Now, I understand that sometimes companies purposely underbid on a project just to get their foot in the door. It's part of a strategic plan where they assume that the money they lose on the initial project will be made up for on future projects that they will surely win once the client sees what an outstanding job they can do. As long as the consulting firm is willing to provide the necessary resources to do the job right and write off the loss, I'm fine with this approach.
Where I see a major problem is when consulting firms consistently underbid work as their main sales strategy. They go in with a good feeling of what the client is willing to spend on a project. Even if this budget isn't enough to cover the work the firm is proposing, the sales team will still enter a bid that fits the budget just to win the work. The rationale I often hear is that this lets them get on the ground. Then, once they've started the project, they'll work with the client to adjust the budget, resources, and timeline to be more realistic.
- First, and foremost, this approach decimates client trust. Many clients start large-scale projects without any idea of what they entail. They are relying on the consultants they hire to provide them with advice and guidance. When the very first interaction between the client and the consulting firm is based on underbidding that will lead to delays, budget overruns, and upset bosses, any future advice will be viewed with caution. Consider, as well, the long-term trust implications. If word begins to spread that your firm consistently underbids, you stand a good chance of losing future clients.
- Another consequence is the development of a major rift between your salespeople and your consultants. Often, once the sales team has sold a project, they have nothing else to do with it. This means that by the time your consultants are on the ground and in the throes of suffering through an underbid project, the sales team has already moved on. These situations can quickly lead to an "us" vs. "them" mentality, which can cause a divide in your workforce.
- The last main consequence I want to talk about is consultant burnout. When a project is underbid, the firm has three options. They can ask the client for more time, money, and resources. They can eat the lost cost. Or, they can work their consultants harder to get more work done in less time with less people. When the firm chooses the third option, they burn out their consultants, leading to poor work quality, disgruntled employees, and high turnover.
Practical Steps to Take
Even if underbidding is already a part of your selling culture, you can still take steps to change it.
- Adjust your compensation model: A lot of salespeople I have met receive their pay when the work is sold. What if, instead, they only received a portion of their pay at this time? Consider a phased approach that would have a second payout when the consulting team hit the ground and verified that the budget, resources, and timeline that were sold are appropriate for the project. It could even be possible to have a third payout partway through the project, when the consultants are achieving successful results. This model gives the sales team some skin in the game. I can already hear the argument, "What if the consulting team doesn't do a good job and that's why they don't meet deadlines or need more money? Why should the sales team have to risk their pay based on whether the consultants do a good job?" But consider that this is already what the consultants are doing. Every time they walk onto a project, they are risking their reputations based on how well the sales team bid the work. These two groups need to become a cohesive team. Which leads me to my second point...
- Involve consultants in the sales process: I'm not talking here about having them just show up at orals to give a presentation and answer some questions. Rather, when drawing up the bid, ask the functional experts how long it will take to do blueprint based on the scope of the project. Ask the technical people how difficult it will be to code the customizations the client is requesting. Making the consultants an intimate part of the sales process should drastically increase the accuracy of the bid. Leading us to...
- Stay facts based: Every firm should be able to look at historical data for comparable projects to use as a baseline when bidding on new projects. If past projects of similar scope cost $5 million, but this client says they only have a $3 million budget, instead of bidding $3 million just to win the work, consider having a serious conversation with the client to ensure they understand what they're getting into and the risks they're facing by not setting aside enough budget. If they really want to do the work right, they should thank you for the honest discussion. Which brings me to my final recommendation...
- Become a trusted advisor: I was always taught that the main goal of anyone in the consulting industry is to become a trusted advisor to the client. By taking the opportunity during the sales process to have the hard conversations with the client; by choosing long-term success over short-term payouts; and by becoming known as a best-in-class team that delivers spot-on bids that reduce schedule and budget overruns, your team has the ability to change from being a sales team to being trusted advisors. And when they're the first impression a client has of your firm, isn't that goal even more important?
In my third recommendation, I suggest that firms stay facts based in the sales process. This has led me to thinking about the type of research that could really help the sales team provide accurate bids every time. In my next post, I'll lay out a research proposal that can mine data you already have to increase your future success at both sales and becoming a trusted advisor.
Let Me Know: How does your company handle the sales process? How does the approach impact the every day project work?