How to Establish your Sales Price
Providing technical services to industrial segments is done by engineers and technical people. The role of the traditional sales person in establishing sales prices is different than in other segments or product sales. The sales person usually does not have sufficient knowledge to prepare the commercial proposal on his own. Besides that the engineers and operational personnel have to execute the services, so they want to have a say in the establishment of commercial prices. By involving engineers and technical colleagues you might end up with a perfect solution, with all risks included into your proposal. The sales person should be very careful when copying the “advice” of his colleagues.
Type of Contract
The type of contract is often dictated by the client. The client will settle his requirement for either a lumpsum or reimbursable contract. The sales person should decide to accept the proposed type of contract. The sales person does not need to accept the client’s demands. He might decide to offer his services at his preferred contract type. Especially in the first proposal, choose the type of contract which suits your service and especially company, well.
It is a matter of respect, in case your client wishes to have a lumpsum quote and you decide to offer at reimbursable costs, to provide your client a realistic budget.
Approach your operational and engineering colleagues to prepare a preliminary planning. The sales person is responsible to define the scope of work as detailed as possible. The type of contract is not relevant at this point in time. What is relevant is to track the risks, or risk inclusions, by the person who prepares the preliminary planning. Identifying the risks in this stage of the project will serve the sales person in all next stages of the commercial process. The sales person should decide if and when to introduce the risk. Risk awareness will provide him the competitive edge during negotiation as well.
In certain industrial markets it is common to provide the unit rates, whether it is in relation to a lumpsum contract or in a reimbursable setting. For reimbursable contracts, the sales person of the contractor might offer a discounted unit rate. However the sales person should be reluctant, because of the message that goes along with discounted rates. In the perception of your client lower prices or discounted prices might influence the level of quality. Reduced prices should only be offered in relation to generic services.
Most industrial contracts include a certain level of services or products which have to be procured by the service provider. These third party services and goods will be included in your proposal. Decide if you want to specify the sub vendor. You also might choose to work with a markup fee for external procurement and show that in your proposal.