One of my favorite scenes in the movie Armageddon is when Steve Buscemi’s character Rockhound is lamenting about his impending doom in outer space while sitting on a nuclear weapon. He quipped: “You know we’re sitting on four million pounds of fuel, one nuclear weapon, and a thing that has 270,000 moving parts built by the lowest bidder. Makes you feel good, doesn’t it?”
Every time I hear that line, I laugh because when it comes to government contracts, we’re conditioned to believe the lowest priced bid wins. Right? Well, not exactly.
It’s actually the best valued proposal that wins. Think lowest bid and best value are one in the same? Think again.
Cost vs. Price
Lowest Price Doesn’t Increase Buyer Productivity
Once your buyers have decided they need a solution, they’ll compete the project to get the greatest value from the marketplace. Your goal is to show them that your solution is the best cost not necessarily the cheapest price.
Your proposal should show how your solution will increase your buyer’s productivity while reducing their cost of doing business. Demonstrating cost savings shouldn’t be the only value your solution solves for your buyer, but increasing productivity will always be the elephant in the room for your buyers. Your buyers – just like you – want to increase sales and improve the quality of their offerings.
TIP: Identify in your buyer’s business processes where your solution can drive a cost savings and quantify how that benefits them. You can learn company business processes from their website, employees, and annual reports. Better yet — ASK THEM!
Everyone wants their cake and to eat it too
In order to stay competitive, you will have to stand out from your competitors
and show value to buyers, but that doesn’t mean you should cheapen your solution by cutting your price.
I know from experience increased competition and slashed budgets make it very challenging to justify high prices to buyers. Your buyers wish to save money, which is why it is crucial you show them how your solution saves them money in the long run. By showing buyers how the cost of your solution will improve their productivity and save them some money, you will become your buyers’ answer to solve their problem. In turn, your solution’s value increases, and you will discover the hidden opportunities where your organization can support them.
TIP: Interview your buyers to find out what’s eating their lunch. If you can find out their pain points, you will know what strategy to use in your proposal.
Difference between Price and Cost
Price and cost may seem like one in the same but that is not true. Price is what your buyer will pay to purchase the solution. It’s just one element of the total cost to the buyer. Cost is comprised of price and various other elements such as labor, materials, training, time, and effort over the life cycle of your solution.
Your competitors will attempt to outbid you in their proposals by undercutting your price point. Your job is to ensure your buyer realizes that your solution is the best value and ultimately the lowest cost to them. If you do your homework, you will have the evidence to show your buyer that the lowest bid can really be the highest cost. It’s the total cost of operations you want to present to them, comparing your solution to your top competitors.
TIP: Using an external source to survey your buyers can be a great way to find out what your competitors are charging for their solutions.
Total Cost of Operations Comparison Chart
A comparison chart is used to influence your buyer that you are providing the best value solution they can get to solve their business problem. Keep the chart as straight forward as possible even if your solution is complex.
Which solution would you select?
Looking at our example you can clearly see even though DDX was the lowest priced solution, Tenscon was actually the best valued solution when comparing apples to apples.
Why the Price Cost is Right
Buyers have a tendency to shine the light on the price. Unfortunately, it’s the most noticeable part of cost. You want to take the glare off the price by showing them the hidden costs during the lifetime of the solution. Be sure to point out that lower priced solutions have higher replacement, maintenance, transaction, and disruption/downtime costs.
All these additional costs can directly impact the buyer’s potential revenue. They say they want the lowest bid, the cheapest price, but what your buyers really want is a return on their investment (ROI). They need to feel secure in knowing their money is well spent. You give them this security by presenting your chart, a detailed proposal, relevant references, and effective demonstrations.
TIP: Use the Total Cost of Operations chart as part of your planning sales tool to help your team analyze the qualities and costs of your solution to create a template.
Put it to Action
Set up a meeting with your sales team, sales manager, marketing team, and support team to put together a comparison chart similar to the one above or complete a in-depth cost benefit analysis. Use this chart to create a persuasive business case that will convince your buyer you offer the best value solution to their business need. One that will help improve their bottom line as well as yours.