Entries Tagged 'Propose Solution' ↓

I’ve gotten so much feedback from a previous post on a sales quotation example (in fact it is the most popular post so far in the sales funnel) that I think it warrants going into this in a bit more detail. I thought it might be appropriate to have a series of posts detailing the various parts of a good sales quote. And the quote is often at the beginning of the sales funnel, so it is terribly important to your sales health.

All sales quotes should have the following components:

• Your contact information
• Your customer’s contact information
• Date you sent the quote out
• Your internal quote number
• Quote body
• Leadtime
• Payment terms
• Shipping terms
• Price
• Your signature and title
• Reference to your Terms and Conditions

For this post, let’s talk about the “internal quote number” - other items to be found in future posts.

You should have a system in place for numbering all of your quotations. I’ve seen many different ways of doing this, the most popular follow:

• Base it on your customer’s name. For example if you are quoting XYZ Forming, Inc. for the third time, you might call your quote number “XYZ003″. The benefit of this numbering scheme is that you know at an instance who the company is and how many times you’ve quoted them in the past. The problem is that you need to remember if you called the quote XYZ or XYZFORM. Sure you can set up rules to maybe limit it to three characters, but that causes problems with companies that have the same first three letters - it ends up being a mess and I don’t recommend this.
• Base it on sequential numbering. So on day one your first quote is 001 and three years from now you’re on quote 434. While there is nothing inherently wrong with this scheme, I like to build a little intelligence in my quote numbering layout.
• Base it on logical sequential numbering. Here is where I like to live. If a company has very discreet products, say iron and copper sheet quote could be numbered Fe001 and Cu001, respectively. I personally like to number based on the current fiscal year I’m in without regard to product class. So my first quote of 2008 was 8001 and right now I’m on 8178. That way I know at an instant approximately when a quote was released. I have a simple Excel file that I use to keep track of what quote number I’m on.

What system do you use?

One of my favorite sales podcasts is the SalesRoundup Podcast, the hosts, Mike and Joe, are funny and are actually selling - i.e. not trainers, and it shows in what they say.

That being said, I have had a slight bone to pick with them for quite some time. I LinkedUp with Joe over a year ago and we exchanged a few emails talking about sales cycles. I explained that a sales cycle in my industry (advanced materials) can be as long as five years. Well the next Podcast I hear them taking a few shots at an unnamed person (me!!) and making fun of me a bit. I was jogging when I was listening to it and it really fired me up for about a day - I even shot them an email about it. So this post is to clear the air and explain my very complex sales cycle.

Among other things, I help develop and sell advanced metals to the aerospace industry. From the time of a first call with, say an engine OEM, to a production sale it can indeed take over five years. Would you feel comfortable flying across the country on an unproven material? There is so much testing and evaluation that you can switch jobs before you make the big sale.

So what is my solution? I obviously can’t wait for five years to make a sale. The solution is twofold. First, you better have more than one material at various levels in your sales funnel, or you better make the majority of your pay via a salary for the first few years as opposed to commission.

The second solution, and what I choose to do is to find more forgiving and risk taking markets to sell to before your main aerospace customer blesses it. Let me show a quick example to keep this post from getting too long.

Let’s say that your company has a new material called Xmetal. It is strong, lightweight and will never corrode. GE and Rolls-Royce are both very interested and in the initial stages of testing. Revenue from them buying your test material is maybe $150,000 per year, and your company is probably losing money at it.

Who else can use this awesome material? How about the motor sports industry? They will die for a lighter metal that can shave a few pounds out of their chassis - there’s another $200,000 per year. The medical industry has a need for a super-corrosive resistant metal for certain surgical tools. That equates to $500,000 per year at a healthy margin.

You see where this is going? You might have to support your big breakthrough with supplemental sales in the early years so that you don’t starve while waiting for the big payday.

Oh, so it’s five years later and your material is finally approved and you got your first repeatable production order - for $7MM.

I trust that my honor has been restored, in my own mind at least.

To show that there are no hard feelings and that I still love these guys, I asked Joe to comment on this strategy and here’s what he had to say.

Heck you should be put on a pedestal for taking on a product line with an average sales cycle of five years. - And I thought nine to twelve months was long. First let me comment on your strategy. Whenever you have a cycle that transcends fiscal years (and could up to five) you really should develop a laddered approach to the business timing. In your example, you close the $7M deal in year five. Hopefully you started a second and perhaps third cycle four and three years ago respectably. This way you will have built a nice pipeline of “large” deals and a predictable success rate.

I particularly like the creativity of approaching adjacent markets to supplement your revenue in the short-term. As you so nicely pointed out you do need to generate a steady stream of revenue! Although not your prime source, adjacent markets could be what your company needs to sustain operations during the “startup” period.

One final point I would like to underscore. In your post you alluded to the fact that many sales professionals will not make it the five years needed to realize success. Having said that, I would pursuit large deals with a team of sales people to mitigate the risk of turnover systemically affecting the outcome.

As far as the honor goes, anyone who successfully takes on a product line with a multiple year sales cycle is tops in my book. Five years! Man I still think you are crazy! LOL

Make sure to check these guys out - it’s about 40 minutes a week of free sales training.

In “Determining what a product or service is worth“, we eluded to an Excel tool that would automatically calculate what you should charge for your product or service. Of course we also gave the caveat to not blindly use the numbers provided - they are for reference only and the tool’s main goal is to make you think through each layer in your prospect’s company to figure out where you stand.

Well, here’s an example analysis - please leave a comment if you want the actual Excel file behind this post, I’ll shoot it right over your way.

Let’s suppose that you’ve spent several months selling an engineer on your gizmo, and you put together a $25,000 proposal and send it off in the mail to her. Then you sit back and cross your fingers. Your spirits are high because through hard work you know that the engineer values your product at $25,000 and that’s exactly what you charged – so it’s a no-brainer.

But what’s actually happening on the other end with your proposal?

The following table shows how your gizmo is valued by the various stakeholders and their respective pulling weight.

Plugging these values into the Perceived Value Equation yields a PV of $17,950. You’re $25,000 proposal suddenly looks 39% overpriced! Chances are that your proposed solution may solve the engineer’s problem, but the rest of the team has a smaller need and your gizmo is overkill. Your sale is in major trouble.

The following screenshot shows what this analysis might look like in the accompanying Excel file (again, leave a comment asking for the file if you want it).

This post focuses on strategies to dig into your prospective client’s organization to determine what your product is worth – how else will you know what to charge? The key to optimizing profits and sales is to put a proposal in front of your prospect that exactly reflects what they think you and your product are worth. If you over price, chances are that you’ll be pushed aside in favor of a cheaper product. If you under price, you run the risk of diluting your brand and looking like a second-rate operation. So why not just ask them what your product is worth…

You: “Do you want to buy my fabulous new gizmo?”
Prospect: “How much does it cost?”
You: “Well, what’s it worth to you?”
Prospect: “What the heck kind of question is that!!”

As can be seen from the above fictitious discussion, you usually can’t come right out and ask a prospect what your product/material/service is worth to them. It puts both parties immediately at odds and strains further discussions.

Better yet to get back to our engineering roots and follow a more scientific approach to uncover a product’s true worth or value. The first step in the process is to determine who the stakeholders are in your prospect’s company that will be affected by the purchase of your gizmo. Typical stakeholders include (1) the engineer you’re dealing with, (2) her manager, (3) a purchasing agent, (4) the chief financial officer (CFO), and possibly (5) the CEO.

All too often we, as salespeople, work with the engineer and never ask how the ultimate purchasing decision will be made – big mistake. You need to completely understand the prospect’s buying procedure to ensure that everyone in the chain understands the value that you’re bringing to the project. Not knowing this data could lead you down a six-month path selling to an engineer, only to have a purchasing agent strike down the deal as soon as he hears about it.

Once you know the players in the chain, you need to understand the motives of each player. The purchasing agent, for instance, may only be concerned with price, the CFO may focus on financing options or return on investment, the engineers are usually concerned with quality and service, and the CEO may have politics in play that are pushing him toward a particular supplier.

Of course all these individuals house a different amount of leverage, or pulling weight, at the prospect’s company. Would the engineer tell the CEO that he is wrong and ignore a direct order not to buy your product? Doubtful.

In order to track these different weights, a variable is assigned to each stakeholder’s view of the product’s worth and the relative weight each stakeholder carries in the purchasing decision (the total pulling weight, must sum to one).

Engineering Gobbledygook

The following table lists the needed input from the respective stakeholders.

Value, or better yet, perceived value, is the sum of the weighted values of the stakeholders. The specific Perceived Value (PV) for our situation follows; of course it can be generalized for any combination of stakeholders and relative weights.

PV = (ep*ev) + (emp*emv) + (pap*pav) + (cfop*cfov) + (ceop*ceov)

The prospect company is most likely to buy when the collective perceived value is greater than or equal to your product price (PP).

PV >= PP