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Sales Negotiations: Don't Buy Cheaper, Buy Smarter
The mantra of today’s super-competitive economy is “do it cheaper, do it faster.” Managers have been squeezing out profitable quarterly reports by slashing costs everywhere. Naturally, this places extreme pressure on purchasing agents to not only go with the lowest bidder, but to drive the price even lower during the negotiation process. However, be warned: low prices look very attractive, but they often turn out to be a bad deal for the buyer.Here is a very common situation:
Bid #1 - Digiworks Solutions agrees to
deliver one hundred copies of a software product (that they wrote as the OEM) in
four weeks via three consultants at a cost of $1,200.00/day per consultant.
Bid #2 - Klick Technical Consulting promises to deliver one hundred copies of
the same software product (that they support as a reseller) in two weeks via
four consultants at only $800.00/day.
On the surface, this is a no-brainer, right? If the buyer goes with Bid #2, the
product will be deployed in half the time and save the company $200. Where do I
sign!?!
But hold on, podnuh! Not all bids are created equal. How do you know that you
are getting equal value on that lower price? You won’t unless you have done your
homework and ask a few very important questions like:
- Will you receive equally competent consultants?
- Do they have the same training? It may not be worth it if the Silver's consultants are less experienced and have to spend time flipping through manuals and release notes to figure out what they're doing.
- Will you have access to the same support resources should something go wrong?
- What about payment terms and warranties?
When you are preparing to negotiate with a supplier, or anyone else for that matter, prepare a list before hand of all the questions you need to ask to be certain that you are getting the value you need. Identify all the terms and conditions that are important to you, and which will serve to strengthen your working relationship with the vendor in the future. What about payment terms? If you prefer net 45 and they require payable on receipt, is that going to cause a problem for you? And what kind of warranty are they offering you? There is a big difference between on-site service for a full year, and labor only for six months, (and you ship it back to the factory and be without the product for 6 weeks). By making sure EVERY aspect of the deal is covered before you conclude the negotiation process, you will not only be certain that you have made a good choice, you will also be setting the ground rules for building a great long-term business relationship.
You know all those cliché’s your daddy told you about – you get what you pay for, there’s no such thing as a free lunch, etc.? It turns out they exist for a reason! It is up to you to make sure that the deal you walk away with is the RIGHT DEAL, not just the cheapest deal. Here is another cliché’ to remember: sometimes you have to spend a little money to save a little money. Just think about it.
By James A. Baker
Houston, Texas