Be honest. How many bids are sitting on your desk at this very moment? Are you confident you'll win at least 80% of them? Besides a competitive price, what will be necessary to win each job? Most electrical contractors operate in a reactive sales environment. Every project opportunity is based on responding to a request for bid that is also received by all your competitors. Inexperienced contractors rely on low prices to win their projects, while more mature contractors realize price is only one of several elements necessary to win a job. Beyond the quality of your bid, you really want to move from this reactive sales environment to a more proactive position — one where you're driving the sales process, not your customer.
This article will walk you through the 10 questions every electrical contractor must be able to answer before determining whether he's ready to win — not just fight — the sales war.
What do you do best in the world? For a young contractor, this question may be impossible to answer. You don't have enough experience and, in all likelihood, are still struggling to find your market niche. Your best is defined by those projects that end successfully — more of a testament to your project management skills than industry excellence.
Mature contractors evolve through markets over time based on both market conditions and, quite frankly, luck. As one wizened contractor admitted, his firm started with an expertise in control wiring more than 40 years ago and moved into waste and water treatment plants. Now, as he reaches retirement, the company specializes mainly in interstate highway signage and lighting. In each market, his firm achieved a “best-in-the-world” moniker — and, when competition became too stifling, it evolved seamlessly to the next market.
Sales success is predicated on being able to answer the “best-in-the-world” question. After all, if you don't believe you're the best in the world, why should anyone buy your services?
Why do your customers buy your products and services? The answer to this question typically comes down to one of three reasons: to increase revenues, decrease costs, or mitigate risks. Because there is no other reason for a customer to buy, these three reasons form the basis of the value proposition.
Your objective is to wrap a quantitative value proposition around every one of your offerings. Energy conservation offerings and power utilization audits can immediately be tied to a reduction in operating costs. Long-term proactive maintenance and monitoring of electrical equipment can avoid electrical failures — a clear example of mitigating risk. And, in every case, you can calculate the impact of your offering in finite dollars.
For core electrical offerings (i.e., wiring a commercial building), the value proposition is often associated with delivery excellence, not price, as many contractors may think. While builders complain about project pricing, their greater concern is non-performance. If a contractor wins a project based solely on low price but is unable to deliver a quality end product, the builder faces a huge risk. Surprisingly, the value proposition most associated with core electrical contractor offerings is to mitigate customer risk.
What is the value of your offerings portfolio? While it would be unusual for any single customer to buy all of your products and services, it is plausible that many of your offerings would be of interest to a larger share of your customer population — if they only knew about them. The issue is that many of your service offerings are in response to a customer request — not proactively sold as a targeted offering.
Uncovering the value of your product and services portfolio requires an analysis of the last 36 months of customer records. Specifically, what did you sell to each customer, and what was the value of the offering? When you take a good look, it will become obvious you're delivering a high number of one-time offerings. You may also find that the amount you bill for each service fluctuates — a phenomenon that occurs with changes in competition, available work, and idle resources.
The objective of this exercise is to identify the full range of services that could be offered through your business.
What is your optimal revenue-per-customer value? Contractors have three types of offerings: assessments of current conditions (i.e., energy or power utilization audits); implementation offerings (installing electrical equipment to resolve outstanding issues found during an audit or responding to a request for bid); and maintenance offerings (monitoring newly installed equipment to ensure higher levels of efficiency). The combination of these services is referred to as the assessments, implementation, and maintenance (AIM) continuum, and serves as the basis for destination selling. For more information on this business model, read “AIM High” on page 42 of the January 2007 issue of EC&M.
Destination selling is the first step to moving from a reactive to proactive sales environment. Once you have captured a customer, it's your objective to continue the relationship by offering logical services that build on your initial project success. Once your current project is completed, you must decide: Who will maintain the infrastructure? Is there a value to the customer for periodic power utilization audits? Is there an opportunity to monitor the electrical equipment based on changing customer requirements? All of these services presume a customer need — prior to the customer requesting it.
Your optimal revenue per customer value is the combined value of AIM — the revenue that would be realized if the customer bought all the services on the destination continuum.
What percentage of the portfolio is sold to every customer? When you multiply your total number of customers by the value of your offerings portfolio, you're calculating optimal revenue potential (ORP). This is the total revenue you could realize if your customer and offerings portfolio were fully optimized. On average, electrical contractors are only achieving 6% of their revenue potential. Why is this performance metric so low?
Most contractors will find that 20% of their customers are responsible for approximately 80% of their revenues. In many cases, the contractor has acquired customers that, in reality, should never be customers because they are inconsistent with the targeted population or just too small for your services. The other explanation is that the customer base is comprised of a high percentage of ideal customer candidates but the contractor has been ineffective at selling a broader range of offerings.
Conversely, your portfolio of offerings may be too diverse. Are you attempting to enter several markets simultaneously? Trying to penetrate such diverse markets as alternative energy and low-voltage security solutions may be resulting in low success in both categories. Although this approach may be consistent with your strategic desires, a long-term level of limited penetration will wreak havoc on your resources.
The goal, obviously, is to increase your penetration into your optimal revenue potential. For many contractors, a simple increase from 6% to 12% can result in a doubling of revenues — without adding one new customer!
Who is your primary customer? On the surface, the answer to this question seems like a no-brainer. The customer is the entity that awards the project and pays your invoices. In a reactive sales environment, that would be correct. However, once your initial project is completed, does your definition of customer change?
If you're only involved in the bid environment, your definition of customer remains constant. However, as you evolve into a proactive sales environment, your answer may change. As you look into selling assessment and maintenance offerings, your customer might actually be the building owner or tenant instead of the builder.
Can you define your ideal customer? Your ideal customer is defined as the entity that will buy at least 80% of your products and services portfolio. Contrary to what many contractors believe, these are not always the largest customers in the marketplace but rather those entities that value your product and services continuum.
Finding your ideal customer characteristics forces you to once again go back to your customer history files. Identify five to 10 customers that satisfy the “80% bought” requirement or, at minimum, represent your largest revenue sources. What do these customers have in common? In most cases, you'll be able to identify 15 to 20 common characteristics across the customer sample that define your ideal customer.
Now, with this information in hand, evaluate your potential project opportunities. Do the remainder of your existing customers or those that you are actively pursuing have your ideal customer characteristics? If not, further pursuit of these opportunities is of limited value.
How long is your current sales cycle for a new customer? In the bid and proposal environment, the duration of the sales cycle is documented. But is this really the complete sales cycle? In reality, the bid request is the last step in a long and complicated sales dance.
It's in the best interest of contractors to have some level of influence on the development of every bid request. That way, when the bid is sent out, there are elements in the requirements that may be competitively swayed in your direction. This process of helping scope the requirements of any project is perfectly legal, but how do you accomplish this form of proactive selling?
Large firms use a process called “qualifications selling” — a fancy phrase that is a form of self-marketing. Using a professional sales staff, the large contractor begins the process of getting to know all of the components that comprise the customer. For example, if the work is for the government, the customer would include a variety of different agencies, including the end-user, building and maintenance, and procurement. The professional sales staff would develop relationships with each governmental agency and begin the process of extolling the specific qualifications of their firm. In the end, all aspects of the sales dynamic are covered, leading to higher levels of sales success.
Smaller contractors, on the other hand, do not have the resources to employ a professional sales staff. The key for smaller contractors is not to initially seek to win a large contract. Instead, you should sell a series of assessment or maintenance offerings that allow you “paid” access to the real customer contacts. Smaller offerings provide a low-risk way for contractors to establish credibility with a large customer, putting themselves in a competitive position when larger deals are bid.
Who owns the customer relationship? Electrical contracting is a service business that relies on labor as the basis for revenue generation. This business model is contrasted with a products business where revenues are generated primarily from the sales of products. This difference between services and products businesses is important as each employs a different sales model and subsequent customer management approach. In a real sense, it answers the question: Who owns the customer relationship?
In a products-based business, the sales force (a group of individuals that are divorced from the delivery or manufacturing process) owns the customer relationship. Think about your supplier relationships. These individuals are compensated on moving merchandise — the more the better.
Because of the nature of service work, electrical contractors rely on delivery resources to own the customer relationship. These people establish day-to-day contact with the customer and are in the best position to influence up-sell opportunities. From an initial sales perspective, electrical contracting firms must use sales professionals that have risen through the delivery ranks. It's the only way to appear credible to a potential customer.
Have you ever lost a deal on price? If so, you are to be congratulated! It means you've avoided the commodity pit — the environment where the more important aspects of your job were never valued. While many builders will accept low bids to keep their project costs down, the young contractor finds out quickly that winning the work comes at a high price — the downfall of business.
Mature contractors have figured it out. Sales success comes when you're able to elevate your bids from being purely price dependent to a level that incorporates real competitive differentiation. Remember, educated customers realize that quality, experience, and proven capabilities will mitigate the risk of every project. Price only reduces the potential profit exposure — a short-term view that is often never realized as poor quality leads to higher levels of expensive re-work.
By changing your focus from relying on reactive sales opportunities and moving toward a more proactive stance, you'll achieve higher win rates, increased revenue-per-customer metrics, and more control over your business destiny, winning the sales war once and for all.
Dawson is managing director of LTV Dynamics, an international sales management and business consulting firm located in the suburbs of Washington, D.C.