Why working on the cheap for me . . . is good for you.

I don’t know where the words came from. 
Unrehearsed, they just tumbled out.   

“I’m wondering if you’d be willing to reduce your rates for a couple reasons: 1) I’ll be hiring a lot of design work in the coming years, and 2), I’ve got three friends starting businesses soon. It’ll be good exposure for you.”

Eight years later, I cringe to think I said these words to someone I admired. (Writing them is even worse.) In analyzing my pitch, I realized there were two promises made: Volume and Exposure.  

One is a ruse—an attempt to trick someone.  

The other is . . . how shall I phrase this?
Oh, I know.
Bullshit. 


(Harsh language, but there really isn't an effective synonym for that term. I'm open to suggestions though.)   
 

If you can commit to a specific volume purchase, requesting a specific discounted price is reasonable. As an economic incentive, it makes sense for both parties. Promising unspecified volume in the future, however, for a very specific discount in the present is a ruse.

As for Exposure? 
Well, unless you’re Oprah, you’ve got none.

Karma.
Payback. 
You reap what you sow.

The Volume & Exposure card has been played on me dozens of times since I laid it on this particular graphic designer. Luckily I learned a wonderful sales lesson from the designer’s response:

“I appreciate you being candid with me regarding my pricing. It’s flattering when someone sees my work and reaches out to me about a collaboration. My clients value my ability to get their creative work done right the first time with a level of craftsmanship that would cost three times as much through an agency. I do offer reduced rates for volume bookings, reducing my rate by 10% for a block of 100 hours purchased—and paid for—up front.” 

And then he said . . . nothing.

I later dissected his response.
Each segment served a purpose. 

“I appreciate you being candid with me regarding my pricing. It’s flattering when someone sees my work and reaches out to me about a collaboration.”  Don’t get emotional when prospects and clients challenge your prices. Professionals are not afraid to discuss price, because it is rooted in value—the focus of any sales pro. The designer then reminded me that I contacted him, an important element in any sales dialogue.

“My clients value my ability to get their creative work done right the first time with a level of craftsmanship that would cost three times as much through an agency.” Here he changed the conversation from price to value, knowing I recently paid a tidy sum for a hideous, unusable website that took 6 months to create. 

“I do offer reduced rates for volume bookings, where I reduce my rate by 10% for a block of 100 hours purchased—and paid for—up front.” Addressing my request for a price decrease, he specified the volume and terms for which he would lower his prices.

An executive called me recently after reading my book, Behind Your Back. He asked if I was interested in being the keynote speaker at his annual sales meeting in Houston. 

I was. 

Despite annual earnings of several hundred million dollars, I was told, “Oh, we don’t have the budget to pay you. I thought the exposure you’d get within our organization would be worth more than your typical fee. And you live in Dallas, so it’s an easy trip.”

I recognized the structure of the pitch. 
Volume & Exposure.

He included Geographic Proximity as a third dimension. Because from the moon, Dallas and Houston are right next to each other . . . 

The Volume & Exposure pricing play is intuitive, if not instinctual. That can only explain its widespread usage. Mine included. When presented with it, deliver your script just like the graphic designer did. 

 

Focus on value vs. price. 

Articulate your differentiation and reasoning for the given price.

And then say nothing.

 

As for the designer and me?

We have been working together since that call. 
None of my three entrepreneurial friends did hire him.

And no, I’m not going to Houston.

Go "Around the Horn" with your team.

Coaching a baseball team full of eight-year-olds, I’ve learned you can’t take anything for granted. Baseball concepts must be taught, tested and revisited often.

For example, I recently asked my team to throw the ball “around the horn.” They all just stared at me. I explained it’s a quick exercise where the infielders throw the ball to one another after an out is made.

 

We practiced it a few times. The ball was inevitably airmailed into the outfield. A dog pile ensued as the team raced after it. That was the end of “around the horn.” Until I got home. There I stumbled upon the ESPN show Around the Horn. As I watched, I saw ATH could be used in business settings too.  


In Around the Horn, a group of four sports writers provide perspective and commentary on a variety of relevant topics. The host, Tony Reali, awards points to the most insightful and/or humorous responses. 


Reali explains, “The thing I love most about hosting this show is that it mirrors my personality: sports, games, jokes, pop culture—and none of it taken too seriously. I mean, we have a mute button and a scoring system no one understands. I like that.


Being a Purchasing Manager was a lot like hosting Around the Horn.

  • We awarded points for insightfulness.
  • We had a mute button.
  • And most sales reps didn’t understand our scoring system.


So how can sales reps prepare for Purchasing Managers like this? Play Around the Horn


Here’s how it works: At your weekly sales meeting, select 4 team members to be participants. Then select a host. Everyone else takes notes to share later. 


The host introduces a relevant question to the group—one that a Purchasing Manager might ask—and calls on a participant to begin speaking. For example:

  • What’s your profit margin on our current window package? 
  • What do you think of the price stability of Southern Pine?
  • How will the BFS/ProBuild deal impact our business?
  • Can you believe Sepp Blatter resigned as FIFA chief?

 

The goal for the participants is to respond with insight. That 1500-word Willy Loman response that took the conversation from Southern Pine to Southern Comfort . . . 0 points. And the mute button.


That intelligent response about the BFS/ProBuild deal decreasingcompetition and increasing prices in your market . . . 5 points. Well done.
 


(If you want to develop world-class sales reps, video tape these ATH training sessions. Have each rep review his performance. Edit the best responses and share them as part of your digital library. Load them on your sales team's smartphones and iPads for when they get stuck.)     
 


The goal of ATH is to increase the ratio of words spoken to insight provided.

 

Your sales reps may be able to talk a dog off a meat wagon, but if they cannot articulate consistent, meaningful insights, they are worthless to a Purchasing Manager. Playing Around the Horn will help your team improve its insight capability—and chemistry—with Purchasing Managers. 

 

ESPN host, Tony Reali said, “For me, the strength of this show is in the friendship and chemistry and relationship between the participants and the discussion that comes from that.”


Doesn’t that describe the best relationships in your business too?

 

So try out ATH at your next sales meeting.

Don’t take anything for granted though—whether you’ve got 8-year-olds or a squad full of seasoned vets, not everyone will know how to play Around the Horn.    

 

Teach it, test it and revisit it often.



Look for this article in the July edition of LBM Journal—print and online. If you'd like to have an audio file of this article, email Bradley at bradley@redanglespanish.com or call me at 630.234.7321.

Why 75% of your generosity provides no value—and how to change that.

Put us out of business because you are so damn generous with what you give the people who walk in this door . . . . I challenge you to put us out of business with how generous you are. Go do it. Give away free stuff.

No CEO would ever say that, right?

Certainly not a CEO in the building industry. 
Generosity will run you out of a bonus, if not out of business.

Other than carpenter’s pencils and your logo’d hats that stand way too tall on a human head—you don’t give away free stuff in construction. 

 

Except you do. 
Every day.

 

Material, for example.

It was delivered, but then it disappeared. 
Please send free material.  

It was delivered. It’s installed. It looks great. It’s the wrong color. 
Please send free material.  

It was delivered. But the painters walked all over it with muddy boots.
Please send free material.  


Yessir, you are generous to a fault.
Literally. 


75% of the time, your generosity provides no real value—and that’s your fault. When it comes to giving away free stuff, the difference between generosity and complicity boils down to 2 things: acknowledgment and value.

 

Acknowledgement: Do I acknowledge you provided me with free stuff? 
Value: Do I value the free stuff you provided me?

Your team assumes your frequent generosity is resonating with Purchasing Managers (acknowledgement) and confuses the essence of value (it’s what I perceive it to be, not you).

 

Here’s the truth: word of your generosity is not getting around. When construction managers drop the ball, they have a vested interest in keeping news of the fumble local. And if Purchasing Managers don’t know about it, they can’t acknowledge it. 

And there’s worse news: some Purchasing Managers may hear it. 
The may acknowledge it. 
And they may not value it. 

They expect it.  
Value is what they perceive it to be, not you.


But there is hope. 

In my book, Behind Your Back, Rule 4.6 is Embrace the Z.D.I. 

Z.D.I. stands for the Zero Dollar Invoice.
     
To properly execute a Z.D.I., just send a standard invoice with agreed-upon pricing, but with a full discount at the bottom. For example, a four-hour, round-trip box truck with two employees to pick up extra materials: 

  • Man hours = 8 x $35/hour = $280 
  • Fuel charge = $120 
  • Restocking fee = $100 
  • Total Charge = $500 
  • Hartmann Homes Discount = $500 
  • Net balance = $0

 

PS: You’re welcome. 


Z.D.I.s help in three critical ways: 

ONE 
The Z.D.I. ensures acknowledgment of your generosity with the Purchasing Manager. 

TWO
The Z.D.I. allows you to evaluate the Purchasing Manager’s perception of the value.

THREE 
You are creating a paper trail for future evaluation within your own company. If your Hartmann Homes Z.D.I.s add up to $150K at the end of the year, you may want to reconsider your interest in their business.


As a Purchasing Manager, I implored my vendors to submit Z.D.I.’s monthly. Few did. Good Purchasing Managers want to know about challenges— and your subsequent generosity—because those additional costs are ultimately factored into contracts.

 

So did a CEO really say that quote at the top?
Yes. 

 

Randy Garutti, CEO of the recently IPO’d Shake Shack, challenged his team to take their fast-casual, burger dining hospitality to a new level.

When a four-year-old is crying from hunger pangs after an hour wait for burger & fries, a free cup of ice cream (cost of cup + spoon + napkin + ice cream + labor = $0.88) will be acknowledged and valued immediately. That’s a certainty.

 

As for your free box truck with 2 employees picking up 84 lineal feet of primed poplar shoe molding? That’s uncertain.

 

Take the uncertainty out of your generosity.

 

Just send a Z.D.I.—a Zero Dollar Invoice—when you perform activities you feel you should be paid for . . . but want to be generous.