LinkedIn article by Tim Williams
Published November 29, 2019
If you’re a professional service firm dealing with procurement, the only way to win the game is to change the game. Odds are you’re selling the wrong thing in the first place, in the wrong way.
The approach taken by most procurement professionals is to chop up your firm’s services into their component parts to make them as comparable as possible to other firms — apples to apples. That’s their job. Your job is to be an orange.
Providing the data that allows your services and pricing to lined up as column D on a spreadsheet is the kiss of death. A procurement-prepared multi-column spreadsheet makes the assumption that all sellers are of equal talent and value; the only thing that differentiates them is the pricing attached to standardized services.
The way to avoid showing up on a spreadsheet is to package and sell your services in a way that is literally incomparable. You must stop mapping to procurement.
The CFO of an advertising agency that practices modern pricing recounted to me the following experience: “We prepared a project fee proposal for our client, and because we didn’t provide any reference to cost, they were unable to find any entry points they could use to negotiate down our fee.” Rather than providing a by-person breakdown of hours and hourly rates, this firm presented a fixed price for a detailed scope under the heading “Ideation and Problem Solving.” The agency got the business, at the price they quoted.
In the cost-plus pricing game, procurement is a formidable competitor. And the more information you provide, the more power they gain. When you answer questions about your overhead, your direct costs, and — god forbid — your margins, you’re supplying the professional buyer with everything they need to do what they do best: compare you with “industry benchmarks.”
Start selling what clients really buy
Imagine a conversation with a Tesla salesperson that goes something like this: “Well, this Model S is a fantastic car — the fastest, quietest car I’ve ever driven — but before I commit to buy I’ll need to know all the costs that went into making it. Once I know what it cost your company to develop, manufacture, and transport this car, I can decide if it’s worth it.” That is decidedly not how buyers make judgements about the value of something. Instead, we evaluate the utility the purchase will provide. This is true not only in the purchase of an automobile, but in the selection of a lawyer or an architect.
So when professional firms succumb to procurement’s request for detailed cost information — even a schedule of hourly rates — they are operating with a fundamental misunderstanding of what they’re selling in the first place. Users of professional services are not buying your costs, they’re buying solutions to their business problems. So why don’t you start selling what your clients are really buying?
Procurement professionals know that once they’ve obtained basic cost information from you, they’re almost certain to get more. You’re now cruising down the cost information highway, and there are very few exits.
The power of a positive no
Your new business success is not nearly as dependent on how you negotiate as what you negotiate. If you’re embroiled in discussions about your reducing your hourly rates or shaving your overhead, you’re having the wrong discussion.
You must make it clear from the start that no matter what other firms might do, your firm does not sell buckets of hours. You sell expertise, intellectual capital, and solutions to business problems. Your answer to a request for a schedule of hourly rates should therefore be a polite “no.” Actually, “yes, no, yes” — the technique espoused by William Ury in the book The Power of a Positive No.
First a yes. “Yes, we understand why you’re asking for this kind of information, given that many of the firms in our industry work this way.”
Followed by a no. “But that’s not how our firm defines and sells value.”
Followed by another yes. “So here’s what we think would work better for both parties.”
For an even more aggressive argument that supports this approach, read Jim Camp’s Start with No. The book The Challenger Sale by Brent Adamson and Matt Dixon, presents a strong body of research that backs up the idea that challenging a flawed buying process is immensely more effective than just being cooperative and responsive. In complex B2B sales like professional services, the competitive advantage of a challenger approach can be as high as 13 to 1.
In business as in sports, the best defense is a good offense. While the professional buyers you deal with are obsessed with costs, your firm should be obsessed with value. Signal early in the buying process that what you sell is value created, not costs incurred.