I was recently working with a capital equipment company whose salesperson had told them they had lost an order against a lesser quality competitor as the company’s quote had been “too expensive” and “too long a delivery”. On looking into the project though and having seen that they had raised a budget quote, I shared with them the reasons why I think too often budget quotes are a waste of a salesperson’s time despite a prospect asking for one:
1. Often they are given after a prospect tells a salesperson to give them a ‘ball-park’ price before we can get into any detailed discussions. On the basis we have had no clear understanding of the prospect’s current status, their needs and what they want to achieve and as such we are really in the realms of ‘hit and hope’. Anything we may state here often has to go with the caveat that our offer remains open to change – which means it isn’t really our offer (and neither will the prospect consider it to be so – they will just dismiss it as meaning nothing as they know we won’t stand behind it (and nor can we)). Worse still, as a conversation develops and the need becomes clearer, the prospect will baulk every time our price increases from what they were first told in the budget quote (as often even our best guesstimate won’t cover necessary items that may have to be added later). Invariably we couldn’t possibly know about them at the time of putting the budget together – how could we when we haven’t looked at the opportunity properly?)
2. Often budget quotes are given ‘blind’ of any competition we may be compared against. Where we aren’t likely to be the least expensive, experience can tell us that many of our budget quotes will die at this point as the prospect chooses to go with the lowest cost option (believing that they are offering the same as we are – let’s face it as we don’t understand the opportunity sufficiently or don’t know who we’re up against we’re also unlikely to be differentiating ourselves as well). Another reason budget quotes die at this stage is because the prospect can get ‘cold feet’ and decide they don’t have the kind of money we are asking for our higher quality solution (where they have already decided the lowest cost option probably means an element of risk – i.e. it won’t be very good). They get ‘cold feet’ as we didn’t build sufficient value – which budget quotes don’t.
Based on this we should stop and ask ourselves the question of why we are even bothering to raise budget quotes where we know this is the most likely outcome. But, ‘hey … it’s a quote’ and the age-old mantra, ‘at least if you quote you have a chance of winning’ rings in our heads and so a budget quote is produced. At least when we lose it we can console ourselves though that we didn’t waste too much time and effort on it as it was, ‘only a budget!’ And that is usually correct, we only spent enough time that is to lose it – thank goodness! (How smart and efficient we are!)
When budget quotes are issued usually there is no relationship with the prospect. We are just someone providing a price (which makes us more of a price-person than a salesperson!) At best we may be someone the prospect has only briefly spoken to over the telephone, more likely today we’ve only exchanged emails Yet still today, as it has for so many years, it is claimed that 75% of all purchasing decisions are made on the way the buyer feels about the seller – and in issuing a budget quote we have just ensured we don’t have a relationship. (So the question is; based on this why do we make it so difficult for us to win by not even attempting that relationship and firing-off a budget quote to them?)
When a budget is submitted, typically nobody will have discussed the worth of our offer – and so as a result everything is perceived from the angle of cost. All the prospect can see is a specification and a price … and, oh yes … the lead time. (All together now – we can predict the replies!) – “We are too expensive!” and “Our delivery is too long!” The likelihood is that anyone else offering what the prospect perceives as ‘the same’ as us but did their job better and gave more applicable information relating to the need just got elevated to being perceived as being better – they have just become the benchmark we are being measured against, the stick we will be beaten with – and we will have put them in that position by only offering a quote – we did it for them! After all, why should the prospect pay more and wait longer from us for what they perceive to be the same thing that the other people (our competition) will do more cheaply and be able to build in less time than we can – I know I wouldn’t! Would you?
Finally, as mentioned above a budget quote offers no differentiation, which we have to demonstrate to justify the value we bring, (no differentiation that is except for us being more expensive and taking longer to deliver than the others do!) As such it ‘tells’ the prospect they are right to think that we are all offering the same thing. Unfortunately for us our higher offer will look like we are trying to ‘rip them off’ – at least that is what may well be said to their boss when the contact we gave the budget quote to at the prospect company is asked to discuss the offers they have with their senior management. If only they’d had the time and information to understand why our price and lead time were different so they could make our case for us – but then again why should they make the case for us – when we didn’t!
So in the end, the prospect made what they thought was the right decision and bought the cheap one that took less time to produce. Here’s the thing though in coming back to the company I mentioned at the beginning of this post; the salesperson said they were considered too expensive and had too long a lead time and so they lost this order. This left me wondering what was the reality with that specific opportunity; the equipment they bought was priced at 200k euros and delivery was a 14/16 week lead-time from the company’s competition – was this a real and fair offer against which the company was overcharging and too slow to be competitive for their version of the product? Or, was the company’s price and lead-time right for such a piece of equipment and was the prospect about to find out that they will not be getting what they needed or perhaps even what they thought they were buying? Maybe at 350k euros, which was the company’s price against the specification and a lead time of 24 weeks due to the quality of build, the 350k euro and 24 week lead time was great value for money and a right and fair offer. In stripping the specification down to what they could now be getting, and assigning a value to each part removed, maybe a 200k euros price tag could yet prove too much for what remains. The 10 week shorter lead time the competition offered could have been due to the fact that they were building so much less of a machine … sure, at first glance it may look something similar to the company’s but upon closer inspection it may turn out to be nothing like it at all.
I just wonder what will happen when they get their machine and can see, experience and understand why it cost 47% less than the company’s and therefore why it could be built in 10 weeks less time? Maybe they won’t be as enamoured with it as they would have been with the company’s? Maybe they’ll wish they had invested more and planned a bit better to allow for a longer lead time from a quality machine manufacturer or – maybe they would have been better off investing more and waiting for an extra 10 weeks to get a machine that was better constructed and built to last? Only time will tell.
In the end the prospect is unlikely to tell the company and their salesperson that they made a mistake and bought the wrong thing. They are more likely to say and do everything they can to cover up what could turn out to be a flawed decision (although the clue typically is when they may ask for help or advice from the company, or even their opinion on improving their machine once the ‘differences’ become a concern) … it happens.
And after 12 months when the lesser quality competitor’s machine they bought suddenly needs a lot of attention, costs many hours and euros to repair and to keep running perhaps they will contact the company again and tell them they wished they had bought one of their machines. They’ll all then be able to see the bright side and fantasise about how good things could have been if only they had chosen the company’s machine. Suddenly, they’ll be better disposed to listen to what made the company’s machine worth the extra money, understand why it took longer to build and be able to appreciate why the company’s order book is bigger than the lesser quality competitor’s (who were able to focus on building their machine more quickly as they had little else to do!). Shame they wouldn’t do it when it could have (and the company’s salesperson should have) justified that a higher level of initial equipment investment would have meant a lower on-going cost of ownership. Ironically now they will listen … but the money’s already been spent and so they can’t benefit from that lower cost of ownership!
As everyone was too busy though at the right time to have had that conversation and when the company’s salesperson could have made that argument they both decided to take the budget quote route – the company didn’t get chance to ‘sell’ their benefits to them and the prospect didn’t take the chance to buy them. And so long as that is the case, not only did it happen with that opportunity, so it will happen with the next.
Finally I am left with the same question I have with every lost order where a company has issued a budget quote … did they really lose this order … or just simply not compete for it?
For your own sake and for your business, I ask you to think if issuing a budget quote is really the best way forward the next time you are asked – and where you think it isn’t – put the case for your company and your product in a full proposal and give yourself and your company a better chance of winning the order. In doing so I guarantee you’ll win more business. Thanks!