Good news! The U.S. Department of Labor has reported that the job market has finally recovered to pre-economic crisis levels. Still there are some lessons that should not be forgotten. With this recession, enterprises around the globe adjusted their policies on how they make buying decisions. Across the board, enterprises implemented a strict set of requirements to justify purchases of new products and services. They require that each purchase needs to show a clear definition of the expected total cost of ownership (TCO) and anticipated return on investment (ROI). This has created new challenges for sales teams.
In order to enable sales teams to achieve their goals, they need to adjust their sales process. They need to be able to demonstrate they clearly understand the business of their customers and articulate how the product or service they offer will enhance their business. With tighter controls on spending by the enterprise, the burden of proof is in the sales teams court. To accomplish this, they need to team up with their product managers and product marketers to define effective ROI/TCO modeling tools to show the benefits of their product or service.
Beware of Snake Oil
I have seen a variety of ROI/TCO modeling tools being used in the technology sector. Some of them definitely fall into the category of “snake oil” or “cure-all” elixirs. These are the models that typically require only a few inputs, such as “Quantity of licenses to purchase”, and result in an amazing too-good-to-be-true ROI. Often, these models don’t take into consideration all of the critical factors to estimate a realistic total cost of ownership and return on investment.
Effective ROI Tools
An effective ROI modeling tool to support the sales effort is going to take into consideration the viewpoint of the customer CFO. It should allow as input all the expected cost factors experienced by their operations and particularly those factors impacted by a purchase of the product. Some of the factors would include:
- Manpower costs
- Facilities costs
- IT and data center costs
- Administration and maintenance costs
- Infrastructure costs such as new servers to support a software purchase
- Costs of the product and/or service being sold
The output of the ROI modeling tool should also be able to show the expected benefits that would result from the purchase of the product or service. These benefits may include reduction in operational and fixed costs such as:
- Reduction of infrastructure
- Redeployment/re-purpose of manpower
Benefits may also include new efficiencies such as:
- Increases in speed to revenue
- Efficiencies in transaction processing and volume management
- Improvements in customer service
A good ROI modeling tool will also be able to clearly define “tipping points” such as whether or not it makes sense to utilize cloud-based services or purchase premise-based equipment. This is a topic for a future post.
Corner Office Wisdom:
Sales teams, product managers and product marketers need to have the ability to show the ROI/TCO benefits of their products or service in order to be successful. This will require a comprehensive set of tools and training in order to empower the sales teams to have such a discussion. If they cannot support such a discussion and the competition can, they will lose the opportunity.
…if you miss one, another one will come along. How are you going to make sure that you don’t miss it?
Businesses with strong discipline in their sales process will conduct a Win/Loss Analysis with their sales funnel. The goal is to determine why a deal was won and why a different one was lost. The focus is to achieve continuous improvement in the overall sales process. There are usually many factors that contribute to the win or loss of a sale, but three major areas are:
2. Product or Solution
People are more comfortable purchasing from people they know and trust. For opportunities that are won, chances are there are strong relationships all the way up and down the organization that made the buying decision. For opportunities lost, were all of the decision makers and influencers known or identified? Were their requirements understood? I have seen many opportunities missed where the key decision makers were not clearly determined. For the ones that were known, what was the relationship like? What was done to strengthen it? What improvements can be made?
A true litmus test on the relationship is: how did the opportunity become known? Was it through a request for proposal or quote (RFP/RFQ)? Does it use terms common with another competitor’s products? Often companies will get “assistance” in writing the requirements from a particular vendor. If you didn’t help write it, then your competitor probably has a closer relationship. Work needs to be done to get a stronger relationship with the customer and get between the customer and the competitor and get more of the customers mindshare.
Product or Solution
How do you know if you have the right product or solution for the customer requirements? Just review the responses to the RFP/RFQ. If a significant number of responses are answered “Roadmap Item” or “Requires Development”, then you are trying to fit a square peg in a round hole. Too many of those and the probability of winning will drop significantly.
The results from the Win/Loss Analysis can be a great source of feedback to the product managers and development teams highlighting key gaps in the product and to shape its direction.
When people hear the term “offer”, price is the first thing that comes to mind. For a deal that is won, was too much money left on the table? For the deals that were lost, price is the first to blame. I have seen opportunities won where our offer was the highest price on the short list of competitors and we still won. Conversely, I have also seen opportunities lost where we were at a lower price than our competitors.
An offer is more than just price. It also includes the perceived value that the customer expects to receive from the package such as a quantifiable return on investment (ROI) and total cost of ownership (TCO). It also includes their comfort level on product support vs. “hidden costs” and even the health of the business. Are you, the vendor, going to be around long enough to support the product? Engaging marketing teams in the Win/Loss Analysis can provide focus on strengthening and further articulating the value propositions.
The goal of the Win/Loss Analysis is to identify areas of continuous improvement in the sales process, product and support teams and can be extremely useful across multiple organizations.
Corner Office Wisdom:
Opportunities are like buses. Performing a Win/Loss Analysis will make sure you don’t miss the next one.