Why you’re more likely to lose a sale by underpricing than you are by over-pricing

Good news

the client said. “You’re our preferred bidder.”

Awesome, I thought.

“We’ve just got a couple of queries,” the client said:

Firstly, are you ok with travelling abroad?

Secondly, we think you’re too cheap!

Whoa, just hold on a minute. Let me make myself clear:

We are not cheap!

And you can’t be either.

Why?

Because you can’t afford to be.

The only way to be cheap successfully – or more appropriately, to be the lowest cost provider – is to do it at massive scale.

Think McDonalds-level scale.

They offer probably one of the cheapest burger meals you can get (let’s not get into a quality discussion), but McDonalds can afford to be so cheap because it does it at massive scale.

And anyhow, when did a client last seek a cheap consultancy?

It’s the equivalent of looking for a cheap doctor.

You just wouldn’t do it.

As the Stella Artois adverts used to say:

Now, back to the opportunity at hand.

I was in a competitive tender situation.

But I was clearly in a strong position because the client was letting me know that we were too cheap. If they were buying on price (and I don’t believe anyone buys on price), they’d simply award me the contract.

Of course, they weren’t buying on price, yet they were talking to me rather than my competitors.

That was a very positive thing!

My response to their queries:

Of course I’m happy to travel

And no, we’re definitely not cheap.

Here’s what else I said:

“If our fees have come in significantly lower than our competitors, then it means one of two things:

Either we’ve misunderstood the scope and scale of the project

OR

Our competitors have misunderstood the scope and scale of the opportunity.”

It was plainly obvious that, as I was the one having the discussion about being too cheap, it was me who had the misunderstanding.

So what to do about it?

I offered the client two options:

  1. I could review my bid and if I deemed it appropriate, resubmit with an increased fee.
  2. We could get started on the project under the proviso that I reserve the right to review our fees within a 4-week period. That way I could get started on the project (become the incumbent – a key aim for every consulting business), and I would be in a better position to evaluate the project, and to determine just how much I misunderstood.

The client’s response?

If I was to revise my bid now, under their procurement rules they’d have to re-evaluate their decision.

I hesitated not for a second. I said, “Ok, Option 1 is now no longer on the table.”

That only left Option 2.

I’m pleased to say we were engaged on the project.

Within that first 4 weeks we did indeed improve our understanding of the project resulting in the doubling of our fees from £40k to £80k.

So that was it. I’d learned my lesson.

Or had I?

As it turned out, no, I had not!

My client this time was a large UK insurer.

We’d done some great work for them on a strategy piece and so were well placed to help them on the next stage of their project. The benefit of being the incumbent.

I was asked to submit a proposal.

Excitedly, I scoped out the project as I saw it, and I submitted my proposal.

It was £25k.

And…….

……Nothing.

I didn’t hear back from the client for weeks.

My primary contact for proposal submissions was the Head of Procurement.

He was a very intelligent guy who fully understood the concept of win/win.

We’d built a great working relationship together.

When we did finally meet I asked him what he thought of the proposal.

His response:

Don’t ever submit anything like that to me again!

You’ll excuse my swearing, but my first thought was, “Oh shit!”

He then went on to explain that I had under-pitched the opportunity by such a degree that he didn’t even show the proposal to anybody else.

Like I said, he was a smart guy.

He knew that if he showed it to anyone else, he would look just as stupid as I currently did!

In thanks to the strong relationship and mutual respect, he granted me the opportunity to revise my bid and resubmit.

Which I did.

This time, the fee was £169k.

Nearly 7x the original fee!

So what would have happened if I didn’t know the client well?

Chances are I’d never have gotten the opportunity to get to know them well.

By underpricing I’d demonstrated a misunderstanding of the project, and thereby, a misunderstanding of the client.

I’d have made it clear – my proposal shouted from the rooftops:

We weren’t a fit

That’s exactly what I did in the two examples above. Only in each case I had sufficiently strong client relationships that I was able to recover from my mistakes!

Most people make the mistake of worrying about a proposal being too expensive

The bigger risk to your business is in being too cheap.

Why do I say that?

Because it’s a whole lot easier for someone to tell you that you’re too expensive, than too cheap.

Think about it.

Have you ever gone into a shop.

Looked at something really nice. High-quality. Perceived high class.

Only to ask the price and be surprised by how low it was?

What did you do?

Ask to pay a higher price, or simply walk off under the assumption that the item wasn’t as good as you’d thought!

Remember, no-one buys on price.

The only people forced to buy on price are the public sector, and even in those circumstances people find ways around it.

This is why it is so much more appropriate to overbid than underbid.

If your price is too high, and the client or prospect likes you, you’ll typically get the opportunity to negotiate with your client.

But if the price is too low, it’s usually:

Comments

error: Alert: Content is protected !!
X