Archives For purchasing

My first exposure to buying timeshare investment properties started with a free trip to the Carolina shore, and an overnight stay at one of their properties, with a tour of possible investment properties to follow.  It started with a call most of you have received – a special offer for a free overnight stay at one of your choice locations.  They had to know right then and there on the phone, no time for thinking about it or checking with past buyers.  When we arrived, the tour involved one of their vacation properties, but the overnight stay was in a run down hotel down the street – surprise!  In the morning, they loaded us up for the tour and headed down to the properties; timeshares for sale.  I have to admit, the properties were nice, but at the time I was not in a position to buy.  As we drove around, the person driving would make announcements about properties that had been sold.  It was like they were disappearing before our eyes.  Then, when the tour ended, we were ushered in to a room with a high pressure sales person with an assumptive close.  Again, the pressure was strong and most of the selling directed to my wife.  They wanted me to feel guilt for not buying, and needed a commitment right then and there to get the deal.  Timelines have been used for centuries to press people into buying – often leading to poor buying decisions.   What happens when this same tactic is used by purchasing?

The Strategy

You, the seller, receive a last minute call.  Budget is available, but only so much and it must be spent today.  The buyer has in mind a specific need, and offers you the money.  The only question is, can you do the deal?  This sort of timeline pressure places tremendous pressure on the seller.  In fact, on a coaching call today, my client related a story about a sale he recently made where he left out software licenses on the product portion of the deal, all because of a short timeline.  In another case, one of my clients quoted a deal at his cost by accident.  These are common errors, made simply because the client was in a rush.  The most common mistake I see is where the sales person takes the offered amount, and assumes they can make the project work.  It’s an easy close, so they are willing to take the risk.  In the end, the deal turns out to be non-profit.

Counter Strategy

First, hasty decisions rarely turn out in your favor, so avoid them.  If a client has money to spend, don’t go with their initial proposed scope, but rather build your own.  If the client is in a rush, let it be their hasty decision to approve your scope rather then your hasty decision to go with it.  If the budget dries up tomorrow, chances are they can’t find another provider in time to make this happen anyway, so propose something you know will work.    I understand there is not always time to go through the proper steps, but you can’t afford to over commit.

© 2011, David Stelzl

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Photo taken by Hannah Stelzl

“Hurry up and wait,” a common negotiating strategy for those on a deadline…Here’s how it works:

The Purchasing Strategy

First, purchasing needs your proposal, your pricing, details, etc. and they need it now.  Then suddenly everything comes to a screeching halt.  Dragging their feet often seems like laziness or lack of interest, but it might just be a well calculated strategy learned through their local negotiation expert.  The whole reason purchasing is done by a separate department is, they don’t have an urgency to get something, and they are not emotionally involved; perfect for talking price.

IT may need you, but purchasing doesn’t.  They don’t really understand your value nor your differentiation; however, they probably do have orders from IT (or whoever is actually making the purchase) to buy from you – with the caveat, “Get the best price.”   Keep this in mind during the process.  Unless it’s a pure product deal, purchasing in not actually making a decision here.

As long as they don’t really care about you, all the pressure is on you to close the deal.  You need them to make the sale, yet they can go elsewhere to get the same thing (or so they say).  You see where I’m going here…building on yesterday, if you don’t understand your client’s deadlines, there may be a date out there, but without that information in hand, you have lost all control because you’re the only one with a timeline – one that impacts your personal income.

Once purchasing figures this out, expect them to drag the purchase through days, weeks, or even months of indecision.  Every day, pressure is building for you to close as your managers wonder what happened.  Purchasing may stall by withholding information, asking for additional time to review your proposals, they may send you off to gather new information, or you may see them looking at numerous comparisons with other possible bidders.

Counter Strategy

When the proposal is handed in early, the deal is out of your control.  You don’t have commitment, and you have not been selected – at least you don’t know if you have. Try this…

1. Make sure you know who the asset owners are – those liable for the outcome of this project, and those who will depend on the systems you are selling – ones they will be relying on to perform their work.

2. Once the vision is clear, and everyone knows what is needed, you are sent off to write the proposal.  Wait.  Don’t run back to the office and start writing.  Instead come up with your options, identify the client’s urgent issues based on impact and likelihood, and then call the decision maker to review the need and discuss the options along with price.  Gain verbal approval on exactly what they are going to buy, and write down the language the buyer uses in describing what he is buying.

3. Write the proposal using the buyers own words.  You now have verbal approval, and you know you are the chosen provider, as long as the pricing can be worked out.  You know the urgent issues, and you know what kind of time frame you are working with.  Submit your pricing as an agreement, not a proposal, and patiently work through the purchasing process on their timeline, keeping their urgent issues in front of them.  Don’t make your quota or your company’s financial deadlines a part of the negotiation process or you are destined to lose.

© 2011, David Stelzl

ROI vs. TCO

March 24, 2011 — Leave a comment

A question came in today asking, “What is the difference between ROI and TCO?  Our company uses the terms interchangeably.”

This is common…but they really are different.  Here is some explanation:

I use the term TCO specifically to mean that it will cost you less to produce the same or better results.  By focusing more on business results and less on cost, the seller has a chance to avoid a true ROI study; which may be analogous to asking the CFO to audit your proposal.  The last person I want to sell this to is a CFO (or anyone in the purchasing department).  Once the focus on business moves to finances, value is compared only to the cost of other options, and not on the value you bring to the business.

You might think of ROI as purely mathematical.  One way to describe it is:

ROI = (Financial Gain – Cost of the Investment)/ Cost of the Investment.

True ROI calculations involve a deal’s net present value ( taking into consideration  a proposal’s future estimated cash flow the cost of capital), payback period or hurdle rate, and an internal rate of return.  In other words, ROI at its core is a math problem dealing with investments, returns, and the cost of capital.  The average sales person’s ability to compute these numbers, or even review them with a financial officer is limited in most cases.

TCO might be defined as the cost of acquisition, installation, and operation.  In this case, we can take into consideration only the current solution and whatever solutions might be under consideration or in use at the present time.  Gartner Group often reports TCO numbers for various technologies,  taking into consideration the above as well as long term operations and future replacement or decommissioning of a technology solution.  When TCO is fairly evident, meaning one solution might involve many smaller servers or appliances that require data center real estate, cooling, and possibly additional staff, it makes sense to use this as justification to buy your solution.

I put this under operational efficiency because the cost savings generally are tied to an efficiency gained by the solution, and that is where the seller’s focus needs to stay.  To focus on the math is to kill the deal, unless the customer is already determined to buy, and is just price shopping at this point.

© 2011, David Stelzl

Where’s the ROI?

March 17, 2011 — Leave a comment

ROI is likely the oldest approach as far as sales books go in providing justification.  People are always talking about ROI on the selling side, trying to talk customers into seeing that their product will deliver ROI and therefore should not be constrained by budget.  In theory, this is correct thinking.  The problem here is, ROI is demonstrated with math, not emotion, and when it comes to really proving there is an ROI, a certain depth in financial experience is needed.  Most sales people I know have never analyzed profit & loss, balance sheet, and income statement reports.  They understand the real meanings and effects of capital expense vs. operational expense or how full-time W-2 employees differ from contractors when valuations and stock prices and other financial metrics are reported.  How can they?  If you’ve not worked as a CFO at some point in your life, what is the likelihood you can really show the CFO true bottom line returns on their financials?  It would be nearly impossible.  So while I hear sales methodologies calling for ROI, I strongly disagree and recommend sales people pick a different tact for demonstrating value.

To be clear, I am not saying it can’t be done.  I am simply saying, “It requires some very special training”, not something you’ll learn in a one day class.  Car leasing sales people are trained to talk about ROI and do a good job of it, but in most cases they are talking to people who don’t know better.  They might get away with it, you won’t.  Plus, it’s always a bad idea to base your value on a pitch rather than your ability to actually meet a real need.  The first is deceptive and manipulative, the second is honest value.

© 2011, David Stelzl

Vendor to Adviser

December 20, 2010 — 2 Comments

If you missed my teleseminar last week on moving from Vendor to Adviser…Here are some examples of how I’ve turned mundane deals into profit-rich, consultative relationships:

  • A firewall upgrade opportunity referred by a vendor/partner turned in large profit and product.  Rather than going in with quotes and features, I presented cybercrime trends to an executive VP, identified their mission critical applications, data, and some process, and showed them how current trends are attacking companies similar to theirs.  The meeting ended with an agreement to perform a simple assessment, which was then expanded to a $65,000 contract.  From there we spent over a year implementing security controls, locking down operating systems, and eventually signed a three year security management agreement.
  • A firewall replacement opportunity from a non-active client turned into a larger assessment and perimeter security initiative with dual-authentication and application security consulting.  In this case, the client wanted to review competitive quotes.  Rather than responding with numbers, we called a meeting with the VP of operations, reviewed mission critical applications, and discovered a need for stronger application security and authentication for users who are members but not employees of the organization.  We proposed a simple assessment which closed for $35,000, and demonstrated the need for two-factor authentication, intrusion detection with event correlation, and upgraded various components of the perimeter as well as website security for the application in question.
  • An intrusion detection opportunity with a newspaper company turned into a larger policy consulting project putting us in front of all major company stake holders.  Rather than responding with numbers we were able to show the need to identify company policy in order to properly place and managed intrusion technology.  This effort led to a portal based policy server, intrusion prevention technology along with managed event correlation.  Future projects were easier to win with our new executive level sponsorship.
  • A large network project was put on hold at a major southeast university.  Instead of giving up, I was able to convince them to conduct an operational efficiency and risk study on the need for new network equipment.  This allowed us to gain entrance to all major stake holders positioning us for future project business.
  • At an educators symposium I was offered a breakout session to speak for free.  I used that platform to present trends on cybercrime, approached being taken by large organizations, specifically in the education/university space, and was able to follow up with one of the attendees with economic buyer status.  Our team conducted an assessment for $125,000, and then leveraged that relationship for introductions throughout the southeast.  Similar projects followed in North Carolina, South Carolina, Georgia and Florida, many of which required remediation efforts.
  • A similar speaking opportunity was given to me at a CLEC symposium for NC, SC, and VA.  Similar results followed the educator symposium.
  • A small staffing role was awarded to us to install some server technology in a large multimillion-dollar financial application project.  By researching their proposed plan we were able to show how their approach was not going to produce the results they were looking for.  At the risk of losing our position on the project, we proceeded with recommendation on how to change the program, putting us at the helm of a 3 million dollar initiative to role out a lending application nationwide.

You get the idea.  Taking existing product opportunities, free speeches, and by proposing contrarian approaches, a savvy sales person can move up.  One who has taken the time to stay on top of trends and developed consulting skills, can move to a consultative, and highly profitable position within the organizations they are already calling on.

© 2010, David Stelzl

Selling installation services along with your product is not consultative.  Neither is training, RFP responses, fulfilling orders, or selling to those who already know what they need.  Most of these things are sold on price alone.  There may be a hint of existing customer loyalty, but in today’s economy, don’t expect that to last.  If you are dealing with purchasing, IT, or other procurement functions primarily, consider yourself a transactional product sales person.  This role is destined to be replaced by Google.  Now is the time to rethink your strategy…don’t give up, instead get a plan to transform your sales in 2011!

© 2010, David Stelzl