For most B2B companies, the top 20% of customers account for 80% oftotal revenue, with the top 10 customers alone often contributing over 50%.
Given these numbers, it's clear that successful contract and pricing
(re)negotiations with key clients are critical to business success.
However, based on years of experience in deal negotiations, I see that manyorganizations fall into at least a few common traps, leading to unnecessary
losses or missed opportunities. The good news? These pitfalls are entirely
avoidable:
1) Engage early to influence criteria
Don’t wait for the RFP or tender to be issued. Build ongoing relationships with key customers to shape their perceptions and ensure the RFP criteria favor your business.
2) Be selective with RFPs
Not every RFP is worth pursuing. Use an opportunity qualification framework to assess whether the opportunity aligns with your strategic priorities and likelihood of success.
3) Leverage your power position
Don’t let initial negative sentiment from sales teams cloud your judgment. Carefully evaluate your power position by analyzing factors such as available alternatives, switching costs, deal size, urgency, and the strength of the relationship.
4) Adopt value-based pricing
Use techniques like Economic Value to Customer (EVC) to craft compelling value propositions and quantify how your offering contributes to the customer’s cost savings or revenue growth.
5) Offer tailored pricing options
Avoid one-size-fits-all pricing. Unbundle your offering into distinct value components and repackage them into multiple value/price options tailored to customer needs.
6) Strategize for RFP processes
If the RFP process allows for negotiation, start with higher price points. Never undercut the market with your initial offer; this risks driving down the entire pricing structure unnecessarily.
7) Prepare thoroughly for negotiations
Don’t underestimate the sophistication of professional procurement teams. Replace overconfident ego-driven approaches with a well-thought-out negotiation strategy.
8) Stick to your plan
Once you’ve developed a sound strategy, stay committed. Even if the customer threatens to exclude you, remember that an RFP’s purpose is to compare suppliers. Dropping you early would limit their leverage.
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