Understanding how customers buy
In this week’s article we are going to look at the buying process from the customer’s perspective.
When you start in sales you typically get taught about a sales process, and all of the stages and gates that your opportunity needs to go through so that you can win the deal.
But the reality is there is a much more important process in play - the customer’s buying process.
And it is the buying process that will determine when things happen and whether your solution is selected at all.
The very best salespeople spend time understanding their customer’s buying process and align their support to the stage the customer is currently in.
Why do companies buy things?
Companies don’t buy things for fun. They buy them to solve one of two problems:
It is the combination of both of these that helps them make a profit and increase their value to shareholders.
It is important to keep this in mind, because you might have the snazziest new HR tool, or the newest AI enabled expenses system - but if you can’t tie it directly to a company making more money, or spending less money you will have a difficult time helping your customer to buy.
Source to Pay
Let’s look at the process of buying something from a customer’s perspective.
A company will follow a Source to Pay Process.
This might be very defined in a large company, or it may not even be documented in a small startup - but they will have to follow these general steps in order to buy something.
The overall process is broken into two halves:
Source to Contract
The first is Source to Contract, which takes a company from deciding that they need something, to having a supplier onboarded that can provide that product or service.
Need
Before a company can start evaluating products they must have a need - a problem, a challenge, an opportunity - something that is driving them towards change from the status quo.
This is why it is important to understand why companies buy things - because if you cannot help your customer establish a need then it doesn’t matter how shiny your new app is - they aren’t going to be buying anything.
Today, with the availability of information on the internet, YouTube videos, peer networks and analyst reports, customers are very adept at defining their needs themselves, and unless you are careful, they will have understood what they want to do, and shortlisted potential vendors before you even get to speak with them.
Evaluate
Having agreed they have a need, companies will run an evaluation process. This might be quite informal in a small company, or in a larger company it might be very defined with a formal Request For Proposal (RFP) process.
You might jump up in excitement if a customer calls you out of the blue to be included in their RFP process - but this just suggests you weren’t helping them define their need meaning you are unlikely to be the winning vendor.
Decide
Having evaluated vendors the company will then decide on which vendor they will select. Again this might be an informal process, or require specific approvals at company board meetings dependent on the level of spend.
They might even select two vendors to give them choices later on in the process.
Contract
The company will then go through a formal contracting process - this might include confidentiality agreements, Master Services Agreements (MSA) or order forms and price lists.
Supplier Onboarding
Having completed the legal agreements, the company will typically require vendors to complete supplier onboarding documentation - this includes your company’s bank details, maybe some codes of conduct or supply chain commitments.
You have now completed the first half of their Source to Pay process - you are set up as a vendor on their systems and they can now place an order with you.
Procure to Pay
The second half of the process is called Procure to Pay, and allows the company to actually place an order with a vendor.
If the customer is working through a specific project, then these next steps may happen immediately after the supplier onboarding.
Requisition
In order to buy something from a supplier, the company will need to raise a requisition. This is normally done by the business unit that will use your solution. They will raise a requisition in the procurement system - “We want to buy x units of y from supplier z.”
The requisition will be approved depending on what is being ordered and the value of the requisition. A very large requisition might go up to the CFO or CEO.
Depending on their process, this might be a formality as the official evaluation has already taken place in the first half of the process.
Purchase Order
Once the requisition is approved a Purchase Order (PO) is generated. This is very important - you might get a contract signed, but without a PO your invoice can’t get paid.
POs are used by the company’s accounts payable team to match up invoices from suppliers with the requisitions that have been approved. No PO, no payment.
The purchase order number may be included in a signed order form confirming the purchase.
Invoice
Once you have delivered your product or service to the customer you can submit your invoice, being sure to add the PO number to the invoice so the customer can link it to the requisition and make the payment.
The invoice may be an individual one (for selling a product), or there may be multiple invoices over a period of time (for the delivery of a service).
Payment
The contract with your customer will include payment terms. This might be 15 days, 30 days, 60 days or up to 180 days from the date of the invoice in some cases!
The customer will set the date for payment in their accounts system, and on that date it will be scheduled for payment and reach your company’s bank account shortly after.
So that is the end to end view of the customer’s buying process - what can we learn from it?
It is important to know where your customer is in the buying process - there is no point pushing your customer for a demo if they haven’t established a need yet.
In sales there is a big focus on inbound - but if that inbound request comes to you at the evaluation phase then you have missed the opportunity to help your customer define the need.
You need your content, education and coaching of customers to be focused right at the start, helping them to define their need before they are anywhere near looking at potential solutions so that you have developed trusted relationships before they move into their evaluation phase.
So there we have it.
Enjoy thinking about the buying process from your customer’s perspective, and I will see you next week.
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