Negotiating with Procurement: What You Need to Know If you’re an entrepreneurial company selling to bigger companies, you need to … Continue reading The secrets of negotiating with procurement professionals – A sellers’ guide to winning more dealsREAD MORE
Everything you need to know about how to sell to Procurement professionals – A sellers’ guide to winning more deals
If you are an entrepreneurial, high growth company starting to sell into bigger organisations, you need to understand how to sell to Procurement professionals. You need to understand their unique needs. The way you deal with Procurement needs to be fundamentally different to the way you work with other stakeholders.
To improve your deal conversion rate and get better outcomes, these are some of the things you need to start thinking about:
- Procurement have a different agenda to your main Decision Maker, understand their objectives before you engage with them
- Engage with them very early in the sales cycle, maybe even 12-24 months before you bid for a big piece of work
- Negotiation is a skill you can be trained in, not a genetic trait; so get some high quality training
- Use the Procurement Equation™ to work out what Procurement are trying to achieve on each specific deal
- Negotiation Preparation; 80% of your success will come from the quality of your preparation
- Work out your negotiation plan and then focus on the personality type of your counterpart
There is no doubt, if you apply the lessons in this article, you’ll be making better deals straight away and winning more opportunities. I’ve refined these insights over 100s of procurement deals worth millions of pounds. If you want more, contact me here Contact Us
Why should you read this guide?
Do you remember a time when you were working on a sales opportunity that could take your business to the next level of growth? Has this scenario ever happened to you:
- The Decision Maker is close to agreeing the terms of reference with you at a price you can all work with
- Just as you’re about to close the deal, she emails you and says
- By the way, “you’ll just need to get this past Procurement and then we’re all good”
- Your heart sinks! The last time this happened the deal collapsed and six months of sales effort went down the drain.
Selling to Procurement professionals and negotiating with them is different. They are different personality types to your typical Decision Maker. They have different objectives and very different ways of working. If you want to succeed at selling to bigger companies, you need to develop new strategies for dealing with Procurement stakeholders.
I wrote this guide to help you begin to understand the complexities of negotiating with Procurement Professionals during a sales cycle. You can use it as a practical tool to re-frame your discussions with Procurement and get the win-win outcome you want.
Problems faced by entrepreneurs, sales directors and SMEs when they meet procurement
When you first start engaging with Procurement professionals during a sales cycle, you will come across new challenges to getting a deal done. If you go in unprepared, you’ll quickly see the deal collapse or, you’ll walk out with a bad deal for you and ultimately, the client.
The problem is, Procurement has a very different agenda to the main person you are selling to (the Decision Maker). You need to see the world from Procurement’s perspective in order to know how to deal with them.
For example, have you faced any of these problems when trying to get a deal through procurement?
- Procurement seem to be creating unnecessary barriers to getting the deal done
- The RFP process is crazily bureaucratic
- You feel like you are being used as a Price Bench-marking tool as opposed to a real contender
- It can take months to fill in the RFP and go through the process only to find out you didn’t really stand a chance in the first place
- You can’t see the criteria they are using to select the supplier
- The contractual terms they send you are outrageous and 30 pages long
- The T&Cs say “these terms are non-negotiable… If you are successful in bidding, these T&Cs are legally binding on your appointment”
Your first reaction is often outrage. What you do next and how you behave will have a significant impact on your success.
To understand Procurement’s perspective, let’s look at the Procurement Success Equation™.
The Procurement Success Equation
Let’s start by considering the question “What does success look like from the perspective of a Procurement Professional”?
The reality is, when a Procurement professional is negotiating a deal, they are managing a number of complex variables – they are not just being difficult! The relative importance of each variable is different on every deal they negotiate. Procurement’s objectives are to:
- Increase savings on a deal
- Maximise ROI for the business
- Access innovative solution providers
- Improve the quality of service delivery, or as a minimum, maintain it
- Improve/maintain the reliability of service delivery
- Reduce risk to the organisation (i.e. reputational damage, operational disruption, financial distress, etc)
There is no simple, single answer to the question “What does success look like from the perspective of a Procurement Professional”? Later in the guide, you’ll learn how to work out what is really going on, and some insights about what you can do about it.
Common myths about selling to procurement people
So, next time you are frustrated with Procurement, take a breath and look at it from their point of view. The underlying issues are much more complex than it appears on the surface.
What are “Procurement levers” and why are they important to you?
Whenever I negotiate a large deal, I always think about which levers I am going to use to get the deal done. These are the kinds of levers, or strategies, I think about for every deal I work on:
- Consolidating spend across several suppliers?
- Offering longer term commitments in exchange for better prices?
- Can I completely transform the services we are buying?
- Tighten/de-scope specifications
- Reduce demand for this service (also called Demand Management)?
- Can I get some more competitive tension going in the process?
- Would a supplier collaboration workshop work?
- Can I change the commercial model of the supplier?
- Could I in-source or out-source different parts of the value chain?
As you can see, way before you meet me, I have multiple levers I have thought about to deliver the Procurement Success Equation.
What are procurement looking for and what is on their mind?
Think of a time or imagine a scenario where you’re down to the last two suppliers short-listed for the work. When you are preparing to negotiate, these are some of the things to consider before engaging in the next round of discussions:
- Where are the savings going to come from?
- What contractual clauses are important in case we have to get divorced amicably?
- How are you going to measure that you are delivering a High-Quality service and what happens if you don’t?
- How are you going to Govern (control) this contract and what are the remedies and rewards for under/over delivery?
- Does price change as the volumes go up/down?
- Are there any rebates baked into the deal?
- How will Service Credits work?
- What are the termination clauses?
- What is the contract duration?
- Payment terms?
- Who owns what IP?
- How will you demonstrate the business ROI?
When preparing for your negotiation, have answers to all these questions in advance – “If you fail to plan, you are planning to fail,” Benjamin Franklin.
When is a saving not a saving?
It would seem obvious that if you offer a reduction in your price, or you give the customer something for free, then it’s a saving, right? Unfortunately, this isn’t true. It’s certainly of value to your client’s Decision Maker, but it may not help Procurement deliver their objectives.
Here’s a simple example of different types of savings’ and what they really mean:
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:
- More than one party is involved
- There are multiple agendas that are rational, emotional and political
- People are staking out their positions and interests
- Negotiation personalities need to be understood, i.e. collaborative, adversarial, partnership, amiable
- Is it a transactional or strategic negotiation?
You need a framework to think through the negotiation and optimise success for all parties.
Common negotiating mistakes and why we fail to reach agreement?
Given all the negotiations I’ve been involved in, I’ve clearly made some mistakes and learnt from them. These are some of the lessons’ learnt:
- Believing that what we bring to the table is more valuable to our counter-party than it actually is
- Personalities getting in the way of a good deal (i.e. inability to separate the people from the problem)
- Viewing negotiation as a fixed pie to be divided rather than an opportunity to increase the size of the pie
- Lack of preparation
- Not reading the personality type of your counter-party
- Lack of empathy, i.e. failure to understand the other party’s perspective
- Making the scope too narrow or too broad
- Lack of objective criteria on which to base agreements
- Winning the economic case and losing the relationship/trust
- Not understanding the difference between interests and positions
- Sequential negotiation strategies in complex situations – it can be seen as “chipping away” at value. It’s often better to put multiple variables on the table at once and negotiate what’s important to both parties
- Believing you have to make a decision in the room
So when you are facing your next negotiation, avoid these common mistakes to improve your likelihood of a win-win outcome.
So, what are the traits of a successful negotiation?
This is by no means a comprehensive list. However, this combined with “avoiding the common negotiating mistakes” is a good place to start planning your next negotiation:
- Start with the end in mind and tack towards the prize or end-goal
- Usually, making the “first offer” anchors the counter-party to your reference point (this has been well researched internationally)
- Asking open questions, seeking the views of your counter-party and active listening all promote collaborative negotiations and win-win outcomes. Balance this with knowing when to close the deal
- Test your (and their) BATNA (Best Alternative to a Negotiated Agreement) thoroughly with colleagues throughout the negotiation process. The power shifts continuously as the negotiation progresses
- Identify what it is that you have, that costs you very little, but means a lot to your counter-party
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
I am an ex-Procurement Director and Managing Partner of one of the UK’s largest Procurement Consultancies. I have run over £200m of client spend and negotiated hundreds of procurement deals. Acted for clients as a buyer and Advisor when negotiating win-win deals with procurement. Successful serial entrepreneur and corporate leader working with global B2B brands.