You’ve landed the big meeting with the huge prospect that can catapult your small business to the next level. Your presentation goes well and they ask for a proposal. Don’t make the common, painful, sometimes fatal mistake that many small businesses make in this situation.

Many small business owners are so eager to win the business and so worried about winning against larger competitors that they try to compete on price. They figure that if the established competitor is $X, they have to be $X – 20% or $X/2. If you have a truly disruptive delivery model that makes it easy for you to deliver similar (or better) results for a fraction of the cost, great. But if you are trying to win the deal with lower prices, you are going to be in trouble. Why? Because the biggest concern for most companies is not price, it’s risk. Lowering your price does not decrease the perception of risk. If anything, it increases risk.

Let’s look at the buyer’s options, in a simplified example that you can adapt to your situation. In this example, we assume the buyer can pick from 2 options, one for $500K and one for $400K. The buyer can achieve two outcomes— either the project fails or succeeds. What should the buyer do? Let’s look at the outcomes for the buyer:

Project Fails

Project Succeeds

Spend $500K
Spend $400K

 

If they spend $500K and the project fails, they lose.

Project Fails

Project Succeeds

Spend $500K  LOSE
Spend $400K

 

If they spend $500K and the project succeeds, they win. (Maybe they went a bit over budget, maybe they’re still under budget— there are a lot of nuances, but this is the fundamental outcome.)

Project Fails

Project Succeeds

Spend $500K  LOSE  WIN
Spend $400K

 

What if they spend $400K and the project fails? Do they get credit for failing 20% more cheaply? Probably not. They probably get dinged for taking a riskier option and failing.

Project Fails

Project Succeeds

Spend $500K  LOSE  WIN
Spend $400K  LOSE

 

And what if they succeed with the cheaper solution? They get a win, also. Maybe they get some credit if they come in under budget, maybe not.

Project Fails

Project Succeeds

Spend $500K  LOSE  WIN
Spend $400K  LOSE  WIN

 

What does all this mean? First, it’s obviously a simplified example, but the basic idea is critical: you want to do everything you can to make the prospect comfortable that you can and will deliver, not that you have the lowest price. The buyer’s success (and career) depend more on delivery than price. (Within reason– you can price yourself completely out of some deals. When dealing with large companies, though, it’s much harder than you’d think to price yourself out on the high end. And much easier than you’d think to price yourself out on the low end by appearing as a solution that’s too cheap to seem credible)

Focus on delivery and results, not being in the bargain basement. Figure out what you need to do to make the project successful, and what the prospect perceives as the company’s need to feel comfortable with you. In many cases, they will tell you what they are seeking. (“Our current vendor hasn’t brought us any new ideas in years— they are just milking us.” “We have problems getting accurate status reports.” “They moved a lot of work offshore and the quality has suffered.”)

If the project is actually too large or complex for your team to deliver, you can offer to do a key part of it, or a pilot project to show how you can deliver results at a scale that proves your capabilities but doesn’t endanger the buyer’s career, letting them take a risk they may not take on the full scope of the project.

Next, work with the buyer to define the playing field to your advantage. You can be sure the larger, more established firms will be trying to put their fingers on the scales, too. Remember, this company wouldn’t be spending time talking to you if they didn’t want to talk to you (with one important caveat that we’ll get to at the end).

Smaller? More nimble. (“Do you want to pay for a standing army or a special forces team to go in and get the job done?”)

Newer or less well-known? Don’t need to support a big cost structure with big billing targets. More focused on customer results.

Don’t have a best-selling book? Will the author of that book be on the project? Answer the phone? You can commit real expertise to make the project a success, not just billable hours.

You get the idea.

Remember, it’s not about the talking points, it’s about them being true, and perceived as true by the buyer. Making ridiculous claims won’t work. In fact, being honest helps reduce the perception of risk because the buyer feels they can trust what you say. You don’t want a doctor who says “Open heart surgery? No problem— you’ll be back at work in 5 days!” When you do surgery on your business, you don’t want the cheapest doctor or the doctor who says everything will be easy. You want the doctor you trust to get you better.

If they ask “is this the biggest project you’ve ever done?”, answer honestly. Being evasive increases the perception of risk. If you say “Yes, it is. And it will be a challenge. But based on our conversations, we’ve laid out a great plan to deliver the results you need. And it’s just as important to me as it is to you. This is betting my business, not just my utilization bonus. And here’s my cell number. Which company do you think is going to give you better service?” Then you reduce the perceived risk.

If the buyer says they don’t care about your cell number, they don’t need 24/7 support, they just want it done, and the competition is cheaper— don’t start discounting. Figure out if price is really the problem. Ask whether they are ready to sign on the spot if you can meet their price. If they aren’t, you have to deal with the other issues (which are probably the real issues). If they are, then you can have a pricing discussion.

If they don’t value your value-adds, just take them out. By removing value, you can lower the price. (You can even offer “good/better/best” options with different mixes of value and price. This means you get priced out of fewer deals, and also capture more revenue when buyers select higher options. Small companies often underestimate how much money big companies budget to solve problems. I was once excited to win a $100K deal, only to find out later they had budgeted $200K.) You want to make sure that not only do you win the deal, but on terms that are good for your business. You may think that losing the deal is the worst possible outcome, but if you get stuck with an awful project that doesn’t make any money, it can drain or even kill your business.

When you don’t know exactly what the budget is, or what mixture of value and price you should offer, provide “good/better/best” options. This gives the company a way to choose between your offerings, rather than between you and your competition. You might be surprised at how often large companies want your “best” option, which seems so expensive to you, but is better suited to their needs and may still seem like a bargain.

Lastly, sometimes the only winning move is not to play. If you get invited to a big RFP from your dream customer, you may be excited and devote hours, days, or even weeks of effort to the RFP process, only to lose the project to the company the process was designed to pick in the first place. I’m not saying you should never submit an RFP response, just don’t do it when you have to take a lot of time and you can’t get access to any of the people. (“I’d like to put you in touch with them, but that wouldn’t be fair to the other vendors?” “You mean the ones who don’t even care enough to ask what it will really take to make you successful…”)

Whatever you do, don’t go in to these deals trying to win on price.

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