Author: admin

Negotiating with Procurement, Procurement

The sellers’ guide to the procurement process

Engaging with procurement can be daunting, even for the most seasoned sales professionals. It can often feel like you’re having to re-sell to procurement, but that’s rarely the case. Once you engage with procurement around a meaningful discussion, you’ve typically been short-listed as the (or one of two) preferred vendors subject to negotiations and contracts. However, unless you understand their processes, systems and objectives, your likelihood of success is low.

Procurement teams in large organisations are trained negotiators, with tools and methods that can be intimidating. The first step to successfully navigating this territory is to take some time to understand the procurement process. Remember, the process is there to drive efficiency, consistency and auditability. Once you know the framework, you’ll be in a stronger position to ensure that not only are you in the final two, you’re blowing the other party out of the water. 

Procurement Process

In this article, we’ll cover:

  • What stages are typically included in a procurement process?
  • The difference between public and private sector procurement.
  • How to ensure you get beyond the final two or three after an RFP.
  • How to protect your profit margins.

You might also enjoy: The Ultimate Guide to Negotiating with Procurement and What Does a Procurement Professional Do? 

What is a procurement process and why is it important to sales professionals?

Just like sales teams have a sales process, procurement people have procurement processes (yes, more than one). 

As a theme, procurement people tend to be data-driven, rational and process-oriented. They like spreadsheets, processes, assessment criteria, scoring mechanisms, risk management and frameworks. So it follows that they’d have a well-documented process in order to help them source vendors cost-effectively and efficiently.

(Find out more about the psychology of procurement professionals in this post about who they are and how they operate).

Tip: Often, large organisations will publish their procurement policies so you can see the steps to become an approved vendor. 

Examples of procurement processes:

  1. Source-to-Pay (S2P)

This is an end-to-end process, typically used by large companies, that covers sourcing, negotiating, contracting, purchase orders and paying for goods/services. Procurement teams can use S2P software to drive efficiency using advanced tech and big data, e.g. Basware, Ariba, Coupa

  1. The Seven-Step Strategic Sourcing Process

This is likely the process you’ll be involved with most often as a sales professional:

  • Step 1 – Identify Goods or Services Needed.
  • Step 2 – Consider a List of Suppliers.
  • Step 3 – Negotiate Contract Terms with Selected Supplier. 
  • Step 4 – Finalise the Purchase Order. 
  • Step 5 – Receive Invoice and Process Payment.
  • Step 6 – Delivery and Audit of the Order.

Source: A T Kearney

3. Savings Delivery Process

Just like sales teams have a sales pipeline, procurement teams have a savings pipeline. This is where they’ll track all the possible savings opportunities that they have identified, and where each opportunity is in the pipeline. 

As part of this process, they’ll be analysing spend, reviewing who they’re spending money with, how often, and why.

Tip: If you’ve been identified as a key supplier with significant spend, and your contract hasn’t been tendered or renegotiated for three years, you’ll likely be in the cross-hairs of procurement.

Our advice? Be proactive and engage with procurement ahead of the end of your contract term or notice period (typically 6 months ahead). Think about new commercial models that deliver savings and improvements in quality/efficiency and negotiate a renewal that works for both parties. 

Without this intervention, you may be pushed into an RFP process or simply issued with a termination notice.

How does the procurement process differ between private and public sectors? 

The procurement process for public and private sectors is broadly the same — but there are differences in how they are funded and regulated.

Private Sector Procurement

Procurement serves a strategic purpose in the private sector, with goals including:

  • Improving profitability
  • Driving supplier innovation
  • Improving output quality
  • Focusing on ESG/D&I
  • Managing risk and improving auditability
  • Improving flexibility/agility

Procurement teams support the business to improve processes, focus on cost-quality management and identifying new/innovative sources of supply. Some businesses opt to have their Chief Procurement Officer (CPO) on the executive board, which underlines procurement’s strategic significance.

Public Sector Procurement

In the public sector, there are no shareholders’ dividends to pay out or publicly declared profit/loss announcements to make. However, spending is under significant scrutiny, due to the obligation to deliver social and economic benefits to the wider public. As a result, the procurement process has to be managed differently and is far more transparent than private sector procurement. 

There are clear principles about the way in which procurement award contracts including:

  • Transparency
  • Strong governance
  • The Most Economically Advantageous Tender (MEAT)
  • Accountability
  • Impartiality/objectivity

Post-Brexit in the UK, Public Sector Procurement is going through a significant review process.

What’s the difference between indirect and direct procurement? 

  • Direct procurement refers to purchasing any part of a product/service that is purchased or consumed by the end-customer. These costs sit between Sales and Gross Profit in the P&L (often called Cost of Goods Sold). For example, bricks for a house, fabric for garments, ingredients for recipes, promotional items/rewards. Direct materials are easy to identify, measure, and are directly linked to the cost of production/sale.
  • Indirect procurement involves purchasing anything — goods and services — that isn’t for resale (GNFR). These purchases are necessary to support the business’ day-to-day operations. Examples here include marketing services, office supplies, IT equipment, etc.

One of the big differences between buying goods and services is quality control and delivery. It’s much easier to audit the integrity of a supply chain with physical goods.

In services procurement, there needs to be a multilayered QA process, often involving answering these questions:

  • Have all the services been delivered? (Cross-check with SoW)
  • Were the outputs delivered on time?
  • Were the outputs to the agreed quality?

Procurement Process Flow 

There are two types of big-picture procurement processes typically:

  • Source to contract (more strategic): This is where procurement (or sourcers as they’re often called) work with the business to appoint suppliers (existing or new) to deliver against targets.
  • Procure to pay (more tactical): This is where procurement manages the flow of requisitions through to supplier payment. A lot of this is often embedded in systems and automated workflows.
Source: McKinsey

The buying stages of procurement 

Back in 2001, A T Kearney developed the seven-step sourcing model. To this day, procurement people still refer to it as their model for Source-to-Contract processes.

When do procurement use RFPs?

You’ll generally find that stakeholders in bigger brands (e.g. £300m+ revenues) will engage the procurement category lead when the budget is material: e.g. 100k+ per annum to run a formal tendering process. There are a number of reasons for this:

  • The increasing need for strong governance: i.e. an objective and controlled way of selecting and managing suppliers.
  • The adoption of a rigorous process, with an audit trail to ensure money is being spent wisely and professionally. This is especially important for PLCs, public sector bodies and charities.
  • Because sourcing, negotiation and savings delivery are specialist disciplines (just like marketing, IT and HR are for example).

RFPs are a procurement tool that encompasses a process and a template. It’s a way of enabling procurement to consolidate all the client’s requirements and specifications into one document and run a consistent and, hopefully, fair process. The RFP document is distributed to several potential suppliers and a rigorous process is run to get from longlisted providers to the final selected supplier via a negotiation.

Tip: Before you fill in any RFP, you must score your likelihood of winning. This can save hundreds of person-hours (literally) writing tender submissions. Score your RFP here with our handy tool.

Reminder: procurement’s typical objectives 

  • Increase savings. There are very specific definitions of savings from a procurement and finance perspective.
  • Maximise ROI for the business. They need to get the best outcome at the optimal price.
  • Supply chain innovation is key to driving profitable growth.
  • Quality and reliability of product/service delivery is critical.
  • Supply chain diversity, inclusion and ESG are all now key priorities for procurement.
  • Reduce risks, increase flexibility and improve auditability. Note: risk comes in many different forms, e.g. reputational, operational, financial, etc.

Actions to take to make the shortlist (or keep your contract)

  • Check an organisation’s procurement policies 
  • Take time to understand procurements’ needs and goals
  • Prepare thoroughly. 80% of your success will depend on your preparation
  • Align your services to procurement goals
  • Proactively engage procurement before the end of your contract
  • Score your likelihood of winning an RFP 

Beyond the shortlist

So you’ve made the shortlist. Hooray! But now is where the real negotiation begins… prepare by reading our Ultimate Guide to Negotiating with Procurement.

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Sales Efficiency

7 proven ways to improve sales efficiency and drive rapid growth for your business

Sales efficieny

It’s easy to talk about “sales efficiency” at a surface level — as a general measure of how well your sales teams turn activities (costs)  into revenue. But if you really want to drive rapid growth, the deeper questions to answer are:

  • What exactly is sales efficiency and how do you measure it?
  • Why is it an important measure for any sales manager or director?
  • What’s the difference between sales efficiency and sales effectiveness?
  • What role does “sales negotiation” play in improving sales efficiency?
  • How do you improve sales efficiency while investing in the future?

In this article, we’ll provide pragmatic answers to these questions as well as proven, actionable tactics for you to implement right away. 

As individuals, we’ve been helping organisations improve sales efficiency and effectiveness for over 23 years. We take that knowledge and experience across multiple sectors and distil it into practical steps that you can apply in your business.

What is sales efficiency and how do you measure it?

Let’s go back to basics.

Any type of efficiency, in its basic form, is designed to measure how well inputs are turned into outputs. 

Efficiency = Output/input

Let’s illuminate this equation with a tangible example: the light bulb. 💡

Light bulbs work by converting input energy (electricity) into light (lumens). 

An old-fashioned, standard, 60W light bulb only converts about 2% of the input energy (electricity) to light (approx 800 lumens). The other 98% produces heat🔥.

Given that we buy light bulbs to produce light, not heat, that’s pretty inefficient. Using the equation above, its efficiency is:

Traditional light bulb efficiency: 800 lumens / 60 watts = 13.3 lumens/watt

However, for the same light output as an old-fashioned bulb (about 800 lumens), an LED bulb requires only about 20% of the power, i.e. 800 lumens only requires 12 watts of input energy, so its efficiency is:

LED light bulb efficiency: 800 lumens / 12 watts = 66.6 lumens/watt

Therefore, LED light sources are at least five times more efficient at converting inputs (electricity) to outputs (light).

So what has this got to do with sales efficiency?

It uses the same principle.

Sales efficiency

Note: because the numerator and denominator both have the same unit measure (e.g. USD), the output is often given as a percentage. 

Typically, you’re looking for 200%-300% sales efficiency for a strong, viable, growing business.

Sales efficiency can be tricky to calculate, often due to timing issues and cost apportionment. For example:

  • Timing: Spending significantly this quarter on lead generation and marketing may not pay off until the next quarter, or later.
  • Costs: Should you include all marketing costs or only the proportion that is focused on performance marketing (as opposed to brand marketing)?
  • Attribution: If a repeat customer returns to your eCommerce site and spends more money, is that because of their previous experience or a result of the money you spent that quarter to reach them?

Because of these complicating factors, sales efficiency is often calculated as:

Sales in this quarter divided by broadly associated sales marketing costs in the previous quarter.

When it comes to calculating your own sales efficiency, make sure that you clearly define the variables and definitions upfront. 

Why is sales efficiency an important measure for sales managers and directors?

If you’re a sales manager or director, you should be measuring sales efficiency. There are several reasons why this is a key metric for measuring the growth of any sales organisation:

  • EBITDA: To maximise net profitability, you have to maximise sales efficiency. This is because sales and marketing costs form a material proportion of overheads. So, a drop in sales efficiency ultimately reduces % EBITDA margin.
  • ROI: As a sales leader, one of your roles is to maximise sales ROI. You need to maximise the volume of sales for a given level of sales and marketing spend.
  • Internal Performance: You can use it at an individual level within sales teams to provide an internal benchmark of who is delivering the most sales value for a fixed input cost.
  • Marketing Performance: It helps you understand which marketing campaigns are more efficient at driving sales outcomes.
  • Skills Gaps: It identifies opportunities to invest in skills training and tools for your sales team to improve their efficiency.

What’s the difference between sales efficiency and sales effectiveness?

As we alluded to earlier, there is no hard-and-fast rule or consistent definition of sales effectiveness. We like this one from Hubspot:

“The concept of ‘sales effectiveness’ is fluid, but it typically refers to how well an organisation’s sales reps can successfully convert prospects and guide them through its sales funnel. Sales effectiveness is evaluated via a variety of metrics, such as conversion rate, close rate, and quota attainment.”

Hubspot

Sales effectiveness is — broadly — about doing the right things consistently to drive long term sales growth. Sales efficiency is linked to this: it’s about maximising the efficiency ratio, over the long term.

What role does “sales negotiation” play in improving sales efficiency?

This is a question we’re often asked by our clients: 

“Why should I focus on improving the negotiation skills of my salespeople? They seem pretty good at getting deals done. And we’re making money”. 

To understand how negotiation can be a key value driver, you need some important baseline data around price discounting. 

In your sales CRM, make sure you capture the initial price setting relatively early in the sales process. I.e. once the lead is past the discovery phase and a salesperson is now shaping the deal. 

Next, start tracking discount levels at the point of “Deal Won”. Tracking this data will inform you immediately, by salesperson:

  • Are they setting realistic baseline prices compared to the wider market?
  • Are they artificially inflating prices because they know they’re going to get chipped in the negotiation?
  • Who is discounting the most, beyond where they need to? 

Voila, you have an opportunity to reduce discounts and increase sales efficiency.

A checklist for improving sales efficiency:

  • Housekeeping: Get your baseline data cleansed and your sales CRM reporting organised so you can start measuring things accurately.
  • Monitor discounting: Make sure your sales process checklists have price as a mandatory field and that you can track when it’s changed so you can catch price discounting.
  • Benchmark: Get some external benchmark data, specific to your sector, so that you know where you should be aiming for with your sales efficiency ratio.
  • Tracking: Track sales efficiency monthly and begin to work out which of your team members are driving the highest sales efficiency. Explore how and why.
  • Streamlining: Dig into the sales process and marketing activity to see where time is being wasted, excessive costs are incurred and discounting is being applied too heavily.
  • Upskill: Hold lunch-and-learn sessions to apply tips and tactics to improve sales efficiency one small step at a time.
  • Align: Make sure sales and marketing are fully aligned and integrated. Run lead-generation workshops with sales and marketing in the same room to work out the best campaigns to run for the next quarter to support sales

Conclusions

In its basic form, efficiency is about maximising the output from a given input. So in this case, sales revenue is divided by sales and marketing costs. Broadly speaking, you should be aiming for a 2:1 or higher ratio.

It’s easy to talk about a high-level concept like sales efficiency. However, as always, the value is in thinking it through in terms of what it really means and why it’s so important to measure for any sales organisation.

Negotiation skills play a key part in improving sales efficiency by reducing the amount of discounting by salespeople during the back-end of the sales process.

To improve this metric, get your data sorted, improve your processes and align sales-marketing to deliver tangible results.

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Aggressive Negotiation, Negotiation Tips

Aggressive negotiation tactics: be prepared & keep your cool

Aggressive Negotiation Tactics

We all learn social norms as we grow up: the rules of how to engage and communicate with people. Some of us are arguably better communicators than others — for example, people with natural charisma and confidence tend to break the ice and make others feel at ease in new situations. Good listeners who ask lots of questions make for excellent dinner party guests. It’s a natural human instinct to make connections and be liked. So, for many of us, it can feel especially unnatural to abandon social norms at the negotiating table. When faced with aggressive negotiation tactics, it can be a real shock to the system and can be inherently destabilising.

But the good news is, there are ways you can prepare and rebuke this kind of negotiation technique, without feeling like you have to morph into a cast member of Succession. The cut-throat world depicted in the TV show might be fictional, but there’s no doubt that some hardened negotiators do indeed employ some ferocious techniques to drive their side of the bargain. 

In this article, we’ll dig into some of these aggressive negotiation techniques, how to be prepared for them, and how to respond to them without losing your head. 

What are some examples of aggressive negotiation tactics?

Aggressive negotiation tactics include:

  • The Table Thumper “This is outrageous and nothing close to what I thought we’d agreed!” This bullying negotiator will use emotion and anger to overwhelm you into giving in. They may sprinkle a bit of gaslighting in to boot, relying on you to doubt your own memory of what was agreed and buckle under the pressure.
  • The Low-Ball Anchor “Your services aren’t worth anywhere near $50,000. The most we’re ever going to pay is $30,000. Take it or leave it.” Firstly, recognise that this is a negotiation-anchoring technique, rather than a true representation of what they’re ultimately prepared to pay. Typically, people drift around the first anchor proposed when negotiating.
  • The Authorisation Trap “Are you authorised to do a deal with me? Can you sign the contract? If not, you can leave now, there’s the door.” This tactic aims to undermine your position, encouraging you to spring into action to prove yourself. It’s also a way of your counterparty trying to put you in the “child” role with them as the “parent” (see the PAC model for further reading).
  • The Deadline “We close out on supplier short-list selection for this project at 09:30 tomorrow, you’d better sharpen your pencil if you want to be in with a chance.” Deadlines pressure you to make irrational choices and are used to create movement. They may be artificial or real so ignore them at your peril.
  • The Bluffer “I’ve got a dozen people like you calling me every day. If you won’t yield on price, I’ll just call one of them back and we’ll do a deal with them.” Competition is a powerful pressure tactic, especially from big global brands.
  • Good Cop/Bad Cop “Look, I want this to go through as much as you do — especially so we can avoid bringing in Jo, who believe me, will tear you apart. We need to get this deal through now on these terms.” This technique allows the negotiator to try and smooth over cracks in the deal by comparing it to how it could be so much worse — the fact is, it could be a bad deal as it is, so never be strong-armed into accepting one-sided deals just because mythical threats are brought to the table.
  • The Constant Chipper They’re always chipping away at your offer, just because they feel they can. A succession of small chips can unnecessarily drag out negotiations, ultimately causing you to lose patience and agree simply to get the deal over the line.
  • The Last-Minute Chipper, aka the “Columbo technique”. “Before you go, there’s just one more thing…” This technique supposes that, because you’re so close to the finish line, you’ll begrudgingly accept this last condition, no matter how unreasonable it is. There is also a balance of power in the negotiation at play here, your counterparty may believe that you’ve mentally booked the deal in your head so be careful of your body language.

All of these techniques are carefully designed by some trained negotiators to get an emotional reaction from you. Emotions will derail you at the negotiating table and enable your counterparty to claim more value.

So what should you do about these aggressive negotiation tactics when they happen to you?

A lot of the time, you can address aggressive negotiation techniques simply by demonstrating that you know what they’re doing and using countering or disarming techniques. Once people have been found out once, they’re less likely to try it again.

One thing that definitely helps is “naming the game”. Even if you only do this in your mind, recognising and acknowledging their behaviour for what it is — a tactic — will help reduce the anxiety that it can cause.

Let’s get into some practical examples of how to counter some of these tactics:

  • The Table Thumper: Counter with facts. Respond with something like “It looks like we’ve got a communication problem, let me clarify what we agreed when …”
  • The Low-Ball Anchor: The best way to deal with a low-ball offer is to be knowledgeable about the true market rate, understand the ROI for the client and clarify the scope of what you’re offering. What you’re trying to do is re-anchor the discussions to your price based around your deep expertise and market knowledge.
  • The Authorisation Trap: Simply say “I’m authorised to negotiate a deal with you, and whatever we finally agree won’t be altered by my bosses. However, the contract will need to be signed by a Company Director”.
  • The Deadline: Check what is actually required by the deadline and also state “To be clear, our deadline-driven response won’t represent a fully negotiated offer. Price is only one variable on the table and therefore, needs to be negotiated in the context of other important commercial terms”.
  • The Last Minute Chipper: When your counterparty starts demanding 20% off at the last minute, respond initially by saying, “it looks as though your budget has been cut by 20%. So, let’s see what we can do to reduce the scope to reflect that.” If they continue to push, you could then say: “It looks like you’re trying to chip me at the last minute. Let’s just take a step back and look at the ROI and remember what it is that we’re both trying to achieve here.” Watch this quick video on the Last-Minute Chipper scenario

There are many other ways to deal with these aggressive negotiation tactics. Hopefully, these illustrations start to show you how to get things back on track.

How can you prepare in advance to counteract these aggressive negotiation tactics?

In our extensive experience as buyers, negotiation trainers and negotiation deal coaches, the critical thing you need is a rigorous, easy to follow, step-by-step process and templates. This will help you stay focused, reduce anxiety and emotions, and ultimately get you a better deal.

  1. Start with writing down the context of the deal. Include the goals (yours and theirs) and the objective criteria by which you propose that a negotiated deal can be agreed upon. Also, now is the time to prepare your BATNA
  2. Work out the stages of this negotiation and ideal timelines.
  3. Decide on your negotiation variables and your acceptable upper and lower limits.
  4. Make sure you keep track of issues as they come up and how you’re going to resolve them.

Start with the tangible value that you’ll be creating, then compare that to the price and hence the ROI. Prepare your negotiation strategy using a process, templates and checklists. They will have prepared their negotiation strategy, you must do the same.

This is exactly why we wrote the Higgle Book; it’s a step-by-step guide of proven negotiation templates that will help you prepare for every deal, no matter how big or small. 

Negotiation workbook

In conclusion…

There are two big lessons to be learnt:

  1. You have to spot the aggressive negotiator at their game and point it out to them, professionally. Confronting the behaviour can be tough, but you can choose to be subtle. If you don’t want to call it out upfront, you could simply ask them to repeat themselves — because you surely can’t have heard them correctly.
  2. “The prepared mind wins the day”. Consistent application of a step-by-step process and templates will prepare your mind for a successful, more rational negotiation.

Alternatively, you could decide to act more like Logan Roy, but we wouldn’t recommend it!

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Procurement

What does a procurement professional do?

What does a procurement professional do

In a nutshell, the primary role of a procurement professional is to purchase goods and services for their business in a way that creates the most value at the lowest risk. This involves establishing the needs of the organisation, understanding the supply market, running RFPs, sourcing and vetting providers, negotiating contracts and pricing and measuring/reviewing KPIs during delivery.

So, now you know — broadly — what they do, you need to understand the typical traits of people who do this job and what motivates them. Whether you’re considering a career in procurement, or want to know more about the procurement process as a seller, this article will tell you everything you need to know about the process from a procurement perspective.

By the end of this article, you’ll have a deeper understanding of the skills and traits required to be a procurement buyer, the role and responsibilities, as well as the role of procurement during a typical sales process.

Here at Piscari, we have extensive experience in both buying and selling, across a wide range of enterprise companies. We’ve refined these insights over hundreds of deals negotiated worth over £400m, with experience on both sides of the table.

Who Are Procurement Professionals? 

Procurement is a department, just like finance, sales or marketing. Inside procurement departments, there are different roles that require different skills and experience. 

Here are some of the common roles in a procurement department:

  • CPO: Chief Procurement Officer. This is the head of the department, and often reports to the CFO, COO or occasionally the CEO
  • Category Leads: These people run big categories of spend, for example, IT, Marketing, HR, etc
  • Sourcing Specialists/Buyers: They often focus on categories and sub-categories where they have specialist market knowledge. These are the people that analyse spend data, build requirements and specifications, run RFPs and negotiate with suppliers.  
  • Contract Administration (usually only found in very large organisations): They ensure that all contracts are loaded onto the supplier management system, manage the renewals calendar and administer contract variations.
  • Procurement Administration: Often look after purchase orders, matching issues and supplier queries.

You’ll also often hear the following terms used interchangeably: procurement professional, buyer, strategic sourcing, category lead. Although there are distinct differences (see above), every business is different and will have its own set of specific duties for each role. 

Responsibilities of Procurement Buyers

The buying role differs from industry to industry but usually includes:

  • Reviewing the quality, reliability and spend-trends of existing suppliers
  • Making recommendations and decisions on new product/service suppliers
  • Business needs analysis
  • Stakeholder management
  • Market monitoring, testing and insights
  • Category planning
  • SLA reviews
  • Ad-hoc RFPs and tendering
  • Sourcing suppliers
  • Negotiating with suppliers
  • Contract negotiation
  • Managing supplier relationships
  • Building and managing the cost-savings’ pipeline
  • Proposing savings ideas to finance and budget holders
  • Savings delivery and reporting
  • Attendance at industry events

The Two Types of Procurement Professional

There are, broadly speaking, two types of procurement professional:

  • Those that focus on direct goods and services. They buy everything between Revenue and Gross Profit on the P&L. They almost always have deep category expertise. And they have a direct impact on profitability, so tend to be extremely well-trained and savvy negotiators. Every penny counts, after all. For example, in a retailer, they’d be buying fruit, vegetables, meat, etc
  • Those that focus on indirect goods and services (also called Goods Not For Resale or GNFR). They buy everything between Gross Profit and Net Profit on the P&L. They tend to be spread quite thin across multiple categories (unless it’s a global corporate), so they may not have in-depth category expertise. For example, categories typically include IT, Marketing, Professional Services, etc.

Although there are no generic traits for procurement people, there are some themes. They tend to be rationalists, very analytical and almost always highly trained negotiators. They are tough-minded and come across as emotionally detached.

The Priorities of a Procurement Professional

Deloitte’s Global 2021 Chief Procurement Officer Survey is conducted annually to understand the needs and priorities of procurement functions. The ranking of the priorities below changes, but the patterns are always very similar:

  • Savings/cost-reduction/operational-efficiency
  • Innovation
  • Risk management and governance
  • Sustainability, diversity, inclusion
  • Digital transformation/enablement including data analytics
  • Supplier collaboration, partnering and supply chain integration

What is a Procurement Process?

Just like sales have a sales process, procurement have procurement processes (yes, more than one!). 

As a general rule, procurement people tend to be data-driven, rational and process-oriented. They tend to like spreadsheets, processes, assessment criteria and scoring mechanisms.

Although there are many sales processes we could mention, we’ll stick to the major ones:

  • Source-to-Pay (S2P). This is the key, big-picture process, that defines the major activities undertaken by a procurement department, typically in a big company. This process involves everything from broad requirements definition and stakeholder engagement, running RFPs, supplier selection and negotiations to contracting, purchase orders (PO), invoicing, goods and services receipt-matching and payment.
  • The 7-Step-Strategic-Sourcing-Process. This describes how procurement (sourcing professionals) review the performance and spending of their existing supply base, document specifications, decide on the best way of getting the right suppliers in place, conduct the supplier selection and negotiation process, prepare supplier transition and onboarding plans and measure performance.
  • Savings-Delivery-Process. Just like sales have a sales pipeline, procurement has a savings’ pipeline. This is the golden source of all the savings opportunities that procurement has identified, and where each savings opportunity is in the pipeline. Spend analysis is linked to this process — this is where procurement reviews who they spend money with, how much and how often. A book that we’d recommend on this is Spend Analysis by Pandit and Marmanis.

The Future of Procurement 

The procurement process has been undergoing a period of transformation over the last 10 years — there is pressure now to leverage technology to make the process more strategic and user-centric. 

Gartner’s Top Trends for the Future of IT Procurement predicted that, by 2021, 55% of technology procurement staff will require additional business, digital, and analytical skills to realise business innovation and growth.

In the past, tech procurement leaders were focused on minimising costs and mitigating risks. But with the rise of cloud services and the digitisation of business, the procurement professional’s job description has expanded somewhat, to include generating revenue, driving innovation and retaining customers.

In Conclusion

Procurement professionals are strong negotiators: analytical and more rational than emotional. A successful procurement professional is business-minded, data-driven and process-oriented. They are focused on:

  • Increasing savings. There are very specific definitions of savings from a procurement and finance perspective.
  • Maximising ROI. They are tasked with getting the best outcome at the optimal price.
  • Environment, social and governance (ESG): Ensuring the buying organisation is acting responsibly and inclusively.
  • Supply chain innovation. Identifying high quality, innovative supply chain partners
  • Quality. They need to ensure the supply base can deliver the quality and reliability of service required by the business.
  • Mitigating risks. Reputational, operational, financial, etc.

Are there any other key traits or responsibilities of procurement professionals you’d include here? Let us know in the comments 👇

Are you a seller looking for tips on engaging with procurement professionals? Then you might enjoy this guide on selling to procurement. 

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Sales Velocity

What is sales velocity & how do you improve it?

What is Sales Velocity & How Do You Improve It?

Sales velocity isn’t a mere buzzword. The often-misunderstood metric is a critical compound sales KPI that is highly valuable to sales directors and CEOs. In this article, we’ll explore:

  • A definition of sales velocity
  • Why it’s important
  • How to calculate it
  • How you can use it to maximise your revenue, faster.
Table Of Contents
  1. What is Sales Velocity?
  2. How To Calculate It
  3. Breaking Down The Variables
  4. Let’s Look at an Example
  5. The Importance of Strong Negotiation Skills
  6. Accelerate Business Growth with Sales Velocity
What is sales velocity & how do you improve it?

What is Sales Velocity?

In a nutshell, it tells you how much revenue your team can generate per average deal lead time. If you know your sales velocity, you can use it to:

  • Improve your revenue forecasting accuracy
  • Determine knowledge gaps within the sales team, e.g. they may be discounting too quickly rather than focusing on “value-based-selling”
  • Evaluate your sales process to improve efficiency (i.e. reduce average lead time, get more deals into the system and/or increase conversion rates)
  • Compare sales teams’ performance and identify opportunities to bring everyone up to best-in-class

To put it simply:

“The higher your sales velocity, the faster you’re making money — therefore the more revenue you can make in a year.” 

How To Calculate It

Let’s take a look at the Sales Velocity equation:

Sales Velocity Equation

Sales Velocity = (The Number of Qualified Opportunities X Average Deal Value x Average Win Rate) / Average Length of the Sales Cycle

Notes:

  • Measuring sales velocity gives you a snapshot of your results. So you need to take the snapshot frequently (weekly or monthly) and monitor the trend over time
  • It may also be helpful to record trend graphs compared to the same time in previous year(s)

This calculation gives you a good indicator of the overall effectiveness and efficiency of your sales team, as well as an idea of the general health of your business. It’s also a great way to focus your attention on which lever to pull hardest to drive more growth for your business.

The sales velocity equation allows you to identify problem areas in your pipeline and take proactive steps to improve them. 

Breaking Down The Variables

The challenge with sales velocity is that it’s a compound measure: four variables that interact with each other are all at play. For example, you could improve conversion rates by qualifying leads harder, but that may reduce the number of qualified deals in the pipeline. And, unless the other three variables change or improve, sales velocity could actually go down!

Let’s break each of the variables down, and think about how to optimise them. Remember, you can’t tweak one in isolation of the other — which is why sales velocity is such a good measure. 

Number of Opportunities 

Every pipeline has a certain number of opportunities over a given time period. To boost sales velocity, you need to ensure that your pipeline contains an increasing number of pre-qualified high-converting opportunities. This is about quality first, then quantity. 

Focus on building a manageable pipeline of qualified leads, instead of one bursting with all sorts of random stuff. For this, you need to ensure you have well-defined sales pipeline qualification criteria. You also need to make sure that sales and marketing have agreed on what a Marketing Qualified Lead (MQL) and Sales Qualified Lead (SQL) looks like.

Be realistic with who your target customer is. Sure, the huge opportunities are tempting, but they can be a risky gamble if you’re using all your time to go after them. You may need to shift focus onto a larger number of more attainable/qualified clients that you can swiftly bring through your pipeline. There is no “one size fits all” answer to this.

When you start to change the way you qualify leads, the absolute total number in your pipeline is likely to go down. So we’d recommend changing this in combination with reviewing your lead generation programmes.

Average Win Rate %

How many live opportunities turn into revenue-generating customers in the measurement period? To identify your win rate, you simply divide the number of sales opportunities won by the total number of sales opportunities in that reporting period. For example, if during the last month you had 100 pre-qualified leads in your pipeline and you won 25 paying customers, your win rate is 25%.

This underlines why it’s better to focus your attention on a smaller selection of high-quality leads rather than a larger selection of unlikely ones. Improve your win rate by capturing, prioritising and nurturing these high-quality opportunities.

You can boost your win rate by being purposeful about the opportunities you chase. For example, our free RFP Calculator allows you to point-score potential RFPs to determine whether they’re worth your time, based on the likelihood of winning the business. 

Optimise your personal win rate by developing a strategic negotiation process. From the first conversation all the way through to the late stages of a deal, it’s vital that sales teams are following a tried-and-tested approach to effective negotiation.

Average Deal Value 

Average deal value, or average deal size, is a hugely important factor. It can be a much more efficient way to improve sales velocity than, say, winning more deals in total. 

It takes time to build strong relationships, so maximising the ones you have is key. To improve average deal value, think about how you can add value to your prospect by providing tiered options in your pricing proposals.

Maximise your average deal size by cross-selling to prospects — but only when there’s a clear benefit to the customer. As a trusted advisor, you need to have your prospect’s best interests at heart. If you have something that will genuinely provide value, make sure you’re upselling it to maximise your average deal value (ADV). 

Steer clear of discounting by focusing on value-based selling and things that cost you little but mean a lot to your client.

Average Length of Sales Cycle

This is the only factor in the sales velocity calculation that you want to reduce. The less time a lead spends in your funnel, the more deals you can get through the pipeline with the same capacity. Shorten your sales cycle — and therefore improve your sales velocity — by streamlining your sales process.

Automate repetitive tasks to reduce the number of person-hours spent each week. Sales automation tools are designed to take the pressure off the admin, to help your sales team focus on high-value tasks like relationship-building.

Dealing with large enterprise companies? Streamline the process of negotiating with procurement by understanding exactly who they are and what they’re looking for.

Introduce a step-by-step negotiation framework and templates to increase deal values and reduce the length of the sales cycle.

Let’s Look at an Example

Because it’s a compound measure of four variables that all impact each other, increased sales velocity quarter-on-quarter is a clear indicator of a sustainable high-growth business. The numbers speak for themselves:

Q1Q2Q3Q4
The number of sales opportunities50556065
Average deal value$6,000$6,500$7,000$7,500
Average win rates20%22%25%28%
Average length of the sales cycle (days)90858075
Sales Velocity$666$925$1,312$1,820

The Importance of Strong Negotiation Skills

Improving the negotiation skills of your sales teams has a direct impact on all four sales velocity KPIs. That’s why we use this metric as a baseline for our tailored negotiation skills training and coaching programmes, continually measuring it to assess the impact.

Tweaking and optimising your sales process will also lead to improved sales velocity. Learn how Piscari can help you meet your goals through Piscari’s Sales Process & Dashboard Enhancements.

Accelerate Business Growth with Sales Velocity

Monitoring sales velocity over time has many benefits for your business. You can benchmark your performance against other teams or regions, and assess how changes impact sales growth. 

It provides a clear way to optimise these four sales variables: number of opportunities, average deal size, average win rate and average sales cycle length. Approaching each of these with a strategic and consistent game plan will ensure your sales team performs at its revenue-generating peak, quarter after quarter.

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Negotiating with Procurement

The ultimate guide to negotiating with procurement professionals

Negotiating with Procurement

Negotiating with Procurement: What You Need to Know

If you’re an entrepreneurial company selling to bigger companies, you need to understand how negotiating with procurement professionals really works. It’s vital that you understand their unique needs and how they are different from other stakeholders. 

In this guide, I’ll break down the most common pitfalls of negotiating with procurement, the tactics to watch out for, the mistakes that are too often made, how you can prepare, and secure more profitable deals for your business. Every time.

To improve your deal conversion rate and get better outcomes, these are the key things you and your sales teams need to understand:

  • Procurement have different objectives to your main decision-maker, so you must treat the negotiation differently.
  • They are another important stakeholder to engage in the “business unit buyer” map. Have a look at this video with Ray Makela for further insights selling to procurement.
  • Ideally, engage with them 12-24 months before you bid for a big piece of work.
  • Negotiation is a trainable skill, not a genetic trait. It’s seriously worth investing in high-quality training.
  • Use the Procurement Equation© to work out what Procurement are trying to achieve.
  • 80% of your success in a negotiation will come from the quality of your preparation.
How to negotiate with procurement

If you apply the tactics and lessons in this article, you’ll make better deals immediately and win more opportunities. I’ve refined these insights over hundreds of deals negotiated worth over £400m, with experience on both sides of the table.

Why should you read this guide?

Think back to a time when you were working on a big sales opportunity.

Does this scenario look familiar?

  • You’re close to agreeing on the terms at a price you can work with.
  • Just as you’re about to close the deal, your contact emails you: “By the way, “you’ll just need to get this past Procurement”.
  • Your heart sinks! The last time this happened the deal collapsed and six months of sales effort went down the drain.

Hence, negotiating with procurement professionals is different. They are different personality types to your typical decision-maker. They have different objectives and very different ways of working. If you want to succeed at winning deals with bigger companies, you need to develop new strategies for dealing with Procurement stakeholders. It must become a standard part of your sales management process and sales training. If in doubt, find a sales coach to act as a sounding board.

I wrote this guide to help you understand the complexities of negotiating with Procurement professionals during a sales cycle. You can use it as a practical tool to re-frame your discussions with Procurement and get the outcome you want.

Download our FREE guide to negotiating with procurement professionals

Problems faced by entrepreneurs, sales professionals and SMEs when negotiating with procurement

When you first meet -procurement professionals during a sales cycle, you will come across new challenges to getting a deal done. If you go in unprepared, you’ll quickly see the deal collapse. Or, you’ll walk out with a bad deal for you and, ultimately, the client.

What’s the problem? Procurement teams have a different agenda to the main person you are selling to. You need to see the world from their perspective in order to know how to deal with them.

Have you faced any of these problems when trying to get a deal through procurement during your sales negotiation?

  • Procurement seem to be creating unnecessary barriers to getting the deal done
  • The RFP process is crazily bureaucratic
  • You feel like you are being used as a price bench-marking tool as opposed to a real contender
  • It can take months to fill in the RFP and go through the process only to find out you didn’t really stand a chance in the first place
  • You can’t see the criteria they are using to select the supplier
  • The contractual terms they send you are outrageous and 30 pages long
  • The T&Cs say “these terms are non-negotiable… If you are successful in bidding, these T&Cs are legally binding on your appointment”

Your first reaction is often outrage. What you do next and how you behave will have a significant impact on your success.  To understand Procurement’s perspective, let’s look at the Procurement Success Equation©. These relate directly to the objectives of procurement in negotiation.

The Procurement Success Equation©

Procurement success equation

Let’s start by considering the question:

“What does success look like from the perspective of a Procurement Professional”?

The reality is: when a Procurement professional is negotiating a deal, they’re managing a number of complex variables – they’re not just being difficult for the sake of it.

The relative importance of each variable is different on every deal they negotiate.

Procurement’s objectives are to:

  • Increase savings on a deal.
  • Maximise ROI for the business.
  • Access innovative solution providers.
  • Improve the quality of service delivery, or as a minimum, maintain it.
  • Improve/maintain the reliability of service delivery.
  • Review the sustainability aspects of what they buy.
  • Reduce risk to the organisation (i.e. reputational damage, operational disruption, financial distress, etc).

There is no simple, single answer to the question “What does success look like from the perspective of a Procurement Professional”? Like any other sales process, you need a clear value proposition when negotiating with procurement.

Later in the guide, you’ll learn how to work out what is really going on, and some insights about what you can do about it.

Common myths about negotiating with Procurement professionals

Perception
They only care about beating me up on price.		Perception
They don’t care about innovation and creativity.		Perception
The RFP is only used to beat up the incumbent supplier, we are never going to win.		Perception
The T&Cs sent by Procurement are non-negotiable.
Reality
This is untrue. It’s about how much they paid last year, how much is in their budget and how they can maximise ROI to the business.		Reality
This is untrue. Innovation and creativity have been on the top 10 list of Procurement challenges for the last decade.		Reality
This is untrue. There are easier ways to do this than run an RFP Process.		Reality
This is untrue. There’s a secret no-one tells you… the schedules at the back of the Ts&Cs usually override the Master Agreement, so put your variations in there.

So, next time you are frustrated with Procurement, take a breath and look at it from their point of view. The underlying issues are much more complex than it appears on the surface.

What are Procurement Levers and why are they important to you?

Whenever I negotiate a large deal, I always think about which levers I am going to use to get the deal done. These are the kinds of levers, or negotiation tactics that I think about for every deal:

  • Consolidating spend across several suppliers and vendors?
  • Offering longer-term commitments in exchange for better prices?
  • Completely transforming the services we are buying?
  • Tightening/de-scoping specifications
  • Reducing demand (also called Demand Management)?
  • Getting some more competitive tension going in the process?
  • Changing the commercial model of the supplier?
  • In-sourcing or out-sourcing different parts of the value chain?

Way before you meet me, I have multiple levers I have thought about to deliver the Procurement Success Equation©.

What are Procurement looking for and what is on their mind when negotiating?

Imagine you’re down to the last two suppliers shortlisted for a piece of work. When you’re preparing to negotiate with procurement, these are some of the things to consider before engaging in the next round of discussions:

  • Where are the savings going to come from?
  • What contractual clauses are important?
  • How are you going to measure that you are delivering a high-quality service and what happens if you don’t?
  • How are you going to govern (control) this contract and what are the remedies and rewards for under/over delivery?
  • Does price change as the volumes go up/down?
  • Are there any rebates baked into the deal?
  • How will Service Credits work?
  • What are the termination clauses?
  • What is the contract duration?
  • Payment terms?
  • Who owns what IP?
  • How will you demonstrate the business ROI?

When preparing for your negotiation, have answers to all these questions in advance. If you have just received an RFP and not sure what to do, you can also use our Consultancy Support.

When is a saving not a saving?

It would seem obvious that if you offer a reduction in your price, or you give the customer something for free, then it’s a saving, right? Unfortunately, this isn’t true. It’s certainly of value to your client’s Decision Maker, but it may not help Procurement deliver their objectives.

Here’s a simple example of different types of savings and what they really mean:

Cost-SavingCost AvoidanceValue Proposition
Is this a contract renewal or re-negotiation with downwards price movement based upon like for like volumes?Does the saving include a discount against a list price or standard rate card?Does the negotiation include free additional licences?
Is this a contract termination with services delivered in a new way or service no longer required?If we have no experience of buying this service (i.e. no baseline cost), then any savings will be “cost avoidance”Are we being offered something that we didn’t have before for free?
Have we got a comparable, actual set of prices and volumes based on invoices?Are we expecting a price increase from an existing supplier on an existing service and a reduction in the increase is achieved? If yes, this is “cost avoidance”Are we being offered “free implementation support?”

Why do your clients train their Procurement negotiators?

Negotiation maturity analysis
Source: IACCM and Huthwaite International

There’s a wealth of evidence that points to a direct improvement in business performance if negotiators are professionally trained. This chart is one of the most compelling indicators that “Organisations with high negotiation maturity post significant increases in net income”.

That’s why your clients train their negotiators, and that’s why you should too! If you want more information, have a look at our Negotiation Training Programmes.

Characteristics of any negotiation

In any negotiation, be it a business deal, buying a car or your relationships, there are common traits to the negotiation itself:

  • More than one party is involved
  • There are multiple agendas that are rational, emotional and political
  • People are staking out their positions and interests
  • Negotiation personalities need to be understood, i.e. collaborative, adversarial, partnership, amiable
  • Is it a transactional or strategic negotiation?

You need a framework to think through the negotiation and optimise success for all parties. This is particularly important in procurement negotiations as you are dealing with highly trained buyers.

Common negotiating mistakes and why we fail to reach agreement

Given all the negotiations I’ve been involved in, I’ve made some mistakes and learnt from them. These are some of the lessons learned:

  • Believing that what we bring to the table is more valuable to our counter-party than it actually is
  • Personalities getting in the way of a good deal (i.e. inability to separate the people from the problem)
  • Viewing negotiation as a fixed pie to be divided rather than an opportunity to increase the size of the pie
  • Lack of preparation. Virtually every professional buyer will have a Procurement negotiation process. You need a way of thinking through the three key stages of your negotiation
  • Not reading the personality type of your counter-party
  • Lack of empathy, i.e. failure to understand the other party’s perspective
  • Making the scope too narrow or too broad
  • Lack of objective criteria on which to base agreements
  • Winning the economic case and losing the relationship/trust
  • Not understanding the difference between interests and positions
  • Sequential negotiation strategies in complex situations – it can be seen as “chipping away” at value. It’s often better to put multiple variables on the table at once and negotiate what’s important to both parties
  • Believing you have to make a decision in the room

What are the traits of a successful negotiation?

This is by no means a comprehensive list. However, this, combined with “avoiding the common negotiating mistakes” is a good place to start planning your next negotiation:

  • Start with the end in mind and tack towards the prize or end-goal
  • Usually, making the “first offer” anchors the counter-party to your reference point (this has been well researched internationally)
  • Asking open questions, seeking the views of your counter-party and active listening all promote collaborative negotiations and win-win outcomes with the best overall value. Balance this with knowing when to close the deal
  • Test your (and their) BATNA (Best Alternative to a Negotiated Agreement) thoroughly with colleagues throughout the negotiation process. The power shifts continuously as the negotiation progresses
  • Identify what it is that you have, that costs you very little, but means a lot to your counter-party

Examples of buyer procurement negotiation tactics

When you’re at the negotiating table, you need to be aware of some common negotiation tactics used by trained professionals.

  • late-night DJ voice” Source: Chris Voss.
  • “The ultimate rationalist” – Mr Spock.
  • “The table thumper” (I thought they were long-gone, but recent evidence tells me they are still alive and well).
  • “The Columbo negotiator – there’s just one more thing”! Also called the “Chipper”.
  • “These are our corporate terms, we can’t change them”.
  • “The FUD factor”.
  • “Do you have full authority to negotiate any deal with me”.
  • “Your services aren’t worth [£X], you’re over-estimating the value you bring to the table.”

Conclusions

To recap, here are five essential steps you should take as part of the procurement negotiation process.

Five Steps For Successfully Negotiating with Procurement

  1. Start with the end in mind

    What does a perfect deal look like for you and your company?

  2. Understand what motivates procurement professionals

    This will help you understand how they operate.

  3. Prepare thoroughly

    80% of your success will depend on your preparation. Define your negotiation strategy.

  4. Work collaboratively with your counter-party

    Ask open questions, listen actively, and work proactively to create win-win solutions.

  5. Close the deal and agree the service level agreements

    This is important as they define what you will be measured against.

There is a famous saying “seek first to understand before being understood“. This is 100% true when dealing with Procurement professionals that you aren’t used to dealing with.

If you’re new to dealing with Procurement professionals, take on board the principles and ideas in this guide. It will demystify what Procurement really want and reduce any anxiety you may have about them.

Ultimately, understand your audience, know what they want and prepare before you engage in a meaningful negotiation with them.

I hope this guide has proved useful and debunked some of the myths about professional Procurement buyers. We are, after all, only human!

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Uncategorized

Everything you need to know about how to sell to Procurement professionals – A sellers’ guide to winning more deals

Executive Summary

If you are an entrepreneurial, high growth company starting to sell into bigger organisations, you need to understand how to sell to Procurement professionals. You need to understand their unique needs. The way you deal with Procurement needs to be fundamentally different to the way you work with other stakeholders.

To improve your deal conversion rate and get better outcomes, these are some of the things you need to start thinking about:

  • Procurement have a different agenda to your main Decision Maker, understand their objectives before you engage with them
  • Engage with them very early in the sales cycle, maybe even 12-24 months before you bid for a big piece of work
  • Negotiation is a skill you can be trained in, not a genetic trait; so get some high quality training
  • Use the Procurement Equation™ to work out what Procurement are trying to achieve on each specific deal
  • Negotiation Preparation; 80% of your success will come from the quality of your preparation
  • Work out your negotiation plan and then focus on the personality type of your counterpart

There is no doubt, if you apply the lessons in this article, you’ll be making better deals straight away and winning more opportunities. I’ve refined these insights over 100s of procurement deals worth millions of pounds. If you want more, contact me here Contact Us

Why should you read this guide?

Do you remember a time when you were working on a sales opportunity that could take your business to the next level of growth? Has this scenario ever happened to you:

  • The Decision Maker is close to agreeing the terms of reference with you at a price you can all work with
  • Just as you’re about to close the deal, she emails you and says
  • By the way, “you’ll just need to get this past Procurement and then we’re all good”
  • Your heart sinks! The last time this happened the deal collapsed and six months of sales effort went down the drain.

Selling to Procurement professionals and negotiating with them is different. They are different personality types to your typical Decision Maker. They have different objectives and very different ways of working. If you want to succeed at selling to bigger companies, you need to develop new strategies for dealing with Procurement stakeholders.

I wrote this guide to help you begin to understand the complexities of negotiating with Procurement Professionals during a sales cycle. You can use it as a practical tool to re-frame your discussions with Procurement and get the win-win outcome you want.

Problems faced by entrepreneurs, sales directors and SMEs when they meet procurement

When you first start engaging with Procurement professionals during a sales cycle, you will come across new challenges to getting a deal done. If you go in unprepared, you’ll quickly see the deal collapse or, you’ll walk out with a bad deal for you and ultimately, the client.

The problem is, Procurement has a very different agenda to the main person you are selling to (the Decision Maker). You need to see the world from Procurement’s perspective in order to know how to deal with them.

For example, have you faced any of these problems when trying to get a deal through procurement?

  • Procurement seem to be creating unnecessary barriers to getting the deal done
  • The RFP process is crazily bureaucratic
  • You feel like you are being used as a Price Bench-marking tool as opposed to a real contender
  • It can take months to fill in the RFP and go through the process only to find out you didn’t really stand a chance in the first place
  • You can’t see the criteria they are using to select the supplier
  • The contractual terms they send you are outrageous and 30 pages long
  • The T&Cs say “these terms are non-negotiable… If you are successful in bidding, these T&Cs are legally binding on your appointment”

Your first reaction is often outrage. What you do next and how you behave will have a significant impact on your success.

To understand Procurement’s perspective, let’s look at the Procurement Success Equation™.

The Procurement Success Equation

Let’s start by considering the question “What does success look like from the perspective of a Procurement Professional”?

The reality is, when a Procurement professional is negotiating a deal, they are managing a number of complex variables – they are not just being difficult! The relative importance of each variable is different on every deal they negotiate. Procurement’s objectives are to:

  • Increase savings on a deal
  • Maximise ROI for the business
  • Access innovative solution providers
  • Improve the quality of service delivery, or as a minimum, maintain it
  • Improve/maintain the reliability of service delivery
  • Reduce risk to the organisation (i.e. reputational damage, operational disruption, financial distress, etc)

There is no simple, single answer to the question “What does success look like from the perspective of a Procurement Professional”? Later in the guide, you’ll learn how to work out what is really going on, and some insights about what you can do about it.

Common myths about selling to procurement people

Myths about selling to Procurement professionals
Myths about Procurement professionals

So, next time you are frustrated with Procurement, take a breath and look at it from their point of view. The underlying issues are much more complex than it appears on the surface.

What are “Procurement levers” and why are they important to you?

Whenever I negotiate a large deal, I always think about which levers I am going to use to get the deal done. These are the kinds of levers, or strategies, I think about for every deal I work on:

  • Consolidating spend across several suppliers?
  • Offering longer term commitments in exchange for better prices?
  • Can I completely transform the services we are buying?
  • Tighten/de-scope specifications
  • Reduce demand for this service (also called Demand Management)?
  • Can I get some more competitive tension going in the process?
  • Would a supplier collaboration workshop work?
  • Can I change the commercial model of the supplier?
  • Could I in-source or out-source different parts of the value chain?

As you can see, way before you meet me, I have multiple levers I have thought about to deliver the Procurement Success Equation.

What are procurement looking for and what is on their mind?

Think of a time or imagine a scenario where you’re down to the last two suppliers short-listed for the work. When you are preparing to negotiate, these are some of the things to consider before engaging in the next round of discussions:

  • Where are the savings going to come from?
  • What contractual clauses are important in case we have to get divorced amicably?
  • How are you going to measure that you are delivering a High-Quality service and what happens if you don’t?
  • How are you going to Govern (control) this contract and what are the remedies and rewards for under/over delivery?
  • Does price change as the volumes go up/down?
  • Are there any rebates baked into the deal?
  • How will Service Credits work?
  • What are the termination clauses?
  • What is the contract duration?
  • Payment terms?
  • Who owns what IP?
  • How will you demonstrate the business ROI?

When preparing for your negotiation, have answers to all these questions in advance – “If you fail to plan, you are planning to fail,” Benjamin Franklin.

When is a saving not a saving?

It would seem obvious that if you offer a reduction in your price, or you give the customer something for free, then it’s a saving, right? Unfortunately, this isn’t true. It’s certainly of value to your client’s Decision Maker, but it may not help Procurement deliver their objectives.

Here’s a simple example of different types of savings’ and what they really mean:

Selling to Procurement savings definition
A definition of cost savings

Why do your clients train their procurement negotiators?

Negotiation maturity analysis
Source: IACCM and Huthwaite International

There is a wealth of evidence that points to a direct improvement in business performance if negotiators are professionally trained. This chart is one of the most compelling indicators that “Organisations with high negotiation maturity post significant increases in net income”.

That’s why your clients train their negotiators, and that’s why you should too!

Characteristics of any negotiation

In any negotiation, be it a business deal, buying a car or your relationships, there are common traits to the negotiation itself:

  • More than one party is involved
  • There are multiple agendas that are rational, emotional and political
  • People are staking out their positions and interests
  • Negotiation personalities need to be understood, i.e. collaborative, adversarial, partnership, amiable
  • Is it a transactional or strategic negotiation?

You need a framework to think through the negotiation and optimise success for all parties.

Common negotiating mistakes and why we fail to reach agreement?

Given all the negotiations I’ve been involved in, I’ve clearly made some mistakes and learnt from them. These are some of the lessons’ learnt:

  • Believing that what we bring to the table is more valuable to our counter-party than it actually is
  • Personalities getting in the way of a good deal (i.e. inability to separate the people from the problem)
  • Viewing negotiation as a fixed pie to be divided rather than an opportunity to increase the size of the pie
  • Lack of preparation
  • Not reading the personality type of your counter-party
  • Lack of empathy, i.e. failure to understand the other party’s perspective
  • Making the scope too narrow or too broad
  • Lack of objective criteria on which to base agreements
  • Winning the economic case and losing the relationship/trust
  • Not understanding the difference between interests and positions
  • Sequential negotiation strategies in complex situations – it can be seen as “chipping away” at value. It’s often better to put multiple variables on the table at once and negotiate what’s important to both parties
  • Believing you have to make a decision in the room

So when you are facing your next negotiation, avoid these common mistakes to improve your likelihood of a win-win outcome.

So, what are the traits of a successful negotiation?

This is by no means a comprehensive list. However, this combined with “avoiding the common negotiating mistakes” is a good place to start planning your next negotiation:

  • Start with the end in mind and tack towards the prize or end-goal
  • Usually, making the “first offer” anchors the counter-party to your reference point (this has been well researched internationally)
  • Asking open questions, seeking the views of your counter-party and active listening all promote collaborative negotiations and win-win outcomes. Balance this with knowing when to close the deal
  • Test your (and their) BATNA (Best Alternative to a Negotiated Agreement) thoroughly with colleagues throughout the negotiation process. The power shifts continuously as the negotiation progresses
  • Identify what it is that you have, that costs you very little, but means a lot to your counter-party

Conclusions

Once you understand these perspectives, learning how to sell to Procurement professionals and negotiating with them is a lot easier. There is a famous saying “seek first to understand before being understood“. This is 100% true when dealing with Procurement professionals that you aren’t used to dealing with.

If you are new to dealing with Procurement professionals, take on board the principles and ideas in this guide. It will demystify what Procurement really want and reduce any anxiety you may have about them.

Ultimately, understand your audience, know what they want and prepare before you engage in a meaningful negotiation with them.

I hope this guide has proved useful and debunked some of the myths about professional Procurement buyers. We are, after all, only human!

About the Author: Mike Lander

Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.

He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.

He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.

Mike Lander

Download our FREE guide to negotiating with procurement professionals

Download our FREE guide to negotiating with procurement professionals