Continuing the theme of the last few weeks regarding ideas to assist with sales, this week's column will deal with a very real challenge confronting both customers and vendors. Specifically, having been convinced of the need for a service or product by a professional sales presentation, yet confronted with an almost nonexistent credit market, how can a transaction occur that will benefit both the buyer and the seller?
Given the magnitude and future uncertainty of this current economic reality, clearly any workable solution to such a problem is going to have to go outside the norm in terms of traditional selling terms and conditions. Traditional selling margins along with traditional payment expectations may well have to be abandoned if new business is to be acquired. But the interesting thing is that done properly and creatively, this actual scenario could result in significantly improved profitability for the seller. The whole key is getting comfortable with the idea of sharing in productivity benefits over time.
Assuming that you are selling a service or product that is productivity enhancing and assuming that you truly believe in the viability of your proposed solution, then the basis for this new approach is already in place. As part of your sales presentation/justification undoubtedly a productivity analysis was performed with some type of traditional payback period. The customer knows that this productivity is required for him or her to be successful in their marketplace and will generate future profits but they just cannot figure out how to pay for it. This "paying for it" is your price which has to include your desired profit. No matter how badly the customer might need it, if it cannot be paid for you both lose.
Your opportunity here is to move from a single transaction mentality to one of an ongoing relational one. As opposed to a one invoice or an extended payment plan, you agree to be paid in part with a portion of the new found productivity or incremental profit. And you get this payment extended, not just one year but two or three or whatever makes sense. Now whether you are a manufacturer or a distributor obviously affects the down payment requirement, but both will produce a significantly lower barrier to purchase for your customer. Obviously there must be an agreed upon verification in place, something that both you and the customer are comfortable with in both your trust and confidence.
The benefits to the customer are obvious. A significant portion of the purchase price will be covered in the future by the newfound benefits of your product or service. In addition, because you the seller continue to have a vested interest in the customer's success, the chances and fear of you disappearing after the transaction are greatly diminished. You both now have a vested interest in the achievements contained in your proposal. Properly structured, the benefits to the seller are also very lucrative. As opposed to a onetime markup of, say, 30 percent, you get three years of thirty percent of the benefits. Depending on the actual productivity improvements, you could easily see your profit on the deal grow to two or three times your normal expectation.
An interesting aspect with this approach is that if you are a potential buyer with insufficient funds you can certainly propose this to a potential seller. This could be a real example of putting some lasting meaning on the much abused negotiating term known as "win/win." The new mantra may very well be "create/collaborate."
John F. Riddell Jr., director of the Center for Entrepreneurial Growth-Hamilton County, writes every other Tuesday about entrepreneurs and their impact on companies and the marketplace. Submit comments to his attention by writing to Business Editor John Vass Jr., Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by e-mailing him at business@timesfreepress.com.