they probably have a handful of friends that only stay around for the perks.

Present your best face, constantly be a source of enthusiasm, and demonstrate genuine gratefulness for the position you hold, your mission to help others make wise buying decisions, and the opportunity for character development.

© David Stelzl, 2010

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