Are you considering going after bigger customers? The rewards can be big, but so can the challenges, and the costs of doing business. Here’s what you need to know about selling to major accounts.
Are you ready to move your business to the next level? Are you planning to target big corporations and government agencies because you think acquiring some major accounts will put your business on the fast track to greater profits and success? Winning a big customer or two can certainly be a feather in a small business’ cap. But before you start pursuing those major accounts, be aware that wooing and winning deals with deep-pocketed clients could take a toll on your company’s financial health. Here’s why — and how to proceed.
1 – The process of developing relationships with end users and purchasing agents can be time-consuming and expensive. Depending on who the customer is and what they are buying, the process may involve attending out-of-town meetings and conferences; making a lot of calls to establish contacts and stay in touch with them; scouring various publications or email notices for appropriate bid opportunities; attending pre-bid meetings and walk-throughs; responding to RFPs, and depending on who the customer is, possibly wining and dining the individuals you hope will choose you over your competitors.
2 – You may have to cut your prices considerably to land big sales. Big companies know how important their business is to their suppliers and contractors. They also know that scale (i.e., purchasing large quantities) should result in cost savings for the vendor. And they want to benefit from those cost savings. So, in general, the bigger the customer and the bigger their planned purchase, the deeper the discount they’re likely to expect.
3 – You may only have been asked to submit a proposal because the purchasing agent needed to show they considered multiple bidders and/or made an attempt to get bids from small, minority-owned, or woman-owned businesses.
4 – Big companies may expect you to customize or redesign your product to their specifications. The customizations will be on your nickel, not theirs. And then, of course they’ll still want the deep discount off your normal wholesale price.
5 – Depending on the nature of the contract, negotiating deals with big companies can take far longer and be far more stressful than you’d ever expect.
6 – If the big customer you’re targeting is the federal government, or a prime contractor for the government, there may be time-consuming paperwork to do and complex regulations with which you’ll need to comply.
7 – Some big companies will take a very long time to pay. Your invoices may say net 30, but with some big corporations, you’ll be lucky to get net 90 no matter how much you’ve had to scale up your operations and your costs to fulfill the contract. Because your employees, suppliers, landlord and bills will all need to be paid on time, the delay in payment could have a serious impact on your company’s finances.
Despite all those negatives, pursuing and landing big accounts may be worthwhile for your small business if you know how to play the game. Here are some strategies to help.
A – Get to know the end-users of your product at the companies you’re targeting. You want to know what problems they need solved – and make them aware of your company’s unique capabilities to solve the problems before a statement of work is written and an RFP goes out.
B – If your small business is minority-owned, veteran-owned, woman-owned, or falls into any other classification considered “disadvantaged” for contract purposes, consider getting certified. Although the federal government currently allows business to self-certify, formal certification can help you win contracts with local and state governments and prime contractors.
C – Before you gather your resources together to respond to an RFQ or RFP, analyze the opportunity to determine whether it’s one you should invest the time and expense to pursue. Pay particular attention to these factors:
- Is there an incumbent? If so, has the customer been satisfied with the incumbent’s work?
- Is the contract a one-time purchase, or is it for products or services that will be needed repeatedly over a long period of time?
- Are you certain your company can deliver the quantity and quality of goods and services the customer requires, meet packaging, shipping, inventory or other specifications, and do it all within the customer’s time frame?
- Do you have the work experience and credentials to be viewed by the customer as a reliable source for their needs?
- What costs will be involved in bidding on the contract? How much employee time? Will there be expenses such as out-of-town site visits or pre-bid conferences? What about other out-of-pocket costs? Do the costs make sense in light of the dollar value of the contract to you and known factors that might prevent you from winning the contract?
- How might discounting and/or delays in getting paid affect your cash flow and profitability?
- Do you have a realistic chance of winning business from the client?
- Will the time you devote to the major client affect your existing customers in any way?
The answers to these questions along with your current financial situation and your long-term plans for your company should help you make better decisions about which major clients and bid opportunities to pursue, and which to avoid.