Sales Channel Management: Stop Wasting Money on Quotes

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Project Specification

Most companies cannot serve all of their market through direct sales. At least outside their home territory, they have to engage intermediaries who can be agents, representatives or sister companies. Ideally, both sides share the same goals and work hard in order to win business in their mutual markets, and in most respects they probably do.

But there are differences that can lead to significant problems. While the principal and the agent both share the same interest with respect to getting orders, their economics work differently. Efficiency may not be viewed from the same angle.

On the principal’s side there can be substantial costs involved in preparing quotations. In the project business or for any customer-specific solutions such as custom machines, there may be a lot of engineering work involved for preparing a quotation. In some businesses this may involve many man-days of effort. There is not only the design work and the cost calculation to be done, there can also be technical clarification required to enable the engineers to come up with the right solution. The cost of all this is tremendous.

And cost is not the only problem. Simple logic says that while the engineers are working on one offer, they cannot work on another one at the same time. But what if the other project offered much higher chances?  In that case one has to add opportunity cost as well, since poor opportunities might be replacing better ones. It may not always look this dramatic, but my own experience as a manager of manufacturing firms is that it is always an issue which requires attention.

For the agent, this looks different. Every quotation will increase his chances for an order. Each quotation, even if the probability for an order is low, helps at least with the relationship with his clients. At the same time, his own cost for preparing the quote is marginal. He may not even relay information between the technical staff of his customer and his principal, just  leaving it to direct communication. Therefore he will be inclined to ask his principal for a quote whenever he gets an enquiry. At least in the early stage of a sales cycle, he may view proper probing to answer these questions as additional and unnecessary cost. It is just less effort to wait for the reaction to the first quote.

This scenario leads to a waste of valuable resources and hence to increased cost and lost business. From a suppliers point of view, this has to be changed. But how?

The only way is to get some control over the probing done by your reps. The company should not have to spend its resources on opportunities for which the chances are unknown because it is not even clear whether the customer has a real intention to buy and has sufficient budget. Or, if he does have the intention to buy, he may lean towards a local supplier with whom he had a long relationship.

The principal must take the lead and make his agent answer these questions. He must prioritize opportunities coming through his agents in the same way he prioritizes his own opportunities, applying the same metrics: Will it happen? Will we get it? When?

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  • http://twitter.com/edbmarsh Ed Marsh

    great post. and eminently applicable even in industries other than engineering intensive custom machinery. a really solid channel partner (one that seeks to improve their business processes, sales success, revenue & profitability) will embrace a principal’s methodology that supports those goals.

    there will be cultural conflict (sales system, management philosophy and even international) if it is clumsily introduced and enforced, but when presented with an acknowledgement of the principal’s initial motivation AND a business justification from the channel partners’ perspectives, it will be appreciated.

    wasting time on “quotes” is corrosive to sales success in addition to internal resources.

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