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It is often said that, all that IT Buyers care about is savings, but let me lift the lid on what type of savings they are really after - because not all savings are weighted equally.

Ideally IT buyers are looking for Gold - metaphorically - but more often than not they are finding themselves down a Coal Mine. Let me explain:

A savings type called COST REDUCTION is the gold, whilst another savings type called COST AVOIDANCE is the coal.

The Gold (Cost Reduction) can be claimed only - and only if - the company has existing spend (or budget) for the product that you or your competitor is selling. Gold Savings happen when this year's spend is less than last year's spend.

This could be as a result of :

- A switch that is made from an existing non-preferred supplier to a preferred supplier (you) with better terms and lower prices. 

- A negotiation leading to a unit price reduction against existing volume.

- Demand management leading to a volume reduction.

It is possible that Cost Reduction is a large or only contributor to your IT buyer's savings target that year.

Any other savings, in the eyes of an IT Buyer, is the lesser valued COST AVOIDANCE type - The Coal. 

In other words, if you are not working on knocking out a competitor with existing spend and just want to sell more volume at a slightly reduced price, expand product ranges or introduce new services, you are "Down the coal mine" and you will only be seen as offering coal when you make any concessions in your negotiations.

Concessions could be:

- The company wants to buy more product so you are lowering the unit price - a bit - but the overall spend is still more than last year.

- The contract says that you are allowed to increase your prices every year by X% and you are allowing for the price to stay the same as last year.

Before making any of these types of concessions make sure that you have established whether they add any value towards the IT buyer's target or not.  They might actually prefer other contractual improvements and concessions.

Two warnings:

If you are bidding in an RFP (Request for Proposal) and the product is a new offering then you are always going "Down the coal mine" because there is no previous spend. There is nothing you or the IT Buyer can do about that and you might have to make more concessions than normal in order to win the business in the first place. Assuming you won the business, then when your contract renews you are back at creating savings of the Gold and Coal variety.

Finally, the whole activity of establishing savings definitions and the savings calculation methodology is serious business in Corporates. This is a complex area and not far from a Black Art. The examples above are a simple explanation in order to create awareness. 

If you want to check how I would see a concession in terms of savings, feel free to email me at wanda@amycus.com to get my opinion.

To your success

Wanda

Note from Wanda