The Expert Podcast

If you're a business that sells any type of product, service, consulting, or does contracts with clients, how many more sales could you get if you could offer a warranty of the results of your product or service to the client offered by a third party? This way, the client doesn't have to depend only on your word. This may come in handy, especially for a new customer or new client you're pitching a contract for. How can you do this? How can you get somebody else to back up your words?

Look, if it's your salesperson promising your customer that the results of their fifty thousand dollar contract, hundred thousand dollar contract, or million dollar contract are going to be good or quality results, your client just has to trust you and take your word for it. But there's a way to introduce a third party, a financial backing of your word in order to get the client to feel more comfortable about doing business with you, especially the first time, maybe with a new client you've not done a deal with before.

So, how can you do this? Well, in some industries, this is done all the time through what's called a surety bond. You've heard the statement "license bonding" and "bonded and insured." Any customers will look for that credential in certain industries, maybe insurance companies, maybe accountants, maybe fiduciaries. In some industries, it's required that you have a surety bond for some types of contracts, like building contracts. For example, when building a bridge, you have to put up a bid performance bond for the municipality or government agency you're performing work for.

But how can you use this in other industries? Let's say you're a tech company that's doing a new website or a new app for a client with a 50,000-dollar contract. What if you are a consulting company that's going to provide sales support over the course of a year? If your client is worried about whether you're going to come through on your contract, offering a surety bond or a performance bond for that client may be the difference between them just having to take your word for it and adjusting their purchase accordingly versus having a third party financial backer that says, "Look, if anything goes wrong with this project, here's a surety bond that will make you whole."

Now, we're not attorneys and we're not giving you legal advice, and even though we're a surety company, we're not presenting specific terms and conditions of a surety bond in this video. This is designed to give you an idea of what you might be able to use a bond for. Every bond is different. Make sure you understand the terms of the one that you use for your business development. But the point of the video is, even if your customer doesn't request one or require one, you, as a successful, growing, ambitious business that wants to get more customers, might be able to use the surety bond product or the surety bond power to get your customer to go with you versus a competitor. Because if you're in an industry where a surety bond is not required for a contract, none of your other competitors are going to offer this.

Let’s say you're bidding on a large tech project that you know a company needs a bunch of new servers, new network hardware devices, and it's going to be a 150,000-dollar or 200,000-dollar project. You know every other provider is going to bid on the job, with rates about the same, somebody's going to be a little higher, and someone's going to be a little lower. Your customer might just go with the lowest bid if all things are equal.

What are the chances you're going to be the lowest bid if there are five bidders? Well, pure odds give you a 20% chance of getting that bid. In fact, do you even want to be the lowest bidder on a job? Because all it takes is one of the five bidders to either make a mistake and bid too low or, just because they're so desperate, bid under what it costs to actually provide the service. So, chances of being the lowest bidder are slim to none. Even if that is the case, you probably don't want to be the lowest bidder. We have other videos where we talk about why you never want to be the lowest bidder on a project—it's never a good thing.

So, how can you offer something of more value to the client that they'll go with your proposal instead of the competitor? Well, if you include a surety bond with that proposal that guarantees if you don't show up, don't follow through, or don't finish, a surety bond company underwritten by a major insurance underwriter (sometimes Lloyd's of London writes these surety bonds) will provide recourse. The project will get finished, or if there are defects, they'll take care of it, or whatever the terms of the bond are. And that's the good thing about a surety bond—it can be written with whatever terms and conditions you and the bonding company agree to, and you can do it to benefit your client.

You also don't have to pay for anything in advance of actually getting the contract. You can go to your bonding agency, explain the type of proposal you're putting together with your client, and they can tell you what they're able to write a bond for and what they're not able to write a bond for. There are certain things in the contract they can't cover, but they might be able to say, "Yeah, if you fail to complete the project within a certain period of time, we will guarantee the bond amount of the contract to your client." As long as you get advance approval for this type of bond being available and a commitment from the bonding agency, you don't have to buy anything. You can bid on your contract, include this surety bond with your proposal, and if you are the successful bidder and get the contract, then you can go and purchase the bond.

How much is a bond going to cost? Well, in most cases, it's going to add a few hundred dollars to your cost. In most instances, with normal risk, a surety bond for, let’s say, fifty thousand dollars, might cost 400 bucks. Sure, it takes away from your margin, but you can also factor it into your pricing as well. The important thing to understand about a bond is it's not a get-out-of-jail-free card. If you default on the contract and the bonding agency has to pay, they're going to come after you for whatever they have to pay. So don't look at this strategy if you know you're going to be in breach of the contract or if you know you're going to fail in whatever the endeavor is.

But it's a good secret way to induce a client to go with you versus an alternate source, because most proposals, most bidders, most contracts aren't going to include that. And even though you say, "Hey, we promise we'll fix it, we promise we'll be here, here's our credentials, we've been in business 10 years," they're going to hear that from everybody. They're going to hear some good credentials or salesmanship or bragging about the company from everybody. Everybody has something good to say about their firm. It might be different from yours, but it's all going to sound the same—it's just going to be noise for the customer.

Whatever industries you're a member of, whatever trade organizations you're on the board of, whatever history you have or clients you've had, every bidder is going to have something they can say, like a brag book or a “why buy here” book or something that shows why you should be considered. So don't think that your magic list of good things about your company is going to be unique to what the potential client is seeing. They're going to see that from everybody in different ways, shapes, or forms. Also, your salesperson is probably going to be good, but presumably, the salespeople of the other companies will be good too.

So, it's going to boil down to really two things: the cost certainly has to be in line, but also, who they think is going to give them the best success. Success means maybe better quality, but also, these days, many companies have been let down by contracts. They've had vendors who have disappeared or ghosted them halfway through a contract. Or something's supposed to take three weeks but ends up taking nine months. Something that had a certain number of features and benefits in the contract ends up having none of those.

Part of it's because, as a bidder, once you get the deal, once you get the bid, once you get the deposit, it’s less of a priority. Many companies at that point now look to a new customer to try to bid on and make a priority. It's human nature to put your priority on whatever the most current new business is. So, clients have seen this before—they've had this pain point in their workflow before. So, if you can offer them not only your word but somebody backing you up with money, now you're in a whole different position.

Because now they know that not only are you talking the talk, you're also backing it up with hard money from a third party that's not going anywhere. The bonding company can't just disappear. They're licensed fiduciaries, they have funding requirements, capital requirements, and they have to pay. So, your clients are going to be assured that their needs are going to be met, at least to the extent it's written in the bond. The bond can't cover every detail, certainly, but it can cover a few important key points: done by a certain date, at least this much in deliverables, maybe X amount of hours of consulting—whatever it is.

It doesn’t have to cover much. You can actually write a bond to be very thin in terms of what it's backing up. It may not back up the whole contract, it may just back up certain points of it. It’s up to you to figure that out, but it’s a good sales tool to add without putting a huge amount of money at risk. In some contracts, you might say, "Well, I'll put escrow money," but now you have to tie up your working capital. With a surety bond, you can do it with a fixed, small amount of money as long as you feel like you're a legitimate provider and you're not going to default. You’re fine.

But the customer has to know it, and if you know that you are 100% sure you'll fulfill this contract and this sale, then you have nothing to worry about—just a few hundred dollars out of your pocket for a surety bond. The only time you have to worry is if you default, because then it’s going to be a world of hurt for you—not for the customer. But that’s what you’re doing: you're shifting the risk from the customer to you, and that’s one of the biggest factors that clients use in determining what contract to go with: What is my level of risk? Not so much the price, and what I’m going to get for it, but what is my risk? What is my risk if it’s not going to get done?

The surety bond can help your client mitigate that risk so they can go forward with you and sleep at night, whereas the other four or five bids they got—yeah, the price might have been a little lower or might have offered maybe a little bit more deliverables in the contract—but the risk is here. Risk is an invisible decision-making factor, but it’s huge. It’s not on the contract anywhere. It doesn’t show up anywhere. You’re trying to mitigate risk by saying lots of good things about your company—who the CEO is, what groups you’re in, how long you’ve been in business—blah, blah, blah.

How many times have you signed up for a webinar that's kind of a salesy sales-pitch type of webinar and for the first three minutes they’re just talking about how long they've been in business, what they do, and what they're good at? And you’re tuned out. What do you care, right? Everybody says the same thing. Your story is not that much special because everybody has a story. As a bidder, somebody giving a pitch, a surety bond can give you an extra powerful factor in your sales proposal that could be the difference between getting a six-figure contract and it going to the guy down the street because he offered a lower price.