Tips on: Putting a Value on Service!
Let me set the stage …
There is a current supplier to one of my best customers. They are, what I like to call, fat and happy.
They are below average in; service, quality, logistics, support, and pretty much everything. The one thing they have an advantage in is that they have a very good & competitive supply chain for the components they manufacture. Basically, the customer can’t stand dealing with them, but they more or less have too. This gives them a price advantage over any other competitor.
I understand that this has been an issue for years. I have finally found a solid manufacturer to offer the customer as an alternative. They offer fantastic service, have all the quality awards, are just great with communication, and they have ME.
So, in I walk with this new potential supplier. I have been working with this customer a long time, representing my other principals. They know me, but this new manufacturer is an unknown to them. The new suppliers main negative going in, is that they do not have an established supply chain as good as the competition.
Your first reaction is ... what? That this is a price issue, a tough negotiation coming up right? No, this is a comfort zone issue.
How do you move a decision out of the current comfort zone?
How can you take your overall knowledge of the customer and this competitor, and use it to your advantage?
How can you put a value on the intangibles?
Since I have had a long relationship with this customer, I know of the problems they are having with their current supplier. I don't believe in bullying the competition, but in this case the buyer has done that on their own. I have an advantage here, because I don’t really have to hypothesize, I can use their facts in making my case.
This is where the art of quantifying comes in. Here we start assigning costs to items that are not quite obvious. Things like the following:
I was told by the buyer that her department spends at least 4 hours per week managing this poor supplier, at a cost of $50 per hour (including overhead) that is $50 x 4 x 48 weeks = $9,600
In logistics, they had to verify quantities on every shipment, 2 hours per week, so $4,800 per year
Freight costs are from China, mine will be from the Midwest – savings of $10,000 (you can get this information from your own freight department
Lead times are 90-days from the competition, yours are 2-weeks … this means lower inventory, and better service to their customers. Ask your buyer what that is worth? Ask their sales people or their logistics people. Time costs money
There are other qualifiers here, like additional scrap, faster time to market, tool costs, and a plethora of items. Put this all into a simple presentation. Use the information that they buyer has given, and we can accurately present to this prospect the additional costs to work with this supplier.
So, let’s assume they had a 15% advantage in the original price
Selling price $1.00
My supplier $1.15
Total units per year 500,000
Annual spend with current supplier is $500,000
Projected spend with my supplier $575,000
Savings
This is where all those qualifiers start adding up and reducing that $75,000 gap … how many advantages can you give to the buyer to eliminate that headache? The other supplier has been given years and they haven’t improved, now you can offer an advantage.
This is how you value the service part of the business. You need to work on quantifying all the hidden costs of purchasing from a supplier. There are many ways to describe this action, and a lot of people have taken credit for this type of salesmanship. I call it common sense, and it’s been around since the first sale was ever made. People want to be able to justify their decisions, and like I wrote a few articles ago, you sometimes just have to give them a new decision to make.
If you ask the above buyer to spend $575,000 with your company, when they are spending $500,000 with another, they say no. However, if you inform them that spending the $575,000 gives them the ability to save; labor, time, energy, and other costs … you give them something else to decide on.
If you’re having a difficult time with these types of situations, give us a call at Pinnacle Sales. We can put together a work shop for your or your staff on selling value, and quantifying service. If you don’t think you’re getting paid for what you do, you’re probably right! Let’s change that, invest in Pinnacle Sales, and we can give you a return on your investment of 200-300%!