The cut-price tender temptation.

Cut PriceWhat do you do when one of your biggest customers tells you their budget has been cut, and they have much less to spend this year? If you’re selling into the Public Sector, it’s a situation with which you're bound to be familiar. The story of ever-decreasing tenders is one I’ve heard four times in the last two weeks, and in almost every case, the person talking had made an expensive decision to drop prices, turning profitable business into break-even business overnight.

The brutal reality: any organisation that runs at break-even is a hiccup away from disaster. There’s no room for error, no chance to invest in the future, no contingency for bad debts, and digging into your cash pile or raising debt to “see you through this tough period” is simply naive. Most economists are describing this as the “new normal”, and even if your customers’ budgets did return to last year’s levels, do you really think they’d tell you to put your prices back up? Of course not. So don’t do it. Here are the three things you need to do instead:

Push Back: Make it clear that you can’t provide the same service at a lower price. By offering the same for less, you’re not just damaging your future; you’re training your customers to come back for more next year. If you’re already their lowest cost alternative, stick to your guns: it’s their problem to solve. If you’re an added value provider, make sure they recognise what they’d lose by switching. The best way to get that across is to offer to strip back what you provide.

Strip Back: Most contracts evolve over time to have service levels they simply don’t need. Go through with your counterpart all aspects of your relationship to strip out as much cost as possible. Do they really need 24/7 support, 3 weeks stock on hand, overnight delivery? Push them to decide what’s essential, and what they can live without so you can strip back your costs, while at the same time, demonstrating your value.

Step Back: There’s always someone prepared to go in with a “suicide bid” to take your contract, and all too often there’s a buyer desperate enough to take it on. You have to be prepared to step back: let it go, let them take it, let them fail. Be clear with yourself on your limits and don’t step beyond them. A poisoned chalice can be tempting, but recognise when winning the contract could ultimately mean losing your business.

BOTTOM LINE: Don’t waste energy fighting for marginal business. Strip back your service and focus on finding new, profitable growth.