How To Build High-Margin Proposals

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Consultative Selling is the trademark of Mack Hanan. Copyright 1999 Mack Hanan. All rights reserved.

In the second part of his series on How to Close High-Margin Sales, Mack Hanan elaborates on his strategies for making the shift from selling simply features, benefits, price and performance, to true Consultative Selling that earns the ear of top-tier decision-makers in client firms. In Part 1, Hanan presented the issues you need to focus in any proposal for high-margin projects--cutting costs and raising revenues. In this seminar, adapted from his book Consultative Selling, he tells where and how to get the data that will give those proposals a winning edge. --Editor

Getting into the cost structure of an industry and its clients is a three-stage effort. Setting up your databases is a front-end-loaded undertaking. After that, it is simple and inexpensive to keep them up to date. The first stage is to learn as much as you can from the multiple sources that are always available without going to your clients themselves.

Then, when you take on the second and third stages that deal specifically with your accounts, you will have two advantages: You already will know a great amount, so you will have less to ask of clients, and you will have a meaningful framework on which to hang the information they share with you.

In addition to the ubiquitous publications and knowledgeable career professionals of the United States government -- especially the Department of Commerce--six additional sources can help you learn the costs and revenue potentials of clients in a key industry.

1. The people and information resources inside your own company are the first and most obvious source. Some of your people may have been recruited from client industries; some may even have worked for key clients. Others may have participated in market research studies that produced information relevant to your consultative needs.

2. Trade associations in your client industries are staffed by people who usually devote their lifetimes to their trade. They know many generalities and often specific information about individual companies. They know the main leaders in the industry and can introduce you. Their associations also maintain libraries and computerized databases.

3. Securities analysts are professional researchers employed by brokerage houses to follow specific industries. They publish updated industry analyses that evaluate growth potential, highlight the major factors that determine profits and costs, and define trends that can forecast opportunities. Many analysts will provide personal counsel on a quid pro quo basis.

4. Industry experts and consultants can be retained on a one shot or periodic basis to lay down a foundation for understanding an industry's processes and cost structure. They also can be helpful in estimating the impact of your technology on client costs and productivity, keeping in touch with competitive technologies, and exchanging information on industry wide business function problems and the solutions currently being implemented.

5. Other suppliers who sell non-competitive products and services to the same decision-makers at your key accounts may be willing to share their acquired knowledge of client process costs and sales opportunities. They probably will approach the knowledge you seek from the bias of their own interest, making their information peripheral to your needs, but nonetheless valuable.

6. Non-client companies or non-key accounts in the same industry are sometimes easier to approach for general information than your own clients. They operate the same business functions. Their costs tend to cluster at the same critical few points. The potential sales opportunities affect their marketing strategies in the same way.

Learning From Client Sources

No information source on a client's business can equal the client's employees. They speak with authority, for two reasons. First: They have the inside track on client operations; indeed, they originate much of the information themselves. Second, they believe the information is gospel. Right or wrong, their "facts" are the only real facts. Their numbers are the only hard numbers. Their costs are the costs you will have to work with. Their unfulfilled opportunities are the opportunities you will have to help them seize.

In an ideal world, client facts and figures would be open for your asking. Every now and then it happens in exactly this way. A vendor supplier sits down once in a lifetime before the top tier managers of a key account client and presents generalized narrative benefits of working together in a two-tier manner. For the work they will do at the top tier, the supplier proposes a partnership based on consultative-selling strategies. The supplier reveals minimal client knowledge and asks to be provided with the rest. The client senses the value of the benefits, and agrees.

Consultative Selling

The other approach is called Consultative Selling, because it is the strategy that almost always must be used. It also is known as the hard way. It is the cookbook strategy, because clients do not give internal operating information and its financial implication to vendors, especially to vendor sales representatives. As a result, a vicious circle is set up. A vendor needs inside client information to switch from vending to top-tier consultation. Yet clients do not release inside information to vendors. Without the information, a vendor will forever remain a vendor. How can the circle be broken?

Experience has shown that the only workable way is for vendors first to learn as much as possible from industry and public client sources about client cost problems and sales opportunities. Then they can adopt a half way step between vending and consulting, taking on a quasi-consultative role: they share the data they have, offer tentative proposals based on their implications, and thereby motivate their clients to share the rest of what they need to know in order to achieve the proposed profits.

In this twilight zone between vending and consulting, vendors are not asking clients to give them information. They are inviting clients to trade information with them the way consultants do with their clients. Trading is acceptable to a client, where giving is not, because trading is rewarded on the spot with a return of equal or greater value.

To make the quasi-consultative approach work on initial client profiling, several requirements must be rigidly adhered to: You must bring something to the party; you cannot come empty-handed. Your knowledge of a client's industry and business must show evidence of diligence and intelligence. Your tentative suggestions for proposals to improve client profits should demonstrate an appreciation of the client's priorities. What is his rank order of problems? Where will the greatest rewards come from? The quickest rewards? The most certain?

The differences between the vendor's "Let me show you our new product" and the profit improver's "Let me show you your new profits--is the difference between the euphemistically named "professional selling skills" and Consultative Selling. Vendors speak in comparatives against their competitors. The offerings they bring to the party are said to be faster, stronger, lighter-and, of course, cheaper.

Consultants also speak in comparatives. But they compare a client's costs or sales on a before-and-after basis: before they have applied the profit improvement strategies they offer, and after, as a result of applying them. The vendor's problem is how to sell a product. To solve it, vendors bring product samples. The consultant's problem is how to improve client profits. To learn how, consultants always bring samples of profit improvement from their databases. "Let's take a look at your product line A," the consultant says. "We'll see that it is being subsidized by your profits from lines B and C. All three lines are suffering. If you could increase A's contribution by as little as one percentage point, it would break even this year and begin to carry its own weight.

1. What if we were to reduce its manufacturing burden by $100,000? That would bring you to break-even within the year. "Let's take a look at this market segment of yours over here. These clients have been buying less and less from you every year. That's because their own markets have been stagnant. What if we could help them improve penetration by as little as 3 to 5 percent during the next 12 months-a profit improvement for you of at least $500,000?"

2. You must be careful not to bend generalizations to fit an individual client's situation. Industry averages are useful as points of comparison with a client's performance, but they never should be used as if they represent the client's performance.

3. You must be devastatingly honest about what you have not been able to learn and therefore do not know about a client's business. When you construct a tentative proposal, you can leave these areas blank or insert admittedly assumed cost figures. If you use assumptions, you should start with your best estimate of what a true figure would be. Then you should deliberately over estimate each client cost item and deliberately underestimate the value of your solutions.

4. You must be able to show dollar benefits that meet the client's threshold of what is significant. Unless you can do this, clients will have no incentive to trade information with you. Partnering must promise a clear reward. The client must believe it to be achievable by working together, and must also be able to visualize continuing to receive ongoing value after the first success.

5. You must make it simple for a client to agree to trade business knowledge with you. This means that you should require as little information as possible. It also means that you should not ask for any information that a client knows is publicly available. You should not ask for major allocations of client resources to further your work together. Your partnering requests should involve the least possible client staff time and expense.

6. You must believe mightily in what you propose. Your conviction will be contagious. It will be tested by client decision-makers who have never before worked with you -- or with any supplier -- in a consultative manner. Their comfort level in going ahead will be reinforced by the assurance you convey and the degree of support you are willing to commit.

Shortcuts Don't Work

The quasi-consultative approach proposes a probable reward, shows the size of the up-front investment needed, and asks for a client contribution of knowledge to firm up the exact dimensions of the reward. Sometimes vendors try a shortcut. They lack the unique human resources to create a consultative partnership from a standing start. They also lack the dedication to do sufficient homework. Their approach is to ask clients for the right to study their businesses on the chance that ways and means of improving profits will be found.

There are two principal risks to asking for the right to make a study before proving or even suggesting a reward. One is that studies that begin from ground zero range unnecessarily wide in search of targets. This involves many clients, interrupting their work and increasing the chance that more than a few of them will be inconvenienced or antagonized. Some may refuse to participate. Others may think the approach is naive. These are frequently the same people who will have to be engaged in partnership if a consultative relationship is eventually established. It is not likely they will readily perceive the vendor as an equal.

The second risk is that even good results from such studies will be downgraded by the clients' top management tier. The most typical criticism is, "All they told us is what we told them." Since clients know they have provided all the information that goes into such a study, they regard the database that results as their possession. There is no felt need to reward the vendor by sharing what clients believe they have done for the vendor--rather than the other way around.

Asking for the right to study a client's operations should be a last resort. It should never be a strategy of first choice. When a study is undertaken, it should be minimally disruptive and tightly managed for limited objectives, to supplement what is already known. It should be extremely short and should never exceed its allotted time.

Managing Business Function Knowledge

Your expertise in client business functions will emerge in this type of sequence.

1. You will know a little about one operation in one client company in one industry.

2. You will know a lot about that one operation in that client company.

3. You will know a little about another operation in the same client company, as you will be invited to migrate your profit improvement strategy to another aspect of the same business function or to another function.

4. You will know a little about the same operation in a second client company as you penetrate other key accounts in the same industry.

5. You will know a lot about that same operation in several client companies. You will be storing their facts and figures in your databases. Your reputation for expertise in bringing profit improvement to the operation will spread throughout the industry. The profits you bring will become the industry standard.

6. You will acquire similar databases and expertise for improving the profit contribution of other operations in the same business function and in other business functions in the industry.

7. You will extend your knowledge and reputation to other closely related industries.

This is the capsule history of how major corporations have managed their client knowledge, extending it from operation to operation within a business function, then to other business functions, then to other client companies in the same industry, and then to other industries. In order to grow their key account sales at high margins, they have marketed their knowledge of client business problems and opportunities. On the surface, they have been selling profit-improving solutions. But the underlying value has been their understanding of client problems. They appear as solution experts. At rock bottom, however, they are process-smart, operations-smart, function-smart-that is, client-smart. Only then can they be smart suppliers.

As you learn how to manage client knowledge resources, you will discover two truths:

1. no client wants to be first with anything new;

2. as soon as something new produces superior results, every client wants to possess it on an exclusive basis.

These paradoxical attitudes will be encountered as you take the first steps from vending to Consultative Selling. Finding the first client to work with, to let you get inside heretofore proprietary operations, will be more difficult than finding the second. Yet working with a second client in the same industry may also be difficult because the first client will want to monopolize your function-profiling skills and profit-improving strategies.

In spite of those initial constraints, you will know that you have achieved consultant recognition in a client industry when a remarkable event occurs. You will be invited by clients to profile their business functions -- not to bid on their business -- but to study its cost structure and its sales opportunity. At that point, your knowledge of industry norms will come importantly into play. Once you have captured the knowledge of their functions, your proposals for profit improvement will follow naturally. After all, who will be better equipped? What you know about client functions will not be what you sell. But what you sell always will be based on what you know.

In many sales organizations, realization is accompanied by pain, as the balance of power swings from products and pricing specialists to client operations and applications specialists. Product knowledge always will be preeminent at the vendor's purchasing tier. But a sales organization will be permanently welded into position there until it acquires the client data that enable it to move up. The short-run agonies of decreasing margins, increasing competitive parity, and rising costs that can never be retrieved by price. The difference between being able to obtain top margins at the top tier and suffering eroding margins at the purchasing tier is the value added by Consultative Selling.