Friday, August 28, 2009

Relational vs. Transactional Selling

It's often noted that ours is a relationship business. Eighty percent of our revenues come from repeat customers. Long-term relationships typically provide our highest profits, lowest business acquisition costs, and most satisfying work.

Why then do we predominantly take a transactional approach to developing new business? We focus on identifying project leads, tracking RFPs, and writing proposals. At the same time, many of us complain that we "don't have time to sell" (i.e., build relationships in advance of the client's procurement process). Somehow it seems more efficient to wait until the fourth quarter to get into the game. Unfortunately, that usually means we're on the losing side.

By contrast, relational selling begins well before the procurement. It emphasizes building trust, uncovering needs, solving problems, creating a win-win partnership. The relationship itself is a key benefit. To be certain, the client's formal procurement process seems to favor a transactional approach. But most clients are still ultimately swayed by relationships.

In a weak economy, the pressure to follow a transactional approach increases. The need is to increase sales, quickly. So naturally we turn our attention to looking for near-term proposal opportunities. Isn't that the quickest way to bring in new work?

Unfortunately not. Writing proposals without investing in the up-front relationship building rarely produces success. Only the illusion that we're being productive. A better expenditure of that time would be to devote it to developing relationships that position us for winning proposals.

The evidence supporting a relational approach is overwhelming. Firms that make the effort to build relationships enjoy win rates of 70 to 80% with those clients. Firms that don't win only 10 to 20%. Plus the first group will negotiate higher profits, have fewer claims, and enjoy more repeat customers.

There's another important advantage of a relational approach--sustainability. Mere sales go to backlog, which your firm consumes every day. You have to continue making new sales to replenish the lost backlog. Doable, but a hard way to maintain a business. Good relationships, on the other hand, often continue to generate revenue (and higher profits) for years. That's a sustainable business practice!

So what can you do to promote a relational business development approach in your firm? Some suggestions:

Devote prospecting activities to identifying clients with long-term relationship potential. Most prospecting focuses on identifying leads. There's a better way. For an illustration, consider the evolution of online dating. That was a purely transactional activity. Many people who used such sites found it unsatisfying, realizing that what they really wanted was a relationship, not just a night out. So a new generation of matchmaking sites like eHarmony emerged to help their customers find soulmates.

Likewise, behind the RFPs that seemingly are only looking for a "date," many clients desire long-term relationships with A/E firms they can trust and feel comfortable with. Just as matchmaking sites use various screening criteria to determine compatibility, you would be wise to list the qualities you seek in a client relationship and screen prospective clients by those standards.

Allocate an appropriate amount of time to relationship building. As noted above, the tendency in most firms is to devote most of their business development efforts to the proposal stage. If that's true in your firm, consider taking steps to redirect a sufficient portion of that time. You might divide your sales process into four stages: (1) prospecting, (2) cultivating, (3) positioning, and (4) closing (proposal, interview, negotiations). I touched on prospecting above. Positioning and closing involve pursuing a specific sales opportunity.

The cultivating (relationship-building) stage is what firms typically neglect. To address this, make an inventory of all the time spent on business development and try to determine how much goes to each of the four stages. Then determine what proportions are desirable. I don't have any benchmarks to recommend, but would suggest that you at least spend as much time prospecting and cultivating as you do positioning and closing. Then perhaps two-thirds of that front-end portion should be dedicated to relationship building. For many firms, that will require cutting the number of proposals. But that action will be offset by substantially increasing their win rate through greater investment in relationship building.

Serve, don't sell. If you've followed this blog for any period of time, you know this is my core philosophy of business development. It works! Relationships are anchored in trust, and traditional selling (which is viewed by most buyers as motivated by self interest) is hardly the way to build trust. One study found that only 35% of professional service sellers demonstrated real concern for the client. Want to show you care? Serve, don't sell.

If you're going to invest in business development training for your staff, let me encourage you to focus here. No aspect of the sales process is more important than relationship building, and great service is the quickest way to establish trust, credibility, and commitment. Many technical professionals are deficient in basic service skills. That is their greatest shortcoming in selling, not what we think of in terms of traditional selling skills. Plus strong service skills pay off after the sale (see next point).

Don't take existing client relationships for granted. Your current clients anchor your business development efforts. They constitute the largest share of your future sales. They provide references and largely define your firm's reputation in the marketplace. Nonetheless they are often given less attention than they deserve. It's fairly easy to neglect those critical relationships. And that makes it harder to build new relationships.

Recently I was doing a seminar on relational selling and advised participants to show existing and prospective clients their devotion by periodically passing along helpful information they discovered. A simple email and a link, I said, is an easy yet meaningful way to say, "I'm thinking about you." One of my clients pointed out after the seminar that he'd not received one of those emails from me in a long time. Oops! Hopefully he didn't mention that to any of the others. (You get the point...)

Keep the relationship at the forefront even in the latter stages of the procurement process. Even if you've built a strong relationship with the client, it's easy to drift into a transactional approach after the RFP. Don't. There are several ways to leverage the relationship in your proposal and interview. I addressed some of these in a previous post. Beware of diluting your relationship advantage in the fourth quarter!

1 comment:

  1. A valuable post on relational vs transactional selling.Apart from traditional ways these days most of the marketers use viral marketing. I came across a website named What it does is it allows people to write article about their products and services for free. By this way you get a better chance of marketing your product online.

    Viral marketing is fast spreading in this internet era and quite effective.