Think Cost of Buying, Not Cost of Selling!

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The cost of selling to an organization is only a fraction of the cost of that organisation’s buying decision. For example where a major buying decision involves 3 competing suppliers, the time that the seller spends with the buyer has to be multiplied by 3, with the buyer allocating time to each of the suppliers involved.

With lengthening and more complex sales cycles, sellers are sensitive to the rising cost of making a sale. However, they don’t give much thought to the costs for the buyer. That is the cost for the buyer of making the purchase decision.

Calculating the Cost of the Buying Process

The table below suggests that the buying decision in respect of a complex sale can easily range between 45,000 and 135,000 depending on the number of managers involved and the length of the buying process. Buying decision C for example takes 6 months for completion, involving 5 managers on the basis of an average of 1 hour per week over that period. The cost of that buying decision could be estimated at 45,000, based on an annual salary cost (including some overhead allocation) of 110,000 per manager.

	A	B	C
number of months	6	6	6

number of weeks	24	24	24

number of managers	5	5	5

number of hours pw	3	2	1

total	2160	1440	720

Days	270	180	90

cost per day	500	500	500

total cost	135000	90000	45000

What are the implications of costly buying processes?

Complex buying decisions cost more. This has a number of implications for buyer and seller alike, including:

The decision to fully engage in the buying process, is in itself a significant commitment of resources. For this reason it is generally made in stages, with the sponsor in the buying organization first being required to present a justification for a buying decision business case being prepared.

Only a limited number of projects can be evaluated at any one time. This can mean that although a project is of interest, the timing may not presently be right. Vendors must demonstrate to vendors how their projects can impact on the buyer’s immediate business priorities.

Given the cost and time required organisations will want to ‘kill off’ poor projects as early as possible. The vendor may have to do the initial running for a project to gain a sufficient ‘head of steam’.

Organisations are standardizing the approach to the making of buying decisions, including standard steps to be followed, templates for documents to be prepared, etc. This serves to makes the process more repeatable and consistent, thereby saving time.

Involving another supplier in the process costs money, after all 3 suppliers means 3 briefings, 3 presentations, 3 proposals, etc. So involving a supplier does represent a real commitment of time and effort. Of course there is also the potential embarrassment cost if including a particular supplier proves a mistake.

Buyers will inevitably want to limit the time / cost of the buying process, that means being judicious about time spent with sellers. When sellers want access to all the stakeholders they need to be conscious of the fact that this represents an additional draw on their time and adds to the cost of the decision.

Buyers want to get something back for the time spent with vendors. OK they may need to meet with vendor C because their internal process requires 3 vendor quotes, but if each vendor required 20-40 hours of time (including the briefings, the presentations, the proposals, the ongoing communication, etc.).

Once a vendor has been selected, it makes sense for the buyer to want to develop and deepen that relationship, as opposed to going through the entire process again. When customer defect to another supplier they face real switching costs related to the process of evaluating, educating and learning to trust another vendor.

How to save the buyer’s time?

Sellers often express concern about buyers placing ‘unreasonable’ demands on them during the sales process. That is expecting the seller to spend lots of up front time without any commitment on the buyer’s part. This is a valid concern. However, to be fair sellers must also consider the burden that they place on buyers.

The salesperson in helping the buyer to buy, seeks not only to help the buyer make the right decision, but also to cut the cost, or burden of making the decision in itself. He, or she has the potential to free up, as opposed to tying-up the buyer’s time. So here are the rules to follow:

Always obey the rules regarding access, don’t go over or around others to get to who you want
In order to ensure you access the right people, map the buying process to the organisational chart to identify you need to meet.
Tell them why you want to meet, ask them what they want to get from it and set a clear agenda in advance.
Take advantage of other forum for interacting with those managers of interest, for example, industry association events, conferences, etc.
Use access sparingly and plan it to get the most from any time you have with stakeholders. That includes meeting at the right time and when the objectives or value of doing is at its most. For example, make sure you have your initial briefing, or scoping completed first.
Click here for the rest of the rules for access.