The High Cost of Giving Free Proposals

The Saying Goes…

Like many expressions, the old saying that, “there is no such thing as a free lunch” is absolutely true. While the free lunch may be true for the one consuming the lunch, it is not free to the one preparing or serving the lunch or the one who grew the vegetables or raised the animals that are the ingredients of that lunch. If you think about it, it isn’t really free to the one consuming the lunch either. It could be argued that there is cost associated with time spent traveling to the place where the free lunch is served and the time associated with consumption of the lunch. And it certainly isn’t free if eating the lunch gives you indigestion or food poisoning. Truth is there is no such thing as free anything including giving free proposals to prospects and potential buyers.

Everyday there are countless proposals, quotes and estimates being given by ignorant sales people who mistakenly believe that giving those free proposals is not only the way to make sales, but is necessary to make sales. If time is money, and it is, each of the proposals has a cost not only to the one giving the proposal but to the one receiving, reading and reviewing the proposal.

For the company or individual giving the proposal the cost of giving proposals involve both tangible and intangible cost.

One Company’s Example

Recently, a sales training client confessed to me that only 18% of proposals given by their company actually resulted in new client acquisition. Each proposal representing at least a couple hundred dollars of staff time in estimating, graphic design and admin plus the multiple sales rep visits to and from prospect location to try and close.

When I had them do the math on the horrible business practice they discovered: 6 sales people give an average of 10 proposals a month at an average cost of $200.00. Only two of those 10 close. Eight of the ten at an average of $200 = $1600 in tangible wages pages paid monthly to people who prepare quotes that never close times 6 sales reps X $1600 = $9600.00 monthly times 12 months = $115,200 per year. Based on their profit margin this company must sell $460,800 of new business each year just to break even with this hard cost of $115,200 in free quoting and estimating.

Add to that the intangible cost of overworked and stressed employees (they only have one estimator – would not want to be him), poor morale caused by the high failure rate of proposals that don’t close, and wasted time you quickly have a dysfunctional company. Not to mention one with thin margins.

The company is not the only one suffering. The prospect client – although they are unaware of it – also incurs a cost. The cost associated with making buying decisions based on poor quality proposals generated in haste by frazzled, unmotivated, and depressed employees in a hurry to get it out of the door; not working with professional consultant solution providers and instead having to work with unprofessional product peddlers who don’t listen and who are in a hurry to pitch and close and move on to the next deal. Just like the recipient of the free lunch there are dangers in accepting something for free and the result of making a decision based on free could be much worse than simple indigestion experienced from a free but unhealthy lunch.