Pursuing Public Sector Business: What are your options?
Pursuing public sector business presents suppliers with three compliant sales options: responding to bid/request for proposals one proposal at a time, establishing piggybackable state term contracts, and/or winning a piggybackable contract award from a public sector group purchasing organization. But how do you decide which of these options is best for your organization?
Sourcing Alliance developed the following overview of the primary advantages of each sales option, and any disadvantages you’ll want to consider. As you read, keep a few questions in mind:
- What are the most frequent challenges (read: pain points) that I have when it comes to selling to local governments and educational institutions?
- Do any of the sales channels actually mitigate or solve for these common challenges?
- If some or all of my recurring public sector sales challenges went away, what would that mean for my business?
Let’s dig in.
Winning Public Sector Business Bid-by-Bid
- Customization – when responding to bids/RFPs one proposal at a time, you as the supplier have the opportunity to customize your response to fit the specific needs of each individual customer. The needs of a large university are very different from the needs of a small village. The bid-by-bid approach allows you to accommodate for those differences.
- Influence – depending on the relationship that you as the supplier have with the individual developing the RFP specifications, there may be an opportunity for you to influence, or even write the RFP specifications. It doesn’t get much better than that.
- Time –the amount of time is takes to respond to a bid/RFP varies from one organization to the next. However, as a general rule, bids/RFPS are lengthy, time-consuming, and downright expensive. There are more than 92,000 local governments and educational institutions in this country… how much would it cost your organization to respond to bids/RFPs to every one of them, or even to every one in any particular state?
- Contract Length – once you have won a bid/RFP, the length of time you hold the contract award is typically very limited, as are your renewal options to retain the business if your customer is happy. As a result, you are left with minimal opportunity to build a lasting relationship with that customer, thereby significantly lowering your chances to retain the business.
- No Cross-selling – more often than not, when an organization conducts a bid/RFP, it is for a narrowly defined scope of products or services. The unintended consequence is that if a public sector customer who awarded a contract to you for products A, B, and C would like to purchase products D, E, and F, which you also provide, you cannot simply cross-sell to that customer. Instead, your customer has to conduct a completely separate RFP, which you have to spend the time to respond to and you may not win.
Winning Public Sector Business Using State Term Contracts
- Familiarity – most state agencies and public sector entities are familiar with their legal authority to purchase through state term contracts without conducting a formal procurement process. The benefit for suppliers with state term contracts is they do not have to educate state agencies or public sector entities about how state contracts work…they are a known commodity.
- Compliance – selling through state term contracts meets the compliance requirement for public sector entities. Therefore, you do not have to go through an individual bid process to win each customer’s business in that state.
- No Revenue Share – states do not typically charge suppliers selling through state term contracts any administrative fee or percentage of sales.
- Expensive – the process to establish a state term contract typically takes 12 to 24 months and often requires the use of outside legal counsel and/or consultants.
- The Hassle Factor – in order to be eligible to sell to public sector entities in all 50 states through state term contracts, you have to establish a contract in each of the 50 states one contract at a time.
- Limited Cross-Selling – it’s difficult to get all of your products and services onto a single state term contract. The net effect is that you either i) have to go through the process of establishing state term contracts multiple times within each state to be able to sell your entire portfolio of products or services, or ii) you cannot cross-sell the other products and services you offer that are not on a state term contract to public sector entities already buying certain products and services from you through a state term contract. In other words, you cannot fully leverage your customer relationship to maximize sales.
- One-size-fits-all Pricing Model – state term contracts typically require a one-size-fits-all pricing model. If you establish pricing that is aggressive enough to win business from large public sector entities within the state, you will likely lose money selling to small public sector entities to whom you’ll have to offer the same aggressive pricing. On the other hand, if your pricing is less aggressive and enables you to protect your margins selling to small accounts, your state term pricing will not be aggressive enough to win the large accounts. What’s a supplier to do?
- Customer Fees – state government often charge a fee to public sector entities to be able to access and purchase through state term contracts. For some public sector entities, this fee makes buying through state term contracts an unattractive option.
Winning Public Sector Business by Establishing a Piggybackable GPO Agreement
- Access to Membership – once you have established a piggybackable agreement with a GPO, you now have access to all the members of that GPO in order to sell your product or service. The GPO members represent a new “book of business”.
- Familiarity – most public sector entities are familiar with their legal ability to purchase through a piggybackable GPO agreement.
- Compliance – one piggybackable agreement allows you to compliantly sell your product or service to virtually any public sector entity nationwide.
- Low Barrier to Entry – typically, a GPO membership is free for the customer, meaning that customer has no fees, dues, or obligations involved in piggybacking off of the contract you’ve established with that customer’s GPO.
- Lack of Exclusivity – some GPOs have multiple providers for the same product or service. Therefore, you may find yourself in competition with another supplier.
- Administrative Fee – suppliers typically pay a percentage of sales (also known as an administrative fee) to the GPO.
- Narrow Target Markets – it is not uncommon for a GPO to focus on a narrowly defined target market as they sell their portfolio of piggybackable agreements. Some examples include just K-12 or only counties.
In our next digest, we will begin to discuss how to determine which of these three compliant sales options is the best fit for your organization. Read on!
If you are interested in learning more about these compliant sales options, contact David Robbins, our Director of Product Development at 216.478.1070.