ROI: Standard requirement for sales enablement
ROI: Required for sales enablement
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.
Supply and Demand: Price too high?
A challenge with managing any product or service is determining how to price the offer. There are many methods to determine price such as comparing with the competition, evaluating willingness to pay as well as assessing supply and demand. What if there was little supply and a lot of demand?
My grandfather told a story that provided a good lesson about supply and demand. In his later years of life, he refurbished wooden antiques and sold them throughout the midwest United States. At one antique show, he had a number of antique tools on display. They were priced at $14.00. One morning, he noticed a man stop by and give his tools a thorough examination. Then, the man walked away. The man came back again about an hour later and re-examined the tools. He walked away again. He came back a third time and had a very short conversation with my grandfather:
Man: “There is a store in town that had these tools for $7.00”
Grandfather: “Do they have anymore?”
Man: “No”
Grandfather: “Well – if I didn’t have any, I would sell them for $7.00 as well. But I have these and they are $14.00”
He always had a dry sense of humor. Was he priced too high? He had a supply. Was there demand?
I told you that story so I could tell you this one. At one time, I worked for a Sr. VP of Operations for a small software company. He decided to give me a new assignment. There was a group of application developers that were eating up a lot of salary but their efforts weren’t tied to any revenue stream. My assignment: Recommend what needs to be done with them to eliminate the costs.
I met with the team and found they were working on a stack of customer requests to modify custom applications on legacy systems. These modifications included significant design changes to the applications as well as complex interface updates to billing and CRM systems – all at no charge.
After my discussions, here were my observations:
1. They were providing a value-added service to existing customers. Without a billing/CRM system interface the application would not function and not be able to fulfill its purpose.
2. They had no process or organization to the work. They were receiving work orders from multiple directions including customer service, sales and the customers themselves. The work orders were not tracked, quantified or scheduled.
3. Customers being served were on legacy systems that needed to be upgraded.
4. They had no means or methodology in place of showing their value.
Their efforts were essential to maintaining a satisfied customer base. My recommendation to the Sr. VP of Operations was to define a standardized process for the work and to charge customers for the value provided. There was plenty of demand and this group was the only supplier for the service. He agreed to move forward with the recommendation.
As a team, we defined a standardized process for receiving, tracking and completing the work orders including customer sign-off. Since there was a consistency in the type of work being completed, we also defined a standard pricing catalog for various requests being made.
This is when things got interesting. The head of customer service went through roof thinking that she and her staff would be inundated with complaints about being charged for programming modifications. The head of sales felt that existing sales relationships would be put in jeopardy and that they would not be able to upgrade those customers to the next-generation systems being deployed. There was a lot of pressure being applied to not make any changes to the way things were being done.
Within the first 30-days of implementing the new process and pricing for value-added services, contrary to the fears of customer service and sales, the feedback we received from customers was: “I’m surprised you didn’t do this earlier!” The demand was there. The customers appreciated the value of the service being provided and were willing to pay for it.
Over the next set of quarters, the team successfully tracked, reported and recognized revenue to not only cover their salaries but also add some margin to the company’s bottom line. Customer service never received the high volume of complaints. Sales maintained their relationships and successfully upgraded those customers to the next-generation systems.
And as for my grandfather was his price too high? He didn’t need to drop his price by 50%. He knew the value of his products, the demand was there and he had no trouble selling them.
Corner Office Wisdom:
If there is demand for a product or service that you can supply, don’t sell yourself short. There is a willingness to pay. Price it in such a way that allows customers to appreciate the value of your offer.
Relationships: A Casualty of Social Media
More than a billion people use social media to communicate with the world. They have a few to several hundred, even thousands of friends, followers and contacts. There are dozens of ways to communicate with them, all of which can be very useful. But that still doesn’t mean that you have real relationships with those people. Surprisingly and deceptively, most people think the opposite.
Sheldon: “I have a very wide circle! I have 212 friends on MySpace!”
Leonard: “Yes, and you never met one of them!”
Sheldon: “That’s the beauty of it!”
Get your favorite beverage (mine’s coffee) because I want to tell about one of the best sales guys I had ever met. Since I don’t have his permission to use his name, let’s call him “QC” for Quota Crusher. QC was a southern gentleman from Georgia. He had a nice, easy demeanor that could put anyone at ease. But don’t let that fool you. QC consistently beat his expected quota by a wide margin and won the “President’s Club” sales award every year. It seems like every sales organization has their big hitter, hey maker, grand slammer, knocks it out of the park money maker and QC was ours. The reason: Every one of his customers considered him a friend.
Then, he lost the second biggest deal of his career.
He lost it to a competitor that looked better on paper. They were a proven product, had experience in scaling up to meet the needs of this customer, and claimed a larger customer base. But they had never deployed in a cable service provider environment. This was our expertise.
QC was resilient. He was not one to let go. What was his strategy? Develop a stronger relationship. Even though he lost the deal, he invited the decision makers to dinner. He used it as an opportunity to get to know them as individuals. He only inquired about them, how they were doing, how were their families, how was life. And he would listen. The next month, he did it again. He repeated this process once a month for a year and never spoke about business or questioned how the deployment was going.
Then one day it happened. The decision makers invited him to their office for a special meeting. They revealed to QC that the deployment that was awarded to a competitor was failing miserably. There was delay after delay. The vendor’s integration efforts to date were no closer than they were at the beginning of the project and now their own careers were in major trouble. They asked him if he could guarantee that our company, products and professional services team could solve problem. If so, they would bypass the RFP process and the business would be his. He checked with the home office and got the necessary commitments from the executive staff.
By building a solid relationship, QC had won the second biggest deal of his career.
Of course, now the work really started. This was a complicated IVR/CTI integration project over eight different locations across the United Kingdom. Each location had different CRM host systems, telephony systems and IP network topologies. It was easy to see how the previous vendor was having so much trouble. Just like them, we ran into some very large obstacles. The difference? We had QC. QC and the project team worked together to manage the customer’s expectations and overcome those various obstacles. QC’s relationship made all the difference in the success of this project. The teamwork that was established allowed us to complete the project within some very compressed timescales and just in time for the holiday season.
QC kept his relationship with the decision makers even after the project was over. The result? We got additional orders for predictive dialers at each location. QC’s relationship turned his second biggest deal into the biggest deal of his career.
Let us not be fooled into thinking that all of our “friends” and “followers” are actually relationships. Relationships are established through eye contact, conversations, taking an interest in the other person, listening and yes, “wining and dining” just as QC did. With social media and so many communication channels available to us, it’s easy to forget that.
Corner Office Wisdom:
Social media is great for creating brand awareness and for collecting feedback from customers. It is not, however, a means for creating and building true relationships. You still need to have regular face-to-face contact.
Opportunities are like buses
Opportunities are like buses
…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:
1. Relationship
2. Product or Solution
3. Offer
Relationship
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.
Offer
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.
Tim DeWitt
Corner Office Wisdom 