Managing Vendors – Articles by Jim Everett

Tips on managing vendors, skills and competencies required

Check Sales Promises

Posted on | September 4, 2008 | CLICK HERE TO COMMENT OR ASK QUESTION

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Sales persons sell. It’s their job. Their role is to secure a deal. They get paid extra when they do. So there is always a possibility that they will make claims and promises designed to secure an agreement to purchase, or engage services. And these promises may not be based on the vendor’s actual ability to deliver.

Some smart vendors calculate sales commissions based on profitability of the overall engagement for, say, the first six months. In this case, the sales person has to consider the actual cost and feasibility of delivery.

But some sales persons are incented purely on the revenue they bring, so they have no stake in the cost of delivery. Their own commission is based on the dollar value of the contracts they have signed. For the vendor it’s, “The good news is we got the business. The bad news is we got the business”.

As a buyer of services, it is always important to find out if the person making the claims is incented just on contract value, or held accountable for the full cost of delivery. And insist that you talk independently to the person who manages the delivery operation. Ask them to validate that the engagement, as laid out, is viable.

Even if the deal seems to be highly competitive, and the vendor is locked in to a very low margin agreement, there are inherent risks for the client. The vendor may look for ways to designate “extras” to charge for, or cut back services to the letter of the contract, rather than adding value and quality. They may have trouble meeting service levels, and your customers will be unhappy.

If it is a large engagement, and perhaps the largest the vendor has, then the so-called “deal” may actually put the vendor out of business.

I have seen this happen with massive hardware installations in the computer industry, and large professional services engagements. The sales person makes a fortune in commissions, the head of delivery services gets swamped, and the vendor goes out of business, or chops that line of business. The client loses because they have to find another vendor, go through the cost of change, and lose all the learning and experience that goes out the door when they change vendors.

So, treat the initial claims as a starting point, and do proper due diligence on the vendor’s capacity to deliver. Let them make their profit margin so they stay in business and continue to serve your requirements into the future.

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