Sales Cycle Analysis

As they say in poker, never draw to an inside straight.

As a senior in college, I was a consensus D-2 All-American and was rated pretty high for the NFL draft. I had already been drafted in the new World Football League in the 2nd round so my confidence was high. On draft day, when the call came from the Atlanta Falcons, they told me they wanted to draft me in the second round but needed assurances that I would not sign with the rival league.

My over-confidence drove me to a classic blunder: I started negotiating with something I didn’t have yet.

I still had not actually been drafted by the Falcons, however I allowed myself to be distracted by dollar signs. I told them I was very interested but I would need to consider the substantial offer already presented to me by the World League. The Falcons representative paused, then said he would call me back. Well, THREE hours later the Falcons called back wanting to know with which league I would be signing. I could not “NFL” fast enough! The Falcons did draft me but in the third round, not the second – a significant loss of  bargaining power.

Life Lesson:
Don’t negotiate with something you don’t actually have.

Case Study

For over ten years, I was responsible for pricing and negotiating several hundred client contracts for SME. Our value proposition stated we require no upfront fees, and we are only paid as a percentage of the savings we generate. That percentage varied from client to client depending upon several variables including the size of the deal and the work required to achieve the goals – anywhere from 10-35% of the savings. It was a very high margin business. But, about six years through my tenure at SME we began to see a click down in our sales closing ratio of proposals to new contracts. It took a deep dive to discover the problem was right at home.
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We began to review our pricing, both current and historical. When we first started the company it was not unusual to receive 40% to 50% of the savings as a fee. But, over the years new competition in the market had driven these fees substantially lower. In the current market the norm was more like a range of 10% (on very large clients) to 35% of savings as a fee. Our inquiries to clients and even a few competitors confirmed our fee structure was within market expectations.
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Next we began to review proposals. Were we communicating the appropriate data in customer friendly terms and timelines? Here again, the feedback suggested we were spot-on with our communication tools and timing. Finally, I began to make some calls to a few prospects who had declined our services , but, had left the door open for future discussion. 

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The learnings were an eye opener. In the past year we had hired a former consultant who had worked with us five years previously in the early days of the company. He had an excellent background in the transportation sector and he was brought on board to generate new accounts. He went through a thorough training protocol which included our current pricing structure.

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Our new sales asset was determined to make a big impression with our CEO. To that end he began to quote fee prices that were beyond our approved protocols. In an effort to end up at the high end of our 10%-35% range be began discussions at 50% , the old standard. His thinking was that even if it was significantly above market it would still drive the final terms to the high end of our spectrum.

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One might think, okay, he’s just posturing. It’s a negotiation. But it was more than that. It was undermining the initial trust that is so important in a client relationship.

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You see, his quote was so far above market that the prospects felt they were being taken advantage of, or, were considered less than sophisticated by our sales team. The fact that the fee might end up in the acceptable range did not assuage the early lack of trust. It took us far too long to catch it because the initial high rates started out verbally and typically did not end up in the formal proposals going out.

Lesson learned. Contrary to Gordon Gecko, greed is NOT good. If you treat prospects and clients fairly, they will give you the same respect in return. We went back to several of these prospects and offered very “friendly” terms … the answer was still a polite “Thanks, but no thanks.”

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