Selling to cost centers is akin to working with the Lost Baggage office at the airport- some days are better than others, but on balance you are always dealing with the realm of the negative, whether lost suitcases or unreturned organizational spending.
Costs centers are the red lines in the spreadsheet, the place where capital goes into the ether and are at best considered “the cost of doing business” and at worst an incision point for the budgetary scalpel. Cost centers are delicate places to do your selling but they often cannot be avoided entirely.
So….
There are three things to keep in mind when selling to a cost center:
1. Price counts: Despite the lessons to sell value from CEOs and Sales VPs everywhere, if you are selling into a cost center you will not be competitive if another company can do most of what you do for a significantly lower price.
2. Because price counts, you must engage in a dual front battle with the cost center and associated profit centers. It is easier to sell your value to a cost center if you have leadership from profit-creation roles as your champions. Still, unless your strategy is to sell on price (a valid strategy provided your own cost basis is low enough), you will have to be in the same ballpark as your competition or the cost center leadership who is ultimately writing your PO will find a reason to buy the cheaper alternative. They will call it “making the tough decisions for the business.”
3. Part of your ongoing analysis to determine your most receptive target markets should include consideration for your company’s ability to impact the profit centers that are intertwined with cost centers (see my post on Profit Centers for more detail.) If you cannot impact the black lines on your customer’s spreadsheet, then you will sooner or later find yourself in a reverse auction against a competitor, frustrated that your crisp marketing has gone out the window and you are in a price battle. Sales people will hate marketing people, finance people will hate sales people, anarchy will ensue. Save yourself the trouble and use the knowledge to redirect efforts and target better customers.
Costs centers are the red lines in the spreadsheet, the place where capital goes into the ether and are at best considered “the cost of doing business” and at worst an incision point for the budgetary scalpel. Cost centers are delicate places to do your selling but they often cannot be avoided entirely.
So….
There are three things to keep in mind when selling to a cost center:
1. Price counts: Despite the lessons to sell value from CEOs and Sales VPs everywhere, if you are selling into a cost center you will not be competitive if another company can do most of what you do for a significantly lower price.
2. Because price counts, you must engage in a dual front battle with the cost center and associated profit centers. It is easier to sell your value to a cost center if you have leadership from profit-creation roles as your champions. Still, unless your strategy is to sell on price (a valid strategy provided your own cost basis is low enough), you will have to be in the same ballpark as your competition or the cost center leadership who is ultimately writing your PO will find a reason to buy the cheaper alternative. They will call it “making the tough decisions for the business.”
3. Part of your ongoing analysis to determine your most receptive target markets should include consideration for your company’s ability to impact the profit centers that are intertwined with cost centers (see my post on Profit Centers for more detail.) If you cannot impact the black lines on your customer’s spreadsheet, then you will sooner or later find yourself in a reverse auction against a competitor, frustrated that your crisp marketing has gone out the window and you are in a price battle. Sales people will hate marketing people, finance people will hate sales people, anarchy will ensue. Save yourself the trouble and use the knowledge to redirect efforts and target better customers.
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