Introduction
This post calls on our experience with a wide range of B2B clients in diverse industries such as petrochemicals, technology, mining services, hydraulic equipment, energy, electrical switchgear, logistics and more. Although written in an “industrial B2B” context, the processes and principles apply equally to “distributive B2B”, including channel partners of many types.
Let’s assume that your organisation has embraced a Key Account Management model for it’s major customers, and that you are skilled in the Consultative Selling Skills required to implement this approach. You therefore need to present yourself as a profit improver through a blend of sales, margin and cost impact appropriate for the Account’s goals, priorities and metrics. Generally, this can only be achieved if your role is underpinned by a robust strategic framework of partnering with your client or customer.
This is part two of a three-part series, covering the Key Steps you will need to take:
Step One (Research):
Gather Information; Identify Opportunities
Step Two (Writing):
Prepare Financially Quantified Proposals
Step Three (Presenting):
Present your Proposals
Quick Recap of Step One
Gathering the information and scoping the opportunities for joint profit improvement or business development flows out of a close strategic relationship. The tools used to assist and facilitate this relationship are discussed in our backgrounders and white papers on:
Two-Way SWOT Analysis
The Partnership Planning Process and Tools (StrAcPlan©)
How to Conduct BRAD Meetings (Business Review and Development)
Read our blog post on Step One.
(Note: Red text indicates links not yet set up - come back see soon :)
3 Types of Profit Improvement Proposal (“P.I.P.”)
Profit Improvement Proposals are a key tool for Consultative Selling to Key Accounts. They are designed to permit you to penetrate at high levels and sell at high margins. They identify you as being in a “partnership” that affects the financial state of the Account’s business. The late and great Mack Hanan identifies three types of Profit Improvement Proposal, summarised here:
Entry proposals: The first time you prepare a proposal for a new client or business function, your proposal must deliver. Because you need to guarantee your successful entry, be conservative in the amounts of improved profit you promise, but show the Account that profit can be improved in the shortest possible time.
Mainstay proposals: Your mainstay proposals are at the heart of your Key Account Plan (see StrAcPlan©). These are “bread and butter” proposals designed to solve customer problems and deliver major profits to both of you. Hanan believes that, as a group, your “mainstay” proposals should deliver about 80 percent of your annual profit contribution to each Account and a similar proportion of each account's contribution to you. It’s supposed to be a two-way street!
Opportunity proposals: You should keep on your toes for the chance occurrences that invite a proposal. These might be surfaced through your ongoing relationships, through specific issues raised at BRAD Meetings, or prompted by industry trends and best-practice. Some of these may be entry proposals and others might turn into mainstay proposals that open up new areas of profitability for you and the Account.
Break Your Account Strategy into Quantified Goals
In your Account Plan, you should have crafted a Strategic Position Statement, which must next be broken down into specific, quantified profit improvement objectives for the account, in each key functional area of the account. Here are two real examples from our work with a global class-leading oil and petrochemicals company:
Production Efficiency: Increase plant throughput by 10%, by March 31st YY, by eliminating production line switching and down time, by use of raw material rationalisation, reducing unit production costs by 2.3%.
Marketing Strategy: Support a 9% price increase for the customer, at their key accounts, implemented by Jun 30th YY, through quality upgrade and performance improvement, backed up by technical visits as necessary.
The next step is to back up that P.I.P. Objective with a Value Proposition, and some information on how we are going to deliver it. Here is a template to assist the process:
This post calls on our experience with a wide range of B2B clients in diverse industries such as petrochemicals, technology, mining services, hydraulic equipment, energy, electrical switchgear, logistics and more. Although written in an “industrial B2B” context, the processes and principles apply equally to “distributive B2B”, including channel partners of many types.
Let’s assume that your organisation has embraced a Key Account Management model for it’s major customers, and that you are skilled in the Consultative Selling Skills required to implement this approach. You therefore need to present yourself as a profit improver through a blend of sales, margin and cost impact appropriate for the Account’s goals, priorities and metrics. Generally, this can only be achieved if your role is underpinned by a robust strategic framework of partnering with your client or customer.
This is part two of a three-part series, covering the Key Steps you will need to take:
Step One (Research):
Gather Information; Identify Opportunities
Step Two (Writing):
Prepare Financially Quantified Proposals
Step Three (Presenting):
Present your Proposals
Quick Recap of Step One
Gathering the information and scoping the opportunities for joint profit improvement or business development flows out of a close strategic relationship. The tools used to assist and facilitate this relationship are discussed in our backgrounders and white papers on:
Two-Way SWOT Analysis
The Partnership Planning Process and Tools (StrAcPlan©)
How to Conduct BRAD Meetings (Business Review and Development)
Read our blog post on Step One.
(Note: Red text indicates links not yet set up - come back see soon :)
3 Types of Profit Improvement Proposal (“P.I.P.”)
Profit Improvement Proposals are a key tool for Consultative Selling to Key Accounts. They are designed to permit you to penetrate at high levels and sell at high margins. They identify you as being in a “partnership” that affects the financial state of the Account’s business. The late and great Mack Hanan identifies three types of Profit Improvement Proposal, summarised here:
Entry proposals: The first time you prepare a proposal for a new client or business function, your proposal must deliver. Because you need to guarantee your successful entry, be conservative in the amounts of improved profit you promise, but show the Account that profit can be improved in the shortest possible time.
Mainstay proposals: Your mainstay proposals are at the heart of your Key Account Plan (see StrAcPlan©). These are “bread and butter” proposals designed to solve customer problems and deliver major profits to both of you. Hanan believes that, as a group, your “mainstay” proposals should deliver about 80 percent of your annual profit contribution to each Account and a similar proportion of each account's contribution to you. It’s supposed to be a two-way street!
Opportunity proposals: You should keep on your toes for the chance occurrences that invite a proposal. These might be surfaced through your ongoing relationships, through specific issues raised at BRAD Meetings, or prompted by industry trends and best-practice. Some of these may be entry proposals and others might turn into mainstay proposals that open up new areas of profitability for you and the Account.
Break Your Account Strategy into Quantified Goals
In your Account Plan, you should have crafted a Strategic Position Statement, which must next be broken down into specific, quantified profit improvement objectives for the account, in each key functional area of the account. Here are two real examples from our work with a global class-leading oil and petrochemicals company:
Production Efficiency: Increase plant throughput by 10%, by March 31st YY, by eliminating production line switching and down time, by use of raw material rationalisation, reducing unit production costs by 2.3%.
Marketing Strategy: Support a 9% price increase for the customer, at their key accounts, implemented by Jun 30th YY, through quality upgrade and performance improvement, backed up by technical visits as necessary.
The next step is to back up that P.I.P. Objective with a Value Proposition, and some information on how we are going to deliver it. Here is a template to assist the process:
This template can be applied across the entire Account’s operation, or one page can be used for each key area, such as inventory management, purchasing, logistics, technical support, etc.
Intangible benefits can also be accommodated in this template. For example, in the case study used in the example above, the prestige and contacts gained by opening up the Oceanesia market might benefit the customer in future trading.
If you wish, the action steps can be detailed, along with responsibilities, and timings. Space can be provided to record the results achieved and reasons for variance.
Finally, perhaps most importantly, the results you intend to achieve for your own organisation need to be recorded, ie your account objectives for this functional area, for this planning period. Make sure, as always, that your objectives are "SMART":
S pecific
M easurable
A chievable
R elevant
T imed
The Content of the Proposal
A profit improvement proposal follows the logical sequence shown in the figure at the top of this post. It begins with a definition of the operating and financial aspects of the customer problem or challenge you are proposing to solve. From there, it defines your solution in terms of its operating and financial benefits. It then summarises the impact of this on profit.
Possibly 90 percent of the content will be information about what you can do financially for a customer's business rather than what your products and services can do in terms of performance benefits. There will be certain operating information that the customer already knows and that you must know, too, in order to help improve profit.
Less worthy proposals are product focused, and are based on competitive claims supported by specifications. Profit Improvement Proposals are contrasts between two types of information: what a customer's managers know about their own business, and what you know about bringing improved profit to it. Competitive comparisons are often totally absent. Specifications of products, services, systems go into an appendix.
Content Checklist:
Does the proposal....
..follow a flow which reflects the customer's decision process?
..identify profit or profitability improvements for them?
..start with a headline summary of financial benefit?
..highlight critical areas of account's needs?
..state all facts they need?
..summarise all previous agreements?
..position us as profit improvement partners?
How well do we summarise the customer's need for improvement?
..state current performance
..state Account's expectations of performance
..identify highest impact opportunity
..describe action needed
Do we cost-justify the proposal, by:
..balancing all costs with benefits, both tangible and intangible
..identifying budget resources
Is the implementation schedule clearly specified and sequenced?
Are responsibilities allocated and deadlines set?
Do we use flowcharts and graphics in a persuasive manner?
Do we close the proposal with a powerful benefits summary?
Do we use appendices for all factual data which does not need to be in the main proposal?
Do we need an executive summary up front?
Good Words for your P.I.P
Profit / Profitability
Your End Result
Growth
Incremental/Over and Above/Additional Sales
Opportunity / Profit Opportunity
Competitive Edge
Satisfied Customers
Premium Margins
Mutual Benefit
Professionalism
Exclusivity / Unique
Big Dollars
Proven Performance
Track Record of Success
Reputation for Quality
Investment/Return on Investment
Trading Up
Innovation.
Intangible benefits can also be accommodated in this template. For example, in the case study used in the example above, the prestige and contacts gained by opening up the Oceanesia market might benefit the customer in future trading.
If you wish, the action steps can be detailed, along with responsibilities, and timings. Space can be provided to record the results achieved and reasons for variance.
Finally, perhaps most importantly, the results you intend to achieve for your own organisation need to be recorded, ie your account objectives for this functional area, for this planning period. Make sure, as always, that your objectives are "SMART":
S pecific
M easurable
A chievable
R elevant
T imed
The Content of the Proposal
A profit improvement proposal follows the logical sequence shown in the figure at the top of this post. It begins with a definition of the operating and financial aspects of the customer problem or challenge you are proposing to solve. From there, it defines your solution in terms of its operating and financial benefits. It then summarises the impact of this on profit.
Possibly 90 percent of the content will be information about what you can do financially for a customer's business rather than what your products and services can do in terms of performance benefits. There will be certain operating information that the customer already knows and that you must know, too, in order to help improve profit.
Less worthy proposals are product focused, and are based on competitive claims supported by specifications. Profit Improvement Proposals are contrasts between two types of information: what a customer's managers know about their own business, and what you know about bringing improved profit to it. Competitive comparisons are often totally absent. Specifications of products, services, systems go into an appendix.
Content Checklist:
Does the proposal....
..follow a flow which reflects the customer's decision process?
..identify profit or profitability improvements for them?
..start with a headline summary of financial benefit?
..highlight critical areas of account's needs?
..state all facts they need?
..summarise all previous agreements?
..position us as profit improvement partners?
How well do we summarise the customer's need for improvement?
..state current performance
..state Account's expectations of performance
..identify highest impact opportunity
..describe action needed
Do we cost-justify the proposal, by:
..balancing all costs with benefits, both tangible and intangible
..identifying budget resources
Is the implementation schedule clearly specified and sequenced?
Are responsibilities allocated and deadlines set?
Do we use flowcharts and graphics in a persuasive manner?
Do we close the proposal with a powerful benefits summary?
Do we use appendices for all factual data which does not need to be in the main proposal?
Do we need an executive summary up front?
Good Words for your P.I.P
Profit / Profitability
Your End Result
Growth
Incremental/Over and Above/Additional Sales
Opportunity / Profit Opportunity
Competitive Edge
Satisfied Customers
Premium Margins
Mutual Benefit
Professionalism
Exclusivity / Unique
Big Dollars
Proven Performance
Track Record of Success
Reputation for Quality
Investment/Return on Investment
Trading Up
Innovation.
