For B2B firms, bids are a way of life. A large portion of sales in most companies requires the completion of bids/proposals and, success in closing dictates whether companies will operate at capacity and meet margin targets. Unfortunately, customers are becoming more adept at wringing cost concessions from suppliers through their bidding system and making it more challenging for companies to win B2B bids.
The advent of professional procurement, reverse auctions and online bidding systems are pushing sales teams to one response – “we have to be the cheapest price to win.” Sound familiar? Salespeople are gradually turning into prisoners with calculators. Instead of using their time to make contacts, build relationships and profitably close sales, they have turned into bean counters attempting to close a sale by uncovering the minimum bid price possible. In Shawshank Redemption, it took Andy Dufresne 17 years to tunnel his way out of prison. Unlike Andy, businesses do not have the luxury of time to figure out how to bid intelligently. The opportunity costs associated with lost business and corresponding profits could mean the difference between prospering and liquidating.
While winning B2B has become more challenging, it’s certainly not impossible. Start using the following practices to win your B2B bids.
1. Start By Addressing Your Customers’ Needs
It sounds cliché, but organizations frequently go into bids/requests for proposals (RFPs) without fully understanding the reason why this bid/RFP was issued. In order to win B2B bids, you need to understand that your customer is looking to acquire a satisfactory product/service at the best possible price. Simple, yes, but also complex. A grasp of the customer’s motivation for the bid is key to your approach and realization of the expected outcome.
2. Know What Value You Bring to the Table
When beginning a B2B bid process, companies often have an idea of historical opportunities and margin targets but struggle to define and quantify what true value they offer. If you do not have a disciplined process to set your value/price, it is most likely your organization has this issue. Value can be evaluated from two perspectives.
Understanding how your customers position your price and value versus the competition. It helps a team assess what decision a customer will make given the competitive alternatives available. The first step in compiling this map is to assess customer price sensitivity to determine the rate at which they will trade-off between value and price (Fair Value Line). The steeper this line is, the more price-sensitive your customer is. You must then identify the key differentiating purchase attributes (i.e. warranty, taste) and score versus the competition to determine relative perceived value. The last step involves acquiring or imputing competitive prices and plotting each customer alternative. If an offer appears to the right of the Fair Value Line, it is deemed value advantaged. The offer that is the furthest right of the line will be preferred by the customer (most value for the lowest price). Offers to the left of the line are value disadvantaged and, in the short term, usually require price adjustments to be competitive. Utilizing this tool, even at a simplistic level, will help you understand where you are positioned in price versus your competition.
When a customer decides on a purely financial basis (i.e. brand value not considered), utilizing financial value measurement is more appropriate. In this instance, the organization must seek to quantify all the benefits and costs accruing to a customer by purchasing your product/service over the competition. It is critical that you are exhaustive in this process. Often, we find that client organizations overlook elements such as switching costs, warranty, payment terms, sales support, etc. Thus, they are not only forgoing their value in the asking price but neglecting to explain these benefits as further justification of the offer’s value. Financial Value measurement needs to be done from the customers’ perspective, so keep in mind quantitative trade-offs associated with size (how big is the benefit), certainty (how likely am I to realize) and speed (how long will I have to wait to realize). By already accounting for customer considerations/objections, you will be better able to substantiate the value you bring to the table.
3. Those Who Don’t Remember the Past are Condemned to Repeat It
The foundation of enhancing your bid sophistication is based on a large sample of win/loss data. Simply put, this is the result of collecting variables on past bids such as:
- Won or loss
- Price bid
- Competition prices
- Deal size
- Customer segment
- Offer components
Most important of the variables is the justification on why a bid was accepted or rejected. Most organizations fail here by either not following up or relying on their sales teams to gather the requisite data. Not surprisingly, Sales will frequently cite price as the driver. It is an easy answer when you are not close enough to the customer and often does not get any resistance apart from asking how low the competition was priced.
A better practice is to have another group, internal or external, gather the input on why a B2B bid was won or lost. When we undertook this task for a building material supplier, they believed 95% of their losses were based on uncompetitive pricing. After reviewing 100 bids with direct customer contact, it was found that pricing only affected 23% of the losses. Most of the gap was being driven by potential customers not fully understanding the companies’ value offering and competitive gaps on shipping policies. This insight led to a drastic shift in their bidding process and investment allocation resulting in an increased close percentage of 39%.
4. Connect with Your Customer and Showcase Your Value
Once you have quantified your value, it is essential that you consolidate it into an easily digestible story that the team can deliver to the customer. The best pitch decks are short, can be presented in under 30 minutes and leave customers with the 3 or 4 key competitive differentiators that make your offering an ideal choice.
With the advent of online bids and professional procurement entities trying to commoditize offers, it is becoming more difficult to secure presentation time with customers. Regardless, it is something you must do or else you are only relying on your price to differentiate your offer.
Numerous clients that we dealt with have instituted a policy of declining to bid if they cannot meet with the potential customer to discuss why they are the right solution.
5. Utilize an Automated Bidding Tool
This is where the pain associated with collecting win/loss bid data starts to pay dividends. Using this data, you can calculate the probability of winning a bid given a certain price. Depending on the richness of your data, you can drill deeper to calculate bid success probabilities for some of the following variables:
- Customer segment
- Product Mix
Just like with Game of Thrones and episode count, the more variables you include, the better it gets. To illustrate, the following is a high-level bid probability estimate.
You will notice the only variable that is considered is your bid price.
In its ideal form, the sales team should be able to use a bid pricing tool independently. They fill out all the customer details, the offer portfolio and the proposed price. The tool should then output a score that lets the salesperson know if they are approved to bid or require corporate approval to move forward. By putting the tool right in the sales teams hands they become adept at modifying deal attributes (ideally with the customer) to achieve higher scores to bid without any outside influence. The tool also ensures 100% data capture.
From a corporate standpoint, the tool can centrally be leveraged to:
- Increase or decrease the amounts of bids being won
- Set dynamic parameters on margin requirements
- Ensure all bids are being processed and evaluated in a consistent manner
Just as Andy in Shawshank Redemption traded his dull rock hammer for a sailboat in Zihuatanejo, let us trade your sales team calculators for bid tools. It might not be as satisfying as sitting on a Mexican beach, but at least with the extra margin, you can buy freedom.
ABOUT THE AUTHOR Avy Punwasee is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Avy at firstname.lastname@example.org