Why Responding to RFPs Hurts Your Sales Organization

 

It happens all over the country in organizations every day.  A top prospect suddenly emails a salesperson a Request for Proposal (“RFP”) and they immediately forward it to their manager with a note, “We need to throw everything we have at this.  This is a real opportunity for us!”

 

Is it, really?

 

Why didn’t the salesperson mention this opportunity in his deal discussions with his manager over the past couple of months?  Most likely it is because this is a “cold” RFP; one the sales person had no idea was coming.   And now it is attached to your optimistic salesperson’s emotions AND pipeline activity.

 

The Challenge

The sales manager needs the revenue and the salesperson really wants to go after the business.  They will both rationalize the fact that even if they don’t win the RFP, they will better position themselves for future business, so it’s worth the effort.  Unfortunately, the data does not support this statement.  Most RFPs result in 2-3 year contracts.  If you do not win the RFP, you will wait 2-3 years to have another opportunity.  Most salespeople will not put the time in for something to potentially happen in 2-3 years. And most buyers will not remember the company that finished second or third without a significant change in the relationship.

 

Empirical Data Over 20 Years Says DON’T RESPOND!

Our historical data compiled for twenty years across three different industries show that when salespeople respond to cold RFPs there is a 91% chance they will lose!  Imagine if a car company or a printing company produced 91% of their products incorrectly?  Why is it ok for sales to perform this way?  The short answer is:  IT’s NOT!

 

You may be thinking, what about the 9% you won?  Surely you don’t suggest we never try?

 

Well, chances are that the few cold RFPs won did not work out very well. Here are five reasons why:

 

  1. Cold RFP business that is won, almost always results in reduced margins.  And in three years, just when you start to move the cost and margin in the right direction, they put you out to bid and if you are lucky enough to win, it will be at significantly reduced margins—AGAIN!

  2. It cost money to respond to an RFP.  We calculated the fully-loaded costs to be in excess of $24,000!  Time is money.  The time you are spending responding to a cold RFP is time not spent on developing mutually beneficial relationships.  We all get the same 525,600 minutes in a year—use them wisely.

  3. The customer has all the power in this scenario.  Typically it is a one-sided (competitive) relationship whereby the customer wants to win and has little regard for how that will affect your company.  If you don’t like their terms, they will move to the next vendor.

  4. You are sending the wrong message to you sales team. You are saying that activity trumps cultivating relationships.  That will eventually send you and your sales team into a death spiral.

  5. Business Development suffers.  If you are chasing RFPs, you are not developing strong relationships as a trusted advisor to your clients.  Trusted advisors write the RFPs and put themselves in position to win them.  These are what we call “wired” RFPs.  Guess what?  If you are not wired, someone else probably is! PS: responding to “wired” RFPs is a totally different story.

 

Create Value through “Discovery”

If you are still not convinced, let me suggest this.  Call the prospect and ask for a meeting letting them know that you believe “prescription before diagnosis equals malpractice” and that you couldn’t possibly provide them with your best solution without fully understanding their challenges.   Let them know you want to get to know them better and understand their critical concerns and objectives in addition to learning their good and bad associated with the current program. If they are willing to meet with you, ask them why they are considering a change.  If you are comfortable they are serious about making a change and that you can create unique business value, you can then reconsider responding.

Unfortunately, it is highly likely that the customer will say something akin to, “Listen, I sent this RFP to 10-15 different vendors.  If I meet with you, I will have to meet with everyone and that is not going to happen.”  If they won’t meet with you, disengage immediately.  They are not willing to invest in you, why should you invest in them?

 

Remember: responding to cold RFPs result in a 91% defect rate.  That is a fact.  No one should allow their teams to produce at that rate.

 

At Butler Street, we specialize in new client acquisition through our proprietary ClientFirst A.R.E.® methodolgy.  Want to learn more about how to position yourself for “wired" RFPs?  Click on CONTACT--we would be happy to help.

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