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January 12, 2017

If you sell based on price…Read This!

It’s that time of year when many companies are renegotiating contracts and service agreements. I am doing just that with a number of our large customers. It reminded me of a few things which are critical to the buying process. Everyone thinks it is about price but there are other factors that are just as, if not more, important.

Think about how many times you have seen a story about a hot, new company. Then, not too far down the road, you discover they are out of business- another statistic. It is not unusual. That’s why purchasing organizations evaluate both services based small businesses and manufacturing companies as to their “business sustainability”. This refers to the ability of the business to sustain itself over the longer term. Let’s face it, no one wants to invest all the time and effort it takes to get someone into their system only to start all over again. If small businesses are selling people expertise, buyers want to know if the business has a fallback plan if key personnel leave the company or for some reason are unable to work. I personally have worked very hard to be sure that I am not the only one that can do the job for a client. That brings comfort to my clients knowing that there is a team in place.

If the small business is manufacturing and has special intellectual property or patents, then the risk to be evaluated is whether access to this technology will continue to be available to the purchasing company- if the small business has a major business interruption or discontinuance.

Another part of the equation is the whole financial picture. Many large companies will do a Dun and Bradstreet report or ask a potential supplier for a financial statement. This is important because it provides a good picture of your financial stability- your receivables, inventory and how your business is faring from a cash flow perspective. This is critical because no customer, large or small, wants to have you come to them part-way through a project and say, “I can’t go on and finish this unless you loan me some money.” They also want to know that you can manage cash flow as more companies are going out 90 days or more days to pay suppliers.

The next piece of the decision is the quality and delivery. You need to be able to show a potential customer what systems you have in place to assure a consistent, quality product each time. It’s also great if you can highlight any efforts in the research and development of new products and services. This is the place where smaller companies may be at a disadvantage because they do not have large budgets to expend in this area, but it is not insurmountable. Often what a smaller company lacks here can be overcome by faster response times and the ability to be more flexible in meeting customer demands.

Of course, price is an issue. It’s just not as big as you might think. You must be within an acceptable range. If the buyer does not have expertise in buying what you sell you will need to help educate them. If you can show why your product or service is worth more… you might just get it. Buyers are looking for value more so than price.

When it comes to working with buyers, consider the whole package that you present. Then develop an offering that puts potential buyers at ease about your business sustainability, financial stability and your products and services.

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