We touched on the subject of RFPs (Requests for Proposal) in Chapter 5. Sellers also receive RFQs (Requests for Quotation) and RFIs (Requests for Information).We’ll refer to them collectively here as RFPs.
Those that you “wired” because you were Column A
Those that someone else occupying Column A wired, and for which you are being asked to serve as a silver medalist
Yes, there will an occasional “stray bullet” where the sender of the RFP doesn’t know the requirements, and therefore has not established a favored vendor. We find these to be rare, and they most often turn out to be fishing expeditions—either for companies to discover what is available out in the market, or for their IT department to receive free education in order to generate specifications for in-house projects. We have found that many of these situations turn into long sales cycles, with a high probability of no decision being made.
By their nature, RFPs slow down the buying process. They are more common among mainstream-market buyers. Companies use several justifications to defend the time and effort involved in issuing RFPs:
Companies find out what offerings are available.
Vendors talk about one another, allowing a more informed choice.
Companies meet due-diligence requirements.
Companies get free advice/consulting.
Companies can make an assessment of vendor submissiveness.
Vendors bid against one another.
Companies give the appearance of being fair to all vendors.
As an aside, many organizations talk long and loud about their cost of sales. Amazingly, though, few calculate what it actually costs to generate and monitor RFPs with multiple vendors. Consider an organization that issues an RFP to six vendors, with the intent of stirring up a price war, for a $75,000 transaction that has the potential to allow them to save $5000 per month. Conservatively speaking, the time to generate, publish, distribute, and provide adequate time for vendors to respond to the RFP will add 90 days to the process. Let’s also assume a cost in labor-hours of $3000 for the resources required to interact with six vendors (again, that’s conservative). Without regard for the time and effort needed to actually write the RFP, which may involve expensive talent, here is an estimate of the imbedded costs:
Based on these figures, the RFP must enable the issuing company to negotiate a $42,000 ($75,000–$33,000) price with the gold medalist just to break even.
Having looked at this from the side of issuing organizations, let’s consider a vendor’s perspective. Over the past 12 months, how many RFPs has your company responded to where you were reactive rather than proactive (meaning, you were surprised when you received the document)? Now estimate your win rate on those “opportunities.” If that figure is acceptable, feel free to skip the next few paragraphs.
We worked with a client that had an entire department whose sole responsibility was responding to RFPs. The average response took 80 labor-hours—and the company’s 145 responses to unsolicited RFPs over the previous 12 months had resulted in precisely three wins. Perhaps your win rate on unsolicited RFPs is better than 2 percent. (We hope so.) But it’s probably not satisfactory. The hard fact is that if you play by rules that have been prewired by your competitor, more often than not you will be receiving a silver medal. On analysis, most companies discover that responding to RFPs wired by other vendors is an unprofitable practice.
So let us propose a qualifying alternative.
When issuing an RFP, organizations want something from vendors: namely, a column (either A or—more likely—something east of A) on the spreadsheet. We suggest that you offer a column in exchange for access to a Key Player. If the organization issuing the RFP won’t give you access, this is a clear signal that the relationship will end unhappily for you.
The message, whether an opportunity is discovered proactively or reactively, is to scrub the input into your pipeline. Sales managers (unless they choose to make an exception) should require documented access to Key Players before authorizing the resources needed to compete. Would you prefer gold or silver?
In the next chapter, we look at the challenge of managing a sequence of events across the life span of a sale—the selling organization’s equivalent of project management.