I wish – in my many years in procurement I have never been paid a percentage of the value add / negotiated savings and I don’t know of anybody who has. I have contributed up to £20million savings a year and a 1% or 2% bonus would have been very nice.

In fact – only a few industries, like the Financial Services Industry, pay a bonus at all and the bonus pot is based on the overall performance of the company and linked to individual performance targets. Individual targets are not broken down on a deal by deal basis and savings targets are often set at commodity level (like “Software” or “IT as a whole”) with up to 25 buyers contributing. In the last few years bonuses have ranged between 2% and 25% of annual salary (not value add) and have often been paid out in shares or payments have been spread over multiple years.

It is often said that, all that IT Buyers care about is savings, but let me lift the lid on what type of savings they are really after – because not all savings are weighted equally.

Ideally IT buyers are looking for Gold – metaphorically – but more often than not they are finding themselves down a Coal Mine. Let me explain:

A savings type called COST REDUCTION is the gold,
whilst another savings type called COST AVOIDANCE is the coal.

The Gold (Cost Reduction) can be claimed only – and only if – the company has existing spend (or budget) for the product that you or your competitor is selling. Gold Savings happen when this year’s spend is less than last year’s spend.

This could be as a result of

- A switch that is made from an existing non-preferred supplier to a preferred supplier (you) with better terms and lower prices.

- A negotiation leading to a unit price reduction against existing volume.

- Demand management leading to a volume reduction.

It is possible that Cost Reduction is a large or only contributor to your IT buyer’s savings target that year.

Any other savings, in the eyes of an IT Buyer, is the lesser valued COST AVOIDANCE type – The Coal.

In other words, if you are not working on knocking out a competitor with existing spend and just want to sell more volume at a slightly reduced price, expand product ranges or introduce new services, you are “Down the coal mine” and you will only be seen as offering coal when you make any concessions in your negotiations.

The logo was designed by my printer –  It’s the letter PSI – Symbol for Psychology, to indicate my original training and interest in the Psychology of Influence. Some see it as a golden tulip – that is fine too – fits nicely with my Dutch heritage.