There is a cost to acquiring new customers. Every proposal or request for tender/information you, your team, or your outsourced bid writer completes takes time, effort and money.
Knowing your Customer Acquisition Cost (CAC), enables you to determine the return on investment of those efforts to grow your client base. It’s calculated by adding up costs such as marketing, advertising, sales personnel (salaries, overheads, commissions, bonuses) and so on and dividing that figure by the number of clients converted over a certain period.
For example, a company that spends a total of $100,000 a month on sales and marketing and acquires 80 new clients in a quarter has a CAC for the period of $3,750 per new client.
sales & marketing costs (over given period) / # new clients (over same period) = CAC
Increasing your sales and marketing costs to bid for more business without increasing your conversion rate obviously increases your CAC.
There is also an opportunity cost associated with bidding for new business, the more bids you respond to, the more work, and more time taken away from other activities, especially if you don’t have a dedicated bid writer. That’s okay if it generates results. But, if your sales rep is at their desk for a couple of days a week answering questions every Tom, Jane and Harry send your way, then that adds up to a lot of hours when they’re not out meeting with solid leads or spending time in the closing stages with a strong prospect.
Therefore it makes sense to invest some time in qualifying leads.
Below are three questions to consider before bidding for a piece of business.
1. How well do you know the buyer?
Do you know what they do? The key stakeholders? What drives them? Their goals? Pain points? Is it a company you’ve been building a relationship with for some time and understand their needs, or do you know little about them other than what’s in the public domain?
If the latter, do you have time and resources to engage with them to learn more about their needs, and are they open to it, before submitting a response? If it’s a formal tender process communication is constrained to a defined channel and processes which may limit your ability to deep dive into their needs. With a less formal process, the company might welcome your approach to understanding their requirements better. If they are open to the idea, be prepared to justify why they should let you in and spend time with them.
Do you know who the key decision makers and influencers will be in the process? Who in the company will have final sign off on the decision, does someone have power of veto? Do you know the buyer profile for each of these individuals? Is there someone in the organisation that supports your solution and can act as a coach?
If the answer is no to these questions, is there an opportunity for you to map this out before responding? Perhaps you have contacts in other companies, suppliers, or areas of your business that can help you with this.
The proposal that nails a solution that addresses both the company and the decision makers’ drivers is most likely to succeed. Do you have access to the necessary information to do this?
2. Do you have the right solution?
Firstly, can you identify the key reasons for the company going out to market?
Then secondly, do you have the solution to truly address these needs?
Take an unbiased assessment of their needs against your service or product and determine whether you can deliver a solution that creates true value and a strong business case.
Do you have a unique selling point, of value to them, that will differentiate you from your competitors or compel them to move away from their current provider? Or, when you look objectively at your solution, does it have serious gaps and will not address this company’s stated needs?
If the latter, is there a benefit in submitting a proposal this time around?
3. Do you want the business?
This may seem like an odd question, of course you want the business. Why wouldn’t you? But, have you done an opportunity analysis and determined whether this company will be a good fit for you?
Will the account be profitable, or do you need to win it on too low a margin, eat into your profits and risk delivering poor service, resulting in a dissatisfied client?
Are you both the right fit for each other, will winning the business result in a long-term relationship, and an advocate client for you, or will the relationship rub like an ill-fitting suit for the term of the contract; leaving everyone unhappy and the client keen to get out of the agreement and back to the market as soon as possible.
Do you have the capacity right now, or ability to upscale quickly, to service the business well or provide the products? Will you meet their expectations?
Not all business is good business, and not all clients and vendors are a good fit for each other. Sometimes you’re not the right solution for this business right now, but will be in the future.
Know when to walk away and plan for another day.
*Based on a post from August 2017.
Photo by krakenimages on Unsplash