What makes a Good Deal?

In product and service businesses that are highly commoditized, it should be easy to spot a good deal. Reality is always more complicated than theory.

If you are making a straight product purchase, I would agree this process is easier. If feature sets and quality are relatively comparable, then price leads the discussion.

But what do you when other factors should be considered beyond price? What about product support or expertise? These factors come into play when dealing with situations containing many variables. CRM integration, choosing to change ERP systems or signing on with a new IT service company are all examples of decisions where price should not be the only factor.

When I am looking for a partner in a category, price is certainly a consideration, however, I take a multifaceted approach to choosing the partner.

I use a simple excel calculator and a point system to weigh my decisions. You can download the calculator here.

The process starts by identifying all the key stakeholders for a product or service and then polling them on their priorities. Priorities might include security, usability, price, support reputations, etc. Each priority is a column in the chart.

The decision making group then decides what percentages should be put behind each priority. The percentages are how much weight each priority gets in the discussion.

In the rows, every competing vendor is listed. Each vendor is then ranked based on how they compare to the other competitors for each priority. If Vendor A has a better reputation via referrals or online reviews, they would rank higher than Vendor B.

*Note when using this tool, you rank the competitor with the highest rank with the highest number. If you have two competitors, you would give the top performing competitor a #2 in the cell and the lowest performing competitor a #1.

Once you input all of the scores for each vendor and each priority, the calculator will produce a final score for each. The highest score will give you the vendor that meets more of your priorities based on how important they are to the decision making group.

This simple calculator is a useful exercise because it helps you clarify what is important to your team. The exercise also shows you that there are more priorities in a decision than just price. When decisions come down to the final cut, vendors might drastically reduce prices in order to win business. If this vendor was already the low cost provider, it shouldn’t change the recommendation but show that these vendors are compensating for a lack of performance in areas like service, expertise, or your other priorities.

Understand there is more to getting a “good deal” than price alone. If a vendor is not able to meet your expectations, it isn’t worth what you paid no matter what the price.