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What’s the problem?

For both the client and sales teams, tackling contract/Statement-of-Work (SoW) variations can be challenging. Often, SoW variations aren’t formally raised, the dreaded scope-creep starts, and both parties get frustrated.

The real problem here is three-fold:

• Both the client and supplier need to fully understand the contracted obligations in the SoW and associated Service Level Agreements (SLAs)
• The supplier needs a way of formally capturing variations to present to the client for discussion
• Both parties are trying to maintain the quality of the relationship as well as the focus on deliverables and targets

As you can see, it’s not only complex, but it can also be very stressful, particularly for the supplier PM/AM.

Creating a contract variation template, and associated governance, that the client (including procurement) and sales can use, will keep everyone on the same page and errors will be significantly reduced.

This guide will help you to create and implement your own contract variation template and process that you can use right away.

What does good look like for variation control?

In Shangri-La, everything is perfect. The client is clear about the need for a change, the service provider writes a clear variation and price, and the client agrees and signs. The reality is very different as we know.

So, a great target to aim for as a supplier, in our experience, is this:

• When you start delivery, or you’re newly appointed to an account, set-up a meeting with your client counterparty lead. In the session, review the SoW, any variations to the Ts&Cs, SLAs/targets and any unresolved issues. This ensures that there is a clear understanding about what is expected, what’s in-scope, and what’s out-of-scope. This will also flush-out what was intended, but nor contracted!
• Then, work with your client to ensure you have a clear, mutually agreed, template for variation control (you can download ours free here) and an associated governance model. For clarity, governance simply means the way something works overall (process) and the way it’s controlled.
• Then, set-up Quarterly Business Reviews (QBRs) if you haven’t already, to keep track of progress, variations, and targets. This would include reviewing Variations raised, approved and rejected in the quarter.

How Can I Vary A Contract (Ts&Cs) and/or the SoW?

Generally, in order to be able to vary a contract, there would need to be an agreement made by both parties to make these changes. Such changes should always be made in writing and this is where the use of a contract variation template would come into play, to ensure that all amendments are recorded accurately.

Imposing a unilateral variation (a change which can be made by just one of the parties) is usually only valid in very specific situations. When you’re negotiating contracts/SoWs, you need to ensure there are no unilateral variations allowed by the client – this can lead to significant problems in our experience.

Methods Of Varying A Contract 

1. Written Variation

A written variation is the most commonly accepted way of changing the terms and conditions of a contract. The original contract should include phrasing which states that the only accepted way of making changes to the contract is in writing. This is often known as a “no oral modification” clause, which plainly states that agreements or amendments to the contract cannot be made verbally once signed.

2. Unilateral Variation

As a general rule, variations to contracts cannot be made unless both parties agree to this. However, an exception to this rule can occur if both parties agree in advance (contained within the original contract agreement) that either one or both sides can make a change to the contract unilaterally. Having clear guidelines within the original contract in regards to specifically which terms can be amended unilaterally, is critical. Our advice, hold firm on refuting these clauses be included.

3. Variation By Conduct

This type of variation normally only applies to contracts where a contractor may have specific deadlines to meet. If one of the agreed parties either does, or doesn’t do something, which has an impact on the other party meeting that deadline, then a term can be created to extend this deadline by a reasonable period.

4. Variation by Oral Agreement

Most contracts include a No Oral Modification clause (NOM) to ensure that any variation has to be agreed in writing vai a formal variation.

Why is Formal Variation Control Essential?

Why has formal variation control become so important? Anecdotally, and based on lots of research (and court cases) because it prevents arguments, mis-interpretation and costs. It also makes good commercial sense.

Specifically, these are just some of the benefits:

1. Improve Efficiency

Having a standard template for variations, an agreed process, and a document repository, makes life faster and less ambiguous.

2. Mitigate Risk

Having a standardized approach to variations allows for better oversight across all agreements. Standardisation, checklists and risk assessments enable more robust variations to be put in place.

3. Minimise Costs

A comprehensive template and process will minimise the impact of hidden/unexpected costs.

4. Maintain and Grow Better Relationships

Although often counter-intuitive, formalising variations actually improves relationships. Done in the right way, they are a great way of opening a dialogue between both parties to reach a negotiated agreement.

5. Maximise Value

Variations can be a way of creating value for both client and supplier. When opportunities arise to grow sales and/or increase profits, variations are a great way of refining the scope and associated costs/benefits. This can then be circulated around key stakeholders for comment prior to agreement.

Practical Points When Managing Variations

While it’s important to show clients and suppliers that your business is open to contract negotiations and amendments, there are some practical points that need to be considered when creating a future-proof contract variation template and process

1. Standardise And Centralise Your Agreements

Having contracts, SoWs and variations stored in a central system is essential to strong governance. Making sure that key contractual documents are easily located and searchable ensures that accurate records are being kept, especially if the agreed contracts happen to come under scrutiny.

2. Keep Track Of Obligations

While most of us will sign a contract and then forget about it until there may be an issue, service providers need to ensure they’re delivering what was contracted. As a supplier, you must keep track of the obligations that you’ve agreed to, both within the original contract and any contract variation that may have happened.

Solely relying on a team or individual employees to track obligations is both risky and too much of a burden to place on staff members. Human errors are inevitable when dealing with many different contract variations.

3. Work out the thresholds for when a variation is required

Clearly, if the client has requested a minor change to a piece of copy you’ve written, it’s not a variation! You’ll need an experienced PM/AM to work out when it’s appropriate/essential to raise a variation – it requires commercial judgement.

4. Is every variation chargeable?

The answer is no! When a variation is required, it doesn’t always mean you’re going to get paid for it. Sometimes, you’ll take a commercial view that the variation is agreed, but there won’t be an associated fee to the client. In our experience, the act of going through a formal review of the variation is often sufficient to make all parties realise the variation isn’t essential. Or, it is essential but in the interests of developing long term relationships and value, no fee will be charged. It’s also an excellent way of reviewing changes at the QBRs.

Conclusion

Having a robust, mutually agreed variation template and associated governance process is essential. It delivers better outcomes, builds longer term/stronger relationships and is simply better business.

See our free downloadable resource:

Contract Variation Template

Download a contract variation template by Piscari here.

Regardless of where you are on your sales journey, understanding how “purchasing” works is always an important foundation skill. There’s nothing worse than winning a deal with a client, only to find out that they say “you’ll just need to talk to procurement and you’re all set”.

So, in this article, we’ll set out to explain:

• The differences between these similar named terms
• Why they’re important functions
• What it means for you as a sales person

How do these terms inter-relate?

The best way to describe it is with a diagram:

At a high level:

• Strategic Sourcing defines needs and identifies the right kinds of suppliers
• Procurement runs a process to secure the right supplier for a particular need and negotiates terms/contracts
• Purchasing is the transactional part of the process and includes raising purchase orders, checking contracts are in place and loading details onto systems

Note: depending on the size of the organisation, all three roles may be performed by the same person, or they may be entirely separate.

What Is Strategic Sourcing?

Strategic Sourcing (or simply Sourcing) is the term used to refer to people concerned with sourcing where materials and products may come from.

This role is more aligned with trying to find the “where” and “who” rather than the “what” or “how”. For example, sourcing is finding a supplier who manufactures a certain product for your business.

Key roles within the Sourcing department include:

• Building a Category Strategy
• Working with internal stakeholders to define aggregate, current and future needs
• Evaluating suppliers within a category to assess value and performance
• Seeking out and evaluating potential vendor information
• Carrying out a supplier risk analysis before negotiating contracts

What Is Procurement?

With so many slightly different descriptions being used to describe this job role, you may find yourself unable to explain “what exactly is procurement?”. 

As sales people, these are the people you’ll meet (mainly) when negotiating a contract.

Responsibilities include typically:

• Defining a specific need with internal stakeholders and writing the tender/RFP documents
• Create supplier short-lists (working with Strategic Sourcing)
• Evaluate supplier quotes
• Build and manage supplier relationships
• Analyse performance against SLAs/KPIs/objectives
• Negotiate supplier contracts

Often, the term Procurement can be used incorrectly to refer to Purchasing and vice versa, however, they are technically different. 

What Is Purchasing?

Purchasing is the acquisition (or placing the order) of products/services on behalf of a business.

The primary roles of a Purchasing team are to:

• Receive purchase requisitions
• Create purchase orders
• Approve supplier payments in line with contractual terms
• Carry out quality assurance of products/services

Why Sourcing, Procurement And Purchasing Are So Important In Business And What It Means To You As A Sales Person

We asked a lot of our procurement friends, sales leaders and searched our own knowledge base. We’ve combined this thinking into something we call the Procurement Success Equation.

Ultimately, the combination of Strategic Sourcing, Procurement and Purchasing is designed to ensure a business (and its shareholders/external-stakeholders) benefits from :

• Savings and ROI
• Innovation in the supply chain
• Quality and reliable delivery from its suppliers
• Sustainability (ESG) and DE&I in its supply base
• The assessment and management of supplier risk
• Strong governance around the supply base

For you as a sales person, understanding how these functions work, and their objectives, could give you a competitive advantage. When you meet procurement, you need to take off your sales-hat and put on your risk-management and negotiation-hat.

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.

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.

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:

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:

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?

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:

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

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:

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:

Why do your clients train their procurement negotiators?

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:

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:

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:

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.

Download our FREE guide to negotiating with procurement professionals

Download our FREE guide to negotiating with procurement professionals