Tag Archives: Disclosure

Do You Share Company Costs with Customers? Five Points

Situation: A B2B company has historically negotiated pricing with customers individually. While there are similarities between customers, each receives a product customized to their needs. The CEO is considering creating a “full disclosure” pricing model including their costs and seeks feedback from others. Do you share company costs with customers?

Advice from the CEOs:

  •  With only two exceptions, the CEOs did not agree with the concept of fully disclosing their cost structure to the customer.
    • The industry exceptions were public construction and government work. Some cities and the federal government require cost breakdowns and mark-ups by regulation.
  • The difficulty with the profit or license line, however it’s labeled, is that it becomes obvious that this is the company’s profit ‘nut.” This may be shared with a CEO that you respect; however, if the CEO shares this information with others in the organization your cost breakdown may become the basis for future line-by -line negotiations for cost reduction. Those with whom your company negotiates will be acting in their company’s interests, not yours.
  • The key is to optimizing pricing is to identify and sell a solution to the customer’s pain. If you do your homework well, and the customer is the right prospect, the price that you charge will pale in comparison to the costs that the customer seeks to avoid.
  • In your first negotiation, make sure that you have identified the customer’s pain and are presenting a value that addresses this pain. Only after you set expectations and have assured balance of effort do you go into more detail about your cost structure. Even here, only share detailed cost information if you deem this critical to the sale.
  • Look at it this way – price is not the key issue. The key issue is whether you can solve the customer’s problem and do so while providing an appropriate return on investment for the customer.

How Much Do You Share with a Potential Acquirer? Nine Points

Situation: A company has been approached by a larger company that may be interested in acquiring them. The prospective acquirer is a current customer. Absent an extraordinary offer, the company isn’t interested in selling. Nevertheless, a conversation could be valuable. How much information about the company should the CEO share now? How much do you share with a potential acquirer?

Advice from the CEOs:

  • The key term here is potential. At this point, there is no commitment, and you really don’t know the other company’s motivation. As you start this process, don’t share confidential details about your plans or prospects, or your pipeline. Just broad information. If things get serious, slowly open the kimono.
  • Make sure that you have an NDA in place covering anything that they ask you to disclose for this possible transaction.
  • Given your current situation, a standard offer probably won’t be appealing, so be open to a creative option.
    • Decide ahead of time what your price is. If they are in the ball park, keep talking.
    • For example, Say you want $XX. Would you be attracted to 50% of that now, 50% later? Under what terms?
  • Put a low valve on future payouts, particularly if you are not in a position to call the shots.
  • Be open and creative. You never know what can happen. You could sell to them now at the right price. Then, if the acquisition doesn’t work out, buy the company back in 2-3 years at a discount!
  • If you get into higher level negotiations, employee retention will be critical. Make provision for this as part of the deal.
  • Hire a disinterested professional negotiator you who you can trust.
  • If things get serious, bring in an investment broker to assist. It will cost you 5% but they are helpful in the negotiation and could bring in competing suitors to up the ante.