6 Key Procurement Challenges and How to Overcome Them

Many businesses have procurement processes down to a fine art. However, there are procurement challenges that can affect even the most efficient procurement department. 

Procurement professionals are nearly always trained and skilled negotiators however, procurement processes differ significantly. We’ve taken a look at the 6 key procurement challenges and how to resolve them.

Procurement Challenges

1. Risk Mitigation

Whether it’s supplier relationships or general supply risk that procurement departments need to contend with, there’s always an issue of how to mitigate this to maintain business functionality. Risks such as fraud, bad product/service quality or delivery issues, to name a few, can be some of the challenges that need to be mitigated by efficient procurement strategies and processes.

2. Dark Purchasing (Also Called Non-PO Spend)

You may not recognise the phrase, but you’ll certainly have seen the consequences. This type of spend can often lead to unintentional challenges causing issues within a procurement function.

Dark Purchasing is purchasing which is usually made outside of a standard procurement function and process. Things such as ad-hoc travel spending, entertainment, small value general office supplies, etc can be classed as “maverick” or non-purchase-order spend. This type of spend can often erode the efforts a procurement team is making to manage overall spend leading to surprises and profit margin erosion. 

Uncontrolled spending ideally needs to be managed as soon as the issue arises. having a clear, company-wide plan to limit the budget and have full visibility of all ad-hoc spending should help to resolve these issues.

3. Lack Of Transparency

The benefits of individuals with strong skill sets and extensive experience can sometimes be offset by the issue of having multiple pieces of information stored in different places. Staff members, through no fault of their own, may have different spreadsheets, full of data that isn’t readily available to all team members. This lack of data access, which can become worse as a team grows, can make it difficult to quickly find information. Reduced visibility can lead to over-reliance on individuals and subsequently poor quality negotiation preparation.

Errors due to a lack of transparency and too much data stored in various places can result in costs to business deals, suppliers and clients. This is something which can be mitigated by having a centralised data repository, which all procurement team members should be able to have access to.

4. Inaccurate Data

Inaccurate data often goes hand in hand with a lack of transparency and data governance issues. This inaccurate data can have severe impacts on the function of a procurement department. Inaccurate data causes multiple issues impacting profitability, supplier governance and corporate risk.

5. Failure To Adopt Technology

As many of the manual data entry tasks within a procurement department are completed by employees, this can understandably lead to human error. Failure to implement systems which can assist team members with data entry or tasks which can be automated can have a severely negative impact on a procurement team. The SaaS market is now full of applications targeted at sourcing/procurement/purchasing functions. To navigate this minefield, you may need to engage a specialist consultant.

6. Supplier Relationship Management (SRM)

One of the key roles of a procurement function is supplier relationship and performance management. For an organisation’s top 20 suppliers, there will often be an SRM programme in place. These SRM programmes are complex and require dedicated resources to design and set-up the programmes for success.

How To Overcome These Procurement Challenges

Plan For Uncertainty and Manage Risk

In times of economic uncertainty, procurement needs to have the contractual rights to flex up and down supply/costs rapidly. The risk of supplier failure increases in times of economic uncertainty making it ever more important to be able to assess and manage risk.

Diversify Your Suppliers

The old saying “don’t put your eggs into one basket” is very accurate in this instance. Relying on just one favourable supplier is tempting if there is a great relationship and high quality supply. However, there are many issues which could unexpectedly affect your main supplier, which would leave a business exposed. Having a good relationship with different suppliers who can supply similar products is often a little more work for the team, but is very worthwhile.

Locally Source Products

Supply issues are common with out-of-country product supply. Looking into sourcing these products locally, if possible, is a great way of avoiding the issues that can occur when transporting products across borders involving complex supply chains. This method may also allow a business to have an edge over its competitors if the supply of products is in short supply.

Embrace Digitization

Embrace the many opportunities presented to procurement teams through the adoption of SaaS based technologies. Making use of digitization can help a business utilise their team much more efficiently and take away much of the human error which can sometimes happen.

Conclusions

Recognise that procurement faces a number of challenges in managing complex supply chains (products and services) in times of uncertainty. Seek regular feedback from your procurement team to gain insights into supply challenges and technology opportunities. Invest in areas that enable procurement to more effectively manage risk and improve your business outcomes.

For more support and advice to streamline your procurement process, read our expert blogs.

What’s the difference between Direct and Indirect Procurement? Why should you care as a sales person?

As a seller, it’s important to know your “procurement onions”! One of the key things to understand is the difference between Direct and Indirect Procurement people. The headline is:

  • Direct Procurement: They buy everything that their customers use/consume. For example, fruit if you’re a retailer
  • Indirect Procurement: They buy all the stuff that their customers don’t use/consume. For example, marketing services, IT, buildings’ infrastructure, etc.

McKinsey calculates that globally, indirect spend is growing around 7% per year”. When indirect procurement costs rise, net margins fall. Historically, when the going gets tough, direct procurement are very good/creative at lowering direct costs. However, indirect procurement is often the poor cousin. It typically suffers from under-investment in people and technology.

This guide to Direct vs Indirect Procurement is intended to help you and your team to understand the intricacies and differences between them. You need to know this because:

  • Your preparation for negotiating with procurement needs to include an understanding of their role.
  • If you’re negotiating with an indirect procurement person, and they’ve just moved from direct procurement, they’ll be formidable negotiators.
  • To build empathy, understand who you’re dealing with.

What Is Direct Procurement?

Direct procurement involves spending on goods, services, and materials. This is the stuff that their customers use/consume. They’re at the heart of driving performance, profit and competitive advantage. Companies often regard this type of spending as critical as every $ saved is a $ to the bottom line. And if you’re a big retailer, that’s a LOT of $s!

Examples Of Direct Procurement: 

  • Machinery – Things such as picking and packing machinery, machines to convert raw materials into finished goods, and trucks to deliver items.
  • Raw Materials – Products that will be used to create a final product that the business can sell. For example, things such as raw meat, vegetables, steel, oil, etc. 
  • Subcontracted Labour – If the workforce isn’t large enough to complete a specific job (often seasonal), companies subcontractors/temp-labour. They can also be necessary where specialist skills are required.
  • Products For Resale – Even products which haven’t been manufactured by a business, but are bought for resale, are classed as direct spend procurement.

Why Direct Spend Procurement Is Important

The importance of Direct Spend Procurement doesn’t just start and end with the amount of money that is spent on specific goods and services. 

This type of spending is critical as it usually involves goods that will eventually make their way to a customer. Spending money on high quality goods and materials is obviously vital when dealing with an end customer. Utilising direct spend on these high quality goods and services is essential when trying to build a brand. Making significant cost savings within direct spend procurement isn’t always the objective. Cost cutting initiatives need to also ensure that goods and service quality levels are maintained. 

What Is Indirect Procurement?

While it’s true that the majority of a business’ spending is usually direct procurement, indirect procurement has a key role to play.

Indirect Procurement includes things such as marketing, IT, buildings infrastructure, insurances, recruitment, etc. Items within an indirect spend category are equally as important as those within a direct spend, as they keep the business running day-to-day and support growth.

Examples Of Indirect Procurement: 

  • IT Support – Vital to the running of the business and supporting growth. Deep, specialist, technical knowledge is required to negotiate these types of contracts.
  • Insurance – Often overlooked as an important category – but when you need it, critical to business survival.
  • Office Supplies – Again, this contributes to the day to day running of a business. Clearly isn’t classed as essential when it comes to producing a product for an end user.

Why Indirect Spend Procurement Is Important

Although indirect spending can sometimes seem like an expense that businesses should try to minimise, it’s essential to surviving and thriving. 

Reducing indirect spending too much can affect not only the running of the business but can also affect staff morale and standard of the working environment. Remember that the end customer isn’t the only person that should be considered when trying to manage both direct and indirect spend. 

Why does all this matter to you as a seller?

Because, if you’re dealing with big, enterprise companies, you’re bound to meet procurement at some point. Don’t bury your head in the sand and don’t avoid them. Understand their objectives and roles in order to negotiate better deals with them.

As an ex-procurement director, here’s a simple tip: Stop selling and start negotiating when you meet procurement!

How to prepare in advance of meeting them

Whether you’re meeting direct or indirect procurement, here are some tips to get the most out of your meeting/negotiation:

  • Look at their LinkedIn profile. How long have they been in procurement? What kinds of goods/services have they bought?
  • Plan your negotiation strategy thoroughly. They’ll have done their homework.
  • Hone your negotiation skills
  • Have a strong BATNA
  • Start out with the intention to “grow the size of pie”, not simply carving up a “fixed pie”

Conclusions

Hopefully this guide has highlighted:

  • The differences between direct and indirect procurement
  • Why it matters to you as a seller
  • How to prepare before meeting them

Read our other guides for more support and ways to engage with procurement.

How to Build a Sales Capacity Model and Sales Plan

Every established sales leader should have a firm grasp of sales capacity planning. Once you’re confidently executing the Sales Foundations, it’s time to build your sales capacity plan.

What is Sales Capacity?

Sales Capacity is a way of measuring a sales team’s ability to deliver revenue targets based on expected sales productivity per head. However, life is never that simple, but you’ve got to start somewhere. So, let’s make some assumptions and start to build a Sales Capacity model.

Calculating Your Sales Capacity

Let’s use an example to illustrate the calculation:

Step 1: How many Sales Qualified Leads (SQLs) can your average sales person manage per month: Let’s assume it’s 10.

Step 2: What is the average conversion rate from SQL to win: Let’s assume a 30% win-rate.

Step 3: Now we can calculate the average number of won deals pm per sales person:

Average number of Opportunities pm x Average Conversion Ratio = Average number of Won Deals per Month

Step 4: What is the average deal value (ADV)? Let’s assume that the average won deal value is $50k. Have a look here for more on increasing the ADV.

Step 5: Multiply the $50k by the average number of won deals per month (3) to get the average revenue per month per sales person:

Average Deal Value x Average Won Deals per Month = Average Monthly Sales Capacity (in the example above, it’s $150,000 pm)

Step 5: Now work out how many sales people you need, on average, to hit your total sales target. Let’s assume your annual sales target is $10m. Therefore, the calculation is:

Total Annual Sales Target/(Average Monthly Sales Capacity per salesperson * 12) = Sales Capacity Requirement (in this example, it’s 5.5 sales people)

This is your starting point – now it gets more complicated! As with revenue forecasts, the capacity projection has a lot of variability associated with it and opportunities for increasing Sales Efficiency. For example:

  • Average sales cycle length (closed-won and closed-lost)
  • Seasonality
  • Size of territory
  • Customer segmentation
  • Product/service range and Average Deal Value
  • Salesperson experience
  • Salesperson staff turnover rate
  • Ability to consistently generate the required number of leads and hit the sales targets

Step 6: Now, start to add in the above variables to your sales capacity model and re-run the scenarios. You’ll likely end up needing at least 25% more sales capacity to hit the sales target, i.e. in our example, you’ll need 7 sales people not 5.5.

Note: You also need to look realistically at the lead-gen process; the above example requires 660 unique SQLs pa which is probably equivalent to >5,000 Marketing Qualified Leads (MQLs) pa!

How To Build A Sales Plan

Now you’ve got a Sales Capacity model, you need to build a Sales Plan. Here’s our step-by-step guide:

Do Your Homework

Gather as much information from past sales trends to try and predict the future. For example:

  • Were sales healthy in the previous year? The last two years? Five years?
  • How have your competitors performed?
  • Have buying habits changed?
  • What are your core segments?
  • Who are your star performers and why?
  • And …..

Having this core information and analysis will allow you to become familiar with trends within your business and your industry as a whole. Using this method enables you to build a strong foundation for a sales planning process.

Define Your Objectives

You cannot measure success without goals. Defining goals and objectives is one of the crucial first steps in the sales planning process. Establishing them early allows the team to have a firm understanding of the direction the business is heading in.

Be Clear About Success Metrics

If you can’t measure success, how will you know when you’ve achieved it? Performance indicators (KPIs) are vital when it comes to determining success. Traditionally, KPIs would include Closed Won Deals, Sales Velocity, gross profit margins, conversion rates and a whole raft of other sales metrics.

Forecast Your Sales

Now, take your Sales Capacity model, your assumptions and objectives and start forecasting. Include as many assumptions as you can think of (including skill and experience gaps) and use them as variables in the Sales Forecast model. Then, run different scenarios until you end up with a realistic, stretching, but achievable forecast.

Involving stakeholders once your sales planning process is coming to an end is essential, as it will allow all key areas of the business to be included. This inclusion will hopefully ensure that all stakeholders feel responsible for their part in the plan. The more engaged that different departments become, the better the outcome.

Create Engaging Initiatives

Now work with marketing to build campaigns (by month) that will generate leads in order to hit your targets. Measure what matters and build sales dashboards to keep on top of your lead and lag indicators of success.

Three Common Sales Capacity and Sales Planning Pitfalls And How To Avoid Them

  1. Lack of Alignment With Business Strategy

There can be a slight disconnect between the sales plan and the long-term business strategy. Specifically, target geographic territories, customer segments, product/service line mix, pricing/margin strategy, etc. Resolve this by having a regular slot at the quarterly strategy sessions to present updates on sales plans. Additionally, regular 1:1 Exec meetings is a way of building alignment in between strategy sessions.

  1. Under Estimating Attrition Rates

Being aware of previous years’ attrition rates and trying to plan for this in the current year is important when rolling out your plan. If you estimate that, based on last year, 10% of salespeople may leave this year and it’s actually 20%, it will hinder your chances of hitting financial targets. Monitor this closely so that the multi-month ripple effect can be avoided, or at least minimised.

  1. Underestimated Ramp-Up Time

Just like attrition rates, sales capacity plans can underestimate the ramping-up process for new sales team members. When a new staff member is hired, they’ll need time to get to grips with how the business operates. This ramping-up process takes time and almost guarantees that a newly hired salesperson won’t be at full productivity for several months.

Summary

Sales capacity planning is a lot harder than it looks, but by making assumptions about factors that could become an issue, it becomes much easier to provide more accurate plans/forecasts. Use the principles above to establish your sales capacity plan and get in-front of the complexity that is natural in this type of iterative exercise.

How to Manage A Contract Renewal in 2022 & Beyond

Despite being a necessary element of negotiation, the subject of contract renewal can often be an uncomfortable one. Broaching the subject of continuing or extending a contract can be difficult, especially if key stakeholders have moved-on inside the client. To succeed, you’ll need a negotiation strategy and negotiation skills to ensure it’s a profitable and rewarding renewal for both sides.

What Are Contract Renewals?

A contract renewal could be considered as the last stage of a contract or negotiation lifecycle. One way of looking at a contract renewal is that they’re a gauge of whether your client is delighted with the progress that’s been made against their target outcomes. Put simply, they’re a follow-up negotiation to extend the terms of your original agreement with an existing client.

Some Key Elements to Any Contract

Before we start talking about renewals, let’s take a step back and look at some key contractual elements that you will be negotiating:

  • Firstly, the 20/30/50 page behemoth that’s often called the Master Services Agreement (MSA) – this is where 95% of the contractual terms are negotiated. Take great care with this as it lasts throughout the working life of your relationship with the client
  • Schedules attached to the MSA, for example Security Policies, Change Request Processes, SLAs/KPIs, Statement of Works (SoW), Pricing Schedule, etc. The SoW being predominantly where you specify the work you’ll be doing.
  • Contract Term: This is the nominal length of the contractual relationship
  • Notice Period: How much advance notice either party must give to the other if they want to end the agreement. Beware, these are often different for the client and vendor.
  • Payment Terms: How long it will be before you receive the cash once you’ve invoiced. We’ve written a blog on Payment Terms.
  • Termination Rights: Broadly falls into two categories. “Termination for Convenience” and “Termination for Performance”. Ideally, you don’t want to ever accept Termination for Convenience, however, clients nearly always want this right – it’s a tricky negotiation so get expert advice.

We mention them here because once you’ve negotiated specific items in the Master Services Agreement, it’s highly unlikely you’ll be able to change them as part of a renewal negotiation. The main things you’ll be negotiating at renewal are the SoW, Pricing Schedule and SLAs/KPIs.

Contract Renewals Are Vital Growth Opportunities For Your Business

Once you’ve gone through the initial procurement negotiation process and the customer has signed the initial agreement, this is where the work really begins. Depending on the supplier’s strategy and organisation design, there are broadly two models for managing contract renewals:

  • The sales person retains the sales relationship with the client for as long as they work together. Therefore, the sales lead does the renewal negotiations
  • The client is handed over to service delivery. In these cases, it’s usually the role of an Account Manager and/or Project Manager to negotiate the renewals.

From the moment that the client decides to contractually work with you, they’ll be tracking progress against targets and the quality/professionalism of the experience. Allowing a few months of settling-in and understanding how each party works is key. It’s important for both sides to take-stock of any material changes they’d like to make in the future and to keep notes.

However, as you approach the end of the initial Term (length) of the contract, it’s a great opportunity to review:

  • Are there other services that you provide which can be included in a contract renewal with an increase in budget? 
  • Are there issues brought up by a client at a contract renewal which could improve the way you work?
  • Are there competitors that your client mentions at a contract renewal, which could give you insight into how they work? 
  • Do you believe that you have undercharged for the services your client ended up requiring?
  • Are you the perfect fit for the client that you initially thought, or is it time to walk away?

The list is vast when it comes to making a contract renewal work for you, and it’s important to remember that it’s a two-way street. Before talking about renewals, you have to ensure that you’re delivering/exceeding the client’s expectations. Have you solved the initial business problem and delivered tangible benefits?

Prior to renewals, in-fact at the start of the contract, you need a clear way of:

  • Measuring and reporting progress against SLAs/KPIs
  • Holding weekly/monthly/quarterly reviews with different stakeholder communities
  • Keeping lines of communication open so that clients can discuss any issues as they arise.

You don’t want to be left floundering at the point of contract renewal, with no way of being able to claw the relationship back.

Preparing For Contract Renewals

You have to build an engagement and negotiation plan for a contract renewal at least 3 months (and ideally 6 months) ahead. You need to take into account all the data you’ve collected (soft and hard) from your own team and the client. Preparing for a contract renewal negotiation is almost the same as the initial negotiation, except now you have the benefit of data, performance and relationships.

How Should You Manage Contract Renewals?

You should create a standard process and templates for contract renewals, just like you would for new-business-sales. As you build your contract renewal strategy and negotiation plan, think about the following:

  • Have you provided everything that you promised to the client?
  • Have there been any issues that needed resolving during the time you’ve been providing your services?
  • Were these issues resolved in a timely manner?
  • Are there additional things that you’d like to add to the renewed contract?
  • If these additions aren’t accepted by the client, does this mean that your business wouldn’t want to renew?
  • Has the relationship with the client remained positive and collaborative?
  • Do you want to continue to provide a service or product to the client?
  • Has this been a profitable relationship?
  • Do you need to change your pricing, KPIs and SoW to improve profitability whilst still hitting target KPIs?
  • Were the client’s initial expectations realistic about what could be achieved?

Once you’ve been able to answer these questions, you’ll be able to formulate a plan on how to discuss this with the client. They’ll have the same type of questions on their mind, so it’s good to get an idea of where their thoughts are on renewing their contract early on in your discussions. While it’s important to maintain the relationship and fight for a contract renewal, don’t feel like you can’t walk away if it no longer suits the business. You’ll gain more confidence as a salesperson if you collectively admit that the client relationship no longer benefits the business or indeed both parties.

In essence, use the same formal preparation that you used in your initial negotiations and you won’t go too far wrong. Preparation, data and a clear negotiation plan are critical to successful contract renewals.

The Ultimate Guide To Sales Qualification In 2022

Many of the clients we speak to have considerable experience about how to qualify a sale and the effort that this takes. However, they’re also usually aware that this is something that can always be adapted and improved upon. This is especially true as sales teams scale. 

Many clients also have a firm understanding of Sales Foundations but understand that enterprise deals require more advanced skills and processes. Our ultimate guide to sales qualification in 2022 provides the perfect insight into what’s required to successfully complete a sale.

What Is Sales Qualification?

Essentially, Sales Qualification is a way of determining whether a prospect or lead is worth investing your time in. While this may sound abrupt and to the point, this knowledge will allow you to utilise your skills effectively and save the client time as well. Sales qualification enables you to quickly decide whether or not you can add sufficient value to a customer.

Why Is Sales Qualification Critical?

Due to sales being a very time (and often energy) consuming role, it’s important to use this available time to the best of your ability. Wasting time on customers who are ill-suited to your offering is a bad use of your sales time, regardless of how much you’d like to do business with them. Using basic guidelines or questions to determine who is a qualified lead will allow you to put more energy into customers who need it and value your services.

Spending time focusing on the right customers will also allow for a better relationship between yourself and a customer throughout the process. The more time you spend with an unqualified or poorly qualified lead, the greater the likelihood of you missing quota (and your commission will be non-existent).

What Is A Lead Qualification Process?

Lead qualification simply means that you’ll have a consistent process in place to determine the likelihood of a sale. Using a mix of informal discussions and strategic questions, you’ll be able to establish whether you’re onto a winner.

While you don’t want to seem too robotic, many salespeople have a process or checklist in place to quickly determine a qualified lead. Using sales qualification questions is an important way of finding out everything you need to know. To avoid making the customer feel like they’re being vetted, position the conversation as part of your diagnostic process.

Why Is It Essential to Ask Sales Qualification Questions?

Having an instinctive chat with a potential client isn’t enough to establish whether they’re a good fit. Relying on a well-thought-out list of questions and a checklist for each new prospect is the best way to determine this. Once you have a checklist of questions, you can use this each time you meet a new prospect.

Essential Sales Qualification Questions

Whilst it’s important to have a list of questions that you require answers to, it’s also important not to bombard a client. Finding the right balance between information finding and having a relationship building conversation is something to consistently improve on. Try imagining that the roles were reversed:

  • Would you feel comfortable with the number of questions being asked?
  • Are the questions getting to the root of the problem or do they feel unnecessarily invasive?
  • Would you feel comfortable giving detailed answers about your own company at this stage in the relationship?

Having an idea of how these questions can make people feel is essential when creating your list.

1. What Problem Are You Trying To Fix? 

Usually, a business will have encountered a problem that is forcing its hand when it comes to implementing change. Ask the customer what the issues are so that you can delve deeper into potentially finding a solution for them.

Why It Works – Being able to lay the cards out on the table and establish what the issue is, allows for change. Ensuring that the customer knows there is an issue that needs resolving and the size of the prize for solving it is the first step towards a resolution.

2. Why Are They Looking For A Solution Now?

Establishing whether a business is looking for a solution because of a new or recurring problem is essential. If it is a new problem, some companies may jump head first into agreeing to a sale to immediately resolve their issue. If there is no compelling deadline forcing the prospect to make a decision, the sales cycle is likely to become protracted. It will also be difficult for the prospect to secure a budget to solve the problem without a business deadline.

Why It Works – Asking this question will allow you to set some boundaries for both sides. No compelling deadline by which to solve the problem usually means there isn’t a deal to be done – with anyone!

3. Have They Tried To Address This Problem Before?

Have they ttried to resolve this problem in the past and failed?. Ascertaining whether they have used a different company previously is critical:

  • Have they tried the same approach but with a different company?
  • Have they tried a different approach entirely and what happened?
  • Have they tried solving it internally and if so, what happened?

Why It Works – Not only can you gain a slight competitive edge when gaining details about other businesses, it helps to steer the future direction. Being aware of what other solution providers may have tried in the past, gives you an idea of what not to do. This knowledge will also provide you with an opportunity to reassure the customer that you can resolve their issues.

4. Who Is Involved In The Decision-Making Process? 

If you aren’t talking to the correct person who can make decisions, then you’re wasting both of your time. People often won’t mind you asking the question if you still engage with them rather than ignoring them once they aren’t part of the discussion. There’s nothing more frustrating than spending your time on a sales pitch, only to realise that your prospect has zero buying responsibility.

Why It Works – Asking this question allows you to get access to the right person at the right time. Spending time on a sales pitch to the wrong person is not only a waste of time but also shows a lack of commercial experience. Regardless of whether it seems like a blunt question to ask, businesses expect that this will be asked. Customers value their own time as much as you value yours. Don’t allow a seemingly awkward question to hinder your chances of progressing a sale.

5. Do The Other Stakeholders Have Any Concerns?

Once you’ve established who the main decision-maker is, it’s important to make a note of any concerns from other stakeholders. While this person may be the decision-maker, it can often be the case that they’ll be heavily influenced by others within their business. Get a solid idea of the types of concerns that are arising and from whom, so that you can be equipped to address them when required.

Why It Works – By encouraging transparency, you’re giving yourself the opportunity to field any concerns before they negatively affect a sale. Listening to the concerns of people who may influence a sale will give you scope to provide more in-depth explanations or solutions. Whilst it can be a challenge to take on board various opinions, adapting to this shows that you have the customer’s interest at heart.

6. What Does Your Ideal Timeline Look Like?

It’s vital that you establish an ideal customer timeline so that you’re able to deliver on this. If a business is panicking due to the issues they face, they can often be demanding a speedy resolution. Explaining exactly what can be achieved within the desired timeline will instantly set you up for success. Many businesses are flexible in regards to resolutions if they are fully aligned with a timescale from the beginning.

Why It Works – Asking this question sets a firm set of ground rules for each side. The customer will be aware that they cannot demand a faster result than agreed, and you’ll have visibility of your businesses forward workload/capacity. Using this as a negotiation tactic adds another string to your bow.

What is a sales qualification framework?

A sales qualification framework is a predetermined set of criteria that allows a salesperson to conduct a customer assessment. Using this framework, you’ll be able to establish whether a lead can become a qualified prospect. Once this is established, you can then proceed using your negotiation skills to secure a sale.

There are 4 main methods that are often used within sales qualification frameworks. while they are similar to each other, they are referred to by different acronyms:

  1. BANT (Budget, Authority, Need, Timeline)

Budget – Can the customer afford the product that you’re selling? Is it a line item in their existing budget?

Authority – Can the person that you’re dealing with, make decisions on behalf of the business? Do they have any control over the sale?

Need – What is the issue that needs resolving? Is this a new or ongoing problem?

Timeline – Is this an urgent requirement? Is there room for timescale negotiation?

  1. CHAMP (CHallenges, Authority, Money, Priority)

CHallenges – What issues is the business facing? What requires a resolution?

Authority – Who will be making decisions about which supplier to appoint in relation to these issues?

Money – Is there enough of a budget within the business to implement change?

Priority – Where does this fall in a list of priorities for the customer? Will there be waiting time while the customer decides to implement change?

  1. FAINT (Funds, Authority, Interest, Needs, Timing)

Funds – Does the business have the available funds to purchase your product?

Authority – Does the customer have buying authority for the entire business?

Interest – Is the customer genuinely showing interest in your product or service?

Needs – Are you solving a problem for them? Do they have a specific need that needs to be addressed?

Timing – Do they have a completion date in mind? How long have they anticipated that implementation will take?

  1. SCOTSMAN (Solution, Competition, Originality, Timescales, Size, Money, Authority, Need)

Solution – Do you genuinely believe that your product will solve the customer’s problem?

Competition – Has there been a tender from a rival business? Is the customer more likely to opt for the competitor? Do they have an incumbent supplier?

Originality – What makes your offering different?

Timescales – How can you provide a solution within a required timescale?

Size – Is this a large enough sale to require your full attention and efforts?

Money – Is there enough customer budget to implement change?

Authority – Who is in charge of financial decision-making?

Need – Does the customer understand their need for your product?

The Ultimate Guide To Sales Qualification

We’ve discussed many options to ensure that you’ll be able to successfully qualify a sale. While it may seem overwhelming, it’s worth noting that the core elements remain the same. Pick your approach and implement it rigorously across your sales teams for every opportunity. You’ll be far more likely to meet quota and land work with more of the right clients.

How Using A Negotiation Coach Can Make You a Better Negotiator

Even the most successful negotiators are constantly learning and growing their skills. This usually involves attending advanced/niche training programmes, or by using a negotiation coach (or mentor – see below). By utilising the deep experience that a Negotiation Coach has, you’ll be able to strengthen your own negotiation skills and see things you’d missed. Wherever you are in your negotiation journey, utilising the skills of a Negotiation Coach could be the element you’re missing to accelerate your performance and improve the outcomes.

A Quick Word On Coaching versus Mentoring?

Most of us use the words Coaching and Mentoring interchangeably. However, here are three of the key differences:

  • Delivery style of the Giver: Coaching relies on the Coach asking insightful questions and the Coachee finding their own answers. Whereas Mentoring relies upon the deep expertise of the Mentor to help the Mentee answer questions quickly, avoid tank-traps and build solutions together.
  • Learning style of the receiver: Coaching is non-directive (e.g. “Can you please describe the underlying root causes of the problem you’ve just described?”) whereas Mentoring is directive (e.g. “I’ve seen something similar before, and in that situation, this is what I did and this is the outcome”.
  • Experience: Mentors typically have deep, hands-on experience of the situation that the Mentee is grappling with. Coaches have deep experience in asking the Coachee exactly the right questions to help them discover/unlock the answers for themselves.

In our experience, solving challenging negotiation problems requires Mentoring rather than Coaching. However, as 95% of the population prefer the word Coach, we’ll stick with that for the rest of this blog.

What Is A Negotiation Coach?

A Negotiation Coach works with a client on a specific deal (or number of deals). Their role is to provide deep insights into handling similar negotiation situations. They develop negotiation strategies, prepare the client in advance of negotiation interactions and debrief/re-plan after each intervention.

What does a Negotiation Coach Do?

They’ll usually do a combination of the following:

  • Spend time understanding the background of the situation in a lot of detail.
  • Support the client in getting as much information as possible about their counterparty’s options, the value of this deal to them, and the competitive landscape.
  • Provide tools, templates, checklists and techniques to improve the quality of the preparation and interactions with the counterparty.
  • Work with the client to clarify their objectives, BATNA, objective criteria
  • Build an ideal timeline and milestones to get the deal done
  • Build a list of all the negotiation variables and map out the ideal and least acceptable outcomes
  • Build a negotiation strategy and tactical plan in collaboration with the client
  • Prepare the client for negotiation meetings and re-group afterwards to review the strategy, tactics and re-plan

Negotiation Coaches will have seen similar situations and understand likely scenarios which will help deliver a more robust strategy. A Negotiation Coach can’t guarantee the outcome, but they can ensure that the client is exceptionally well prepared and has access to extensive negotiation experience. This combination generates >80% of the value in any negotiation situation.

Why Are Some Coaches More Expensive Than Others?

As with all aspects of life, the price of goods and services is usually dependent on the level of experience, skills and value on offer. Negotiation coaches operate a wide range of commercial models including:

  • Hourly rate
  • Fixed price
  • Base fee + success fee
  • Retainers
  • A combination of the above

Five Ways A Negotiation Coach Can Benefit You

  1. It Can Prevent Fear From Destroying Value

Using well-defined and practised strategies will enable increased confidence when negotiating with your counterparty. Having an increase in confidence will have a positive impact on any fear which may have previously held you back.

  1. It Will Enable You To Become More Decisive

Having a professional negotiation coach will help you reach better commercial decisions quicker. Seeking out new ways of coming to a conclusion will help not only in the workplace but in everyday life too. You’ll become more assertive and decisive when trying to ascertain what you want to achieve, why you want to achieve it and what are the viable alternatives if agreement can’t be reached.

  1. You’ll Be Able To Articulate Your Needs In A Clearer Way

It may be that you have a perfectly solid negotiation technique, which simply needs a different perspective. A Negotiation Coach will help you to articulate what your non-negotiables are during each negotiation and what you’ll settle on.

  1. You’ll Move Away From Limiting Beliefs

Even at the top of your game, imposter syndrome can strike. Having even the briefest flash of self-doubt or limiting beliefs can cause a negotiation to fail. Using a Negotiation Coach will allow you to overcome these negative thoughts and reframe them.

  1. You’ll Be Able To Overcome Interpersonal Resistance

Everyone can meet interpersonal resistance when you engage with your counterparty. Hiring a Negotiation Coach will give you the skills needed to interact with any counterparty to get closer to your desired outcomes. A Negotiation Coach will often roleplay potential scenarios or roadblocks so you can develop strategies to overcome all types of resistance.

Conclusions

A Negotiation Coach is a critical addition to your negotiation toolkit for more complex deals. In summary:

  • A negotiation coach develops negotiation strategies, prepares the client in advance of negotiation interactions and debriefs/re-plans after each discussion with the counterparty.
  • Negotiation Coaches will have seen similar situations to the one’s you’re facing, they understand the likely scenarios and can help you prepare for more successful negotiations.
  • Negotiation coaches can help you with the emotional stresses of any negotiation

Learn more about our negotiation coach, Mike Lander, and discover how Piscari Negotiation coaching can help you to become a better negotiatior.

Six Critical Negotiation Skills to Improve Your Sales Capability

Knowing how to improve your sales capability is a key element of establishing a successful career in sales. Learning and refining new or existing negotiation skills to improve your sales capability is one of the most productive things you can do to improve sales. Whether you’re new to the industry or have 20 years’ experience, it’s essential to build solid foundations in sales and negotiation skills.

This guide will provide you with 6 critical negotiation skills to improve your sales capability. Each one is tried and tested to help you harness your negotiation skills and ultimately increase your sales numbers.

What Is “Sales Capability”?

Let’s understand what we mean by sales capability first. 

“Sales Capability” is fundamentally about the following:

  • Sales prospecting.
  • Sales leadership and management, target setting and KPI-tracking.
  • Sales CRM systems management.
  • Intelligence gathering/research, listening skills and analysing customer problems.
  • Creating value/ROI, solution building and overcoming resistance.
  • Negotiating profitable commercial deals.
  • Winning and growing business.

Being able to self-diagnose your strengths and weaknesses is a key part of being able to grow as a sales person.

What Is A Sales Capability Manager?

A Sales Capability Manager is essentially responsible for implementing strategic initiatives to help drive a salesforce forward. Having someone oversee the development of sales tools and techniques is a great way of driving long-term sales growth. Adopting this approach will provide salespeople with the support they need to succeed.

Why Are Negotiation Skills Important To Improving Sales Capability?

Closing a deal on the best commercial terms requires excellent negotiation skills. Having an effective, tried and tested set of negotiation skills, tools and checklists is crucial when it comes to improving a salesperson’s sales capability. These skills are one of the cornerstones of any improvement strategy.

It’s important to remain consistent in your approach to negotiation, regardless of whether a formal capability framework is in place. Allowing yourself to fall into haphazard, unstructured and an unprepared way of negotiating makes it impossible to improve your long term potential and success.

What Is A Sales Capability Framework?

A sales capability framework is a simple list of knowledge, skills and behaviours that impact a sale from start to finish. This list of “competencies” can be used to show a salesperson what’s expected from them and how to achieve it. Elements within this type of framework include:

  • Collaboration – how well a salesperson works within their organization or externally to achieve a sale. Having a firm grasp of how a salesperson works alongside others is crucial when establishing what their capabilities are. The bigger the sale, the more complex the deal, the more that collaboration and communication is essential.
  • Commercial Focus – a critical component of the framework is a salesperson’s ability to think commercially about the best way to negotiate the commercial terms of a deal. There are many different ways to build a commercial proposal which is about much more than just price.
  • Communication – This lends itself to both customer-facing and non customer-facing elements of a sale. Great communication skills with customers will always help with closing a sale, while communicating effectively with a team will ensure things run smoothly. Focusing on improving communication from the very first point of contact with a customer can make all the difference.
  • Customer Excellence – Aside from communication, this is one of the most important elements of strengthening your sales capability. Focusing on specific training to address any weaknesses in confidence when dealing with customers is key. Obtaining feedback from customers based on their experience is a great way of measuring where an individual or team can improve.
  • Decision Making – Having a strong sense of self is a desirable asset for any salesperson. Knowing how to make firm decisions based on facts rather than emotions is how a lot of the best sales are closed. Decision making training and technique guidance are a great way of strengthening this skill.

Evaluating Your Sales Capability Framework

Once you have a sales capability framework in place, it’s essential to review it regularly. Whilst it’s not always a fun task to objectively review your own performance, it’s necessary in order to advance within a sales career.

Having a clear idea of the objectives and how to implement them on a daily or weekly basis is essential when evaluating a sales capability framework. It often falls to a Sales Manager to review and implement this type of strategy and provide support for salespeople. Some of the key things to bear in mind when evaluating your framework are:

  • Is there just one element in the framework which negatively affects the others?
  • Can these issues be resolved by further training or support?
  • Are there any unavoidable external factors (e.g. economic uncertainty) which are having an impact?
  • Are there any personal issues that the salesperson is facing, which could be impacting their capability?
  • How do members of a sales team compare against each other? Could certain peoples’ strengths be used as a training method for others?

How Do You Develop Sales Capabilities?

Sales capabilities can be developed and strengthened through various training courses and by insights provided by enlisting a Sales Capability Manager. Adopting a more structured approach to assessing sales capabilities can be extremely successful when improving the skill set of a salesperson and/or team.

  • Attend Sales Training – Extend your skill set by taking advice from trained professionals within your field.
  • Roleplay – Acting out true to life situations in a safe environment can be a great tool when it comes to learning. Running through multiple scenarios and solutions will give a better insight into the challenges salespeople may face.
  • Seek Out A Mentor – There’s often nothing more valuable than taking advice and pointers from professionals within your field. Enlisting a sales/negotiation mentor can have a significant impact on salesperson performance/success.
  • Review Your Own Performance – It can be daunting to critique your own performance or sales calls, but it pays to be honest with ourself. Listening to recordings of both successful and unsuccessful sales calls are a great way of recognising how you’re performing and where to improve. 
  • Listen To Feedback – It’s never a comfortable task to listen to feedback, especially if it’s negative. However, taking the time to review customer feedback will allow you to recognise areas of your sales capability which need improving.
  • Switch Up Your Closing Techniques – Play around with how you try to close a sale. Different customers will react differently to your many techniques, so learning how to adapt and respond will allow you to develop.
  • Enlist A Sales Capability Manager – Having someone else to report into, who has previous knowledge of sales techniques, can be very beneficial to a team of salespeople.

Six Critical Negotiation Skills that Will Improve Your Sales Capability

  1. Be Prepared

Do your research in advance of any negotiation. Establish why the customer needs what you’re selling. If you’re solving a client’s problem with a compelling ROI, they’re more likely to negotiate a deal with you. What’s the time imperative; why do they have to solve this problem now? Do they have the budget required to buy your solution (based on the RoI)?

  1. Build Trust

While nobody is saying that you need to become best friends with a client, you do need to build trust. As David Maister noted, trust relies on credibility, reliability, intimacy, and self-orientation. Trust isn’t built overnight, it can take months, and in some cases, years. When negotiating, mutual trust becomes an important factor in reaching agreement.

  1. Be A Problem Analyser and Solver

According to Einstein he famously said “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions”. So, once you’ve established the problems/pains that a client is facing, spend time really understanding the symptoms and root causes. Refer back to things that the client may have said when describing their current situation. Draw on your personal and industry knowledge. Then, spend time together building and negotiating the scope of possible solutions.

  1. Don’t get Emotional

If you’re hot headed or often react based on emotion, it’s going to be a big problem. Negotiators are trained to emotionally-detach from a situation. Think about the PAC model when negotiating – adults talk about facts. Bring the discussion back to the rational if you sense it going off track.

  1. Educate never Threaten

As William Ury said in Getting Past No, educate your counterparty, never threaten. If you sense resistance and people simply “digging in”, try and educate them about the impact of not moving forward. Go back to your objective-criteria for agreeing a deal. Re-frame problems and collaborate on creative solutions.

  1. Turn Up Your Listening Skills

This type of skill is unbelievably helpful in every aspect of life, not just within a sales or negotiation environment. Taking the time to see your client as an investment rather than just a commission-earner is essential to improve your sales capability. Seeing the client in this way will ensure that you’ll take the time to really listen to their needs. Clients will be thankful that you’ve taken the time to listen to their problems/needs and want to work together to address them.

Start Improving Your Sales Capability

Taking the time to increase your sales capability will be of significant benefit to your company, your sales quota and your clients. It will provide you with a more prepared, confident and well thought through approach to negotiation. Take the time to strengthen and improve your sales capability and you’ll be surprised at how fruitful your efforts will be. We’ve seen that improving negotiation skills can increase revenue by up to 25% pa – with sales and negotiation training.

For more support in growing your negotiation skills, try sales-specific training or coaching sessions for you and/or your team.

12 Top Tips For Negotiating Payment Terms

Whether you’re new to negotiating, or you’ve been closing deals for decades, the issue of payment terms can affect any one of us. Being unfamiliar with payment terms and how they affect a business, can leave both newbies and seasoned professionals equally stumped. 

It’s important to get to grips with these details before entering into a negotiation, to ensure a successful outcome for all. 

To help you do just that, here are 12 tips for negotiating payment terms.

What Are Payment Terms?

Payment terms are one of the key contractual elements involved in negotiation. Negotiating payment terms can seem daunting if you’re not overly familiar with what they actually are. Being aware of payment terms is key to understanding how to negotiate better commercial deals with your clients. 

Put simply, payment terms are specific conditions surrounding the payment aspect of a deal. 

Why Are Payment Terms Important?

As with anything relating to business, it’s important to try and be as resilient as possible against risks. Knowing how to negotiate payment terms will mitigate some of the financial risks associated with a deal, especially in negotiations with bigger companies.

Payment terms and cash-flow management are essential ways of managing the financial sustainability of any business.

For example, in April 2020, a survey by the Association of Practising Accountants (APA), revealed that more than half of owner-managed businesses in the UK would run out of cash within 12 weeks, due to lockdowns. Figures from a survey by the Institute of Chartered Accountants in England and Wales (ICAEW) show that SMEs have been taking action to manage cash flow and defer tax payments where possible in order to keep afloat.

Reports like the one above are a stark reminder that businesses need to negotiate solid payment terms within a sale. Leaving your business wide open to the negative effects of external cash-flow factors and without agreed terms, is only asking for trouble.

Top Tips For Negotiating Payment Terms For Buyers And Sellers

1. Keep Your End Of The Bargain 

If you’ve agreed to complete a piece of work by a specific time, make sure you stick to it after the deal is negotiated. Starting off on the wrong foot, early on, can make conflict resolution much harder down the line, especially when you need the cash.

2. Keep Your Initial Terms Simple

Starting with clear, comprehensive, and easy to understand terms, will avoid any “open to interpretation” issues later on. This is often a source of conflict when invoices are presented by suppliers and the customer doesn’t agree that the service has been delivered.

3. Break It Down Into Smaller Pieces

Breaking a contract down into smaller chunks can be a great way of structuring a contract and your payment terms. This dramatically improves cash-flow and helps keep your delivery teams on-track.

4. Know Your Client

Ask yourself if this is the right company to deal with. A salesperson can become swept up in the process of a sale without analysing whether it’s a good deal for both sides. Work with Finance to do your due diligence before the deal is signed.

5. Prioritise Your Key Objectives

Know what you want to achieve during the sale and which payment terms you would be happy to accept. Salespeople will sometimes take any sale as a win, without putting enough thought into how payment terms will affect their overall cash-flow.

6. Ask Questions And Understand Your Counterparty’s Motives

Are there any issues that you may need to be aware of? Does the client have cash-flow issues, either currently or in the past? Are they wanting to build a long term business relationship? All of this will have an impact on the elements you may add to a clients’ payment terms.

7. Always Start with a One-Page set of Principles

Use this as a draft of what both parties would like to achieve. Documenting the basics will allow you to build a formal agreement later on. It will also allow both parties to see whether they are making any progress with negotiations.

8. Do The Maths

Make sure that you’re aware of how volume-discounts will affect overall profit margins. Elements such as early payment discounts can be an enticing way of closing a sale, but can have detrimental effects on profit margins.

9. Be Reasonable

Don’t let your ego get in the way of closing a sale with agreeable payment terms. Remember that the client isn’t usually aiming to obtain every discount available, they’re simply looking for the deal which makes most commercial sense and manages risk.

10. Do Your Research

Don’t just rely on gut instinct or years in the industry to influence negotiations. Taking the time to look at how different payment terms affected similar clients will give you insight into how to successfully negotiate terms. Providing your new clients anonymous examples of current clients and how their payment terms work, can provide enough confidence to close a deal.

11. Don’t Be Ruled By Emotion

Even if you personally wouldn’t have signed off on specific payment terms, you need to be representing your business as a whole. Offering payment terms that you know would benefit both your company and your client, must take priority over your own feelings about the deal.

12. Don’t Rush The Process

Taking the time to explain each element of the contract and payment terms will mean there’s less stress in the future. Showing your client that you’re open and honest will instil a level of confidence within the client.

Terms On An Invoice To Be Aware Of

While not necessarily a negative, it’s always a good idea to be aware of certain phrases often contained within a contract. If a salesperson is unaware that these elements have been included, it can easily derail the sale that they believed they had made.

  • Cash Discounts For Early Payments – if a client decides to pay early and receive a discount, it’s good for your cash-flow. However, this will affect the amount of profit you make from the sale.
  • Net 30 – Payment is due 30 days after the date of the invoice. Note, this is not the same as 30 days after the customer has recorded the invoice on their accounts payable system.
  • Recurring Invoice – This would always be agreed up-front in any negotiations. This means that you would invoice a client for the same amount each month for an agreed period of time. Check and update these invoices in case any additional work has been required during a specific month.

Conclusion On Negotiating Payment Terms

Making your team aware of the implication of payment terms will point them in the right direction from the start. But sales negotiation training and coaching can to help salespeople and account management teams win even more profitable deals. Teaching your team how to negotiate payment terms with suppliers will stand them in good stead for the future.

What Are Negotiation Tools?

Millions of us have jobs that require us to negotiate in some form every day. Yet, most of us don’t know how to negotiate effectively or how to use tools to aid the negotiation process. 

Knowing how to negotiate, what it’s really all about, and what techniques to use will increase the quality and value of the outcome. So, read on to learn a little more about what negotiation tools are, and more importantly, how they can help you to succeed in any negotiation.

What Is Negotiation? 

Negotiation is the ability to open up a dialogue between various parties, in an attempt to reach a mutually agreed resolution.

Whether you notice it or not, negotiating happens in nearly all aspects of life. For example, deciding which restaurant to meet a friend, or trying to get your kids into bed are both forms of negotiation.

Why Are Some People Better Negotiators Than Others?

Like everything in life, negotiating comes more naturally to some, but not all of us. There are however common traits that lead to a poor outcome. For example, being woefully underprepared. Failing to do your research, being too tactical, or just a basic lack of essential skills causes people to fall short.

Fortunately, many of these issues can be fixed easily. You can learn how to negotiate consistently better outcomes by discovering tips, techniques and tools to help you prepare. For example, follow these four simple steps for a better negotiation every time:

  • Understand the context and define your objectives
  • Define a timeline and key milestones
  • Think through all the negotiation variables and your best/worst outcomes
  • Keep track of issues as they come up and resolve them

You can find a Negotiation Workbook that will help you get it right every time here: https://higgle.piscari.com/ 

What Types of Negotiation tactics Might You Meet?

There are some tactics that crop up frequently when negotiating. Here are just four common ones.

  • The Table Thumper: [preceded by a loud bang on the table] “This is outrageous and not what we’d agreed!” This bullying negotiator will use emotion and anger to overwhelm you. They want you to doubt your own memory of what was agreed and cave in.
  • The Low-Baller: “Your services aren’t worth anywhere near $50,000, you’re deluded. The most we’re going to pay is $30,000. Take it or leave it, I’m busy.” This is a classic negotiation-anchoring technique, rather than what they’re ultimately prepared to pay.
  • The Deadline Maker: “We close our supplier shortlist at 9.30am tomorrow, you’d better sharpen your pencils if you want to be in with a chance.” Deadlines can force you to make irrational choices. They may be artificial or real.
  • The Last-Minute Chipper also known as the ‘Columbo Negotiator’: “Ooh, just before you leave, there’s just one more thing…” You think you’re close to the finish line, so you’ll accept anything to get it done.

Negotiation Tools and Techniques

Here are some techniques and tools that will make you a better negotiator every time.

3 Negotiation Techniques

  1. Do Your Homework on your counter-party – there’s nothing worse than a negotiator who has no clue about the business they’re selling to.
  2. Your Negotiation Style – decide whether your looking to collaborate or play hard-ball. All the research indicates that collaboration and give-and-take delivers consistently better outcomes.
  3. Improve the Quality and Value of the Outcome – Plan out your negotiation carefully. Think through all the negotiation variables. Work out where you can concede and where you can create more value.

3 Negotiation Tools

You don’t need to have every negotiation figured out on your own and there are plenty of optional planning tools available to help you along the way.

  1. ZOPA (Zone of Possible Agreement)
    http://www.beyondintractability.org/essay/zopa
  2. MDO-LAO (Most Desirable Offer and Least Acceptable Offer) https://www.cips.org/supply-management/opinion/2021/april/how-to-get-what-you-want-in-a-negotiation/ )
  3. BATNA (Best Alternative to a Negotiated Agreement)
    https://www.williamury.com/how-to-know-when-you-should-walk-away-from-a-negotiation/ 

Learn More About Being A Better Negotiator

There are many insider secrets to negotiation that we’ve pulled together for you, along with everything you need to know about selling to procurement professionals and various other courses designed to help you strengthen your existing skills.

4 Ways to Increase Your Average Deal Size Through Negotiations

Unsurprisingly, the average deal size may not always be at the front of your mind when presenting your monthly/quarterly/annual sales numbers. However, it should be one of the key variables that you pay close attention to. It’s vital when it comes to negotiating comp plans with salespeople. It also keeps you on top of the time and skills required to close a sale and your ability to hit top-line sales growth. 

With this in mind, we’ve taken a deep-dive to highlight how you can grow sales and have a clearer overview of your average deal size data.

What Is Average Deal Size (ADS)?

First, it’s important to have a firm idea of what Average Deal Size (also known as ADS) is. ADS determines the average deal value across all the sales opportunities you’ve closed in that period. You can then use this to make comparisons across periods, between salespeople, between departments, etc. It is also a variable in calculating sales velocity.

How To Calculate Average Deal Size

To calculate average deal size, you add together the total revenue that you’ve booked for a specific period of time (e.g. month, quarter, year) and divide by the total number of closed/won sales opportunities for that same time period. 

For example, a revenue total of $160,000 from 38 sales during the month of March, would mean that the average deal size for March is $4,210.

Average Deal Size Versus Total Sales

Hitting your total sales target is one thing, but are you also building a high-value sales function? For example, a salesperson could sell 100 deals at $1,000, whereas a colleague could sell 50 deals at $2,000. Which is better? 

Whether sales volume or average deal value is more important depends on several factors including:

  • Business and sales strategy, i.e. are you a high-volume low-value or low-volume high-value business?
  • Customer segmentation and average sales cycle length
  • Your product/service mix

However, if you can increase your average deal size, and keep the volume of sales constant, it will have a positive effect on your total sales.

man and woman hands over portfolio

The Impact of Price Discounts on Average Opportunity Size

When you look at what’s driving your ADS, one variable to investigate in detail is the impact of price discounts.

For example, if you see that one team member has a low average deals size but is making quota, it could be that they’re giving pricing/promotional discounts too soon in order to close quicker. Providing negotiation skills and value-based sales training will enable them to close sales without big discounts. This will then help them to increase deal sizes for the same number of deals and therefore increase their average closed deal size. So, price discounting and lack of understanding around the ROI can often be resolved with investment in training and coaching.

4 Best Tips for Increasing Your Average Deal Size

1. Demonstrate Value

Every successful salesperson will have done their due diligence and background research on a company before engaging in a sales process with them (see this LinkedIn State of Sales report). Using this knowledge, they’ll be able to articulate how they can address the client’s major challenges and issues. By having a clear understanding of the problems, salespeople will be in a much stronger position to develop solutions, costs and ROI. You can then start developing the ROI for your proposed solution. For more information on this, look at the principles of SPIN selling.

2. Articulate Your Competitive Advantage

Thanks to ever-increasing technological advances, the world has never been smaller when it comes to being able to find information. The opportunity for potential clients to find fixes for their current business problems is broadening, due to having access to solutions globally. So, it’s vital to showcase the differentiated strengths that your business has. What can your business offer that others can’t? Work with your marketing teams to develop “battle cards” and ROI calculators.

3. Qualify Your Leads the Right Way and Run a Strict Sales Process

Lead qualification and sales process management is essential to increasing ADS and sales growth. A simple way of doing this is by using the MEDDIC acronym to establish which customer is likely to follow through with their initial interest:

  • Metrics: Are you able to provide genuine, quantifiable measurements of how the business will benefit from the solution you’ll provide?
  • Economic Buyer: Are you speaking with the Individual within the organisation who will have authority to sign off on a deal?
  • Decision Criteria: How will the client decide what to buy? Developing clear, objective criteria with the client is a great way of getting deals over the line.
  • Decision Process: What steps will the client go through to sign-off the deal? Spend time getting into the detail of who does what and when to close the deal?
  • Identify Pain: This is about understanding pain-points and turning them into explicit needs. Have a look at SPIN selling to understand this in more detail.
  • Champions: Is there a person with decision-making influence in the business who is an advocate of your product/solution?

Once you’ve nailed these, you should also ask yourself:

  • Why does the client need/have to change?
  • Why now?
  • Why should they pick you?

4. Develop A Value-Based Negotiation Strategy

Lean on the already established value you can bring to a customer’s problems. Refer back to their issues and how you can solve them. Focus on the value (benefit – cost) you can deliver. And critically, you have to explain how you can reduce the risk to the client of this going wrong. Nobody likes to get blamed for choosing the wrong supplier.

Put It Into Practice To Increase Your Average Deal Size

Using these tips and gaining a firm understanding of how to apply them to potential sales situations will be the push in the right direction when it comes to increasing your average deal size and increasing your sales velocity.

For more support and advice in negotiating deals, read our Negotiation Foundations FAQ or try specific face-to-face training.