In a middle market company, financial analysis can really accelerate sales
June 26, 2012Yes, really. Financial analysis can be the most important step in the selling process. Yet we rarely see it.
We have been working with two very different companies recently in two completely different industries: one in consumer goods and the other an industrial manufacturer. Yet both had the same core approach to selling: “We make superior products and they are superior because …” Firstly, and obviously, this is a seller-centric approach and not buyer-centric. More on this general problem another time as I want to focus specifically on what financial analysis can do to help.
Customers don’t purchase a vendor’s products because they look good or use state-of-the-art components. They don’t even buy because the products use less energy or require fewer labor hours to operate. Those are contributing factors to why they buy. They buy because the product improves the earnings of the customer (either by reducing costs or increasing revenue, or both). Yet when we ask to see the analysis of the economic benefits of the product or service being sold to the prospective customer, it is usually the case that middle market companies don’t have one.
Without an economic benefit analysis, the fact is that at some level, perhaps only intuitive and undocumented, the customer knows more about the economic wisdom of buying the product than the vendor. If the prospect is a large company and the sale is above scope, we can be sure they have presented for approval a documented business case. Imagine how much more powerful the sales process would be if the vendor provided the tools to the prospect to build a compelling business case.
We like to see a model that has a menu of variables that drive the computation. It should be easy to follow and it is worth taking the time to make it visually attractive. Ideally, the salesperson will sit down with the buyer’s team and ask questions to get at the data needed for the model. Then he hits “Enter.” The result will show the economic value of buying the product. We like the model to provide the “answer” in more than one form:
- Number of month’s payback is probably critical in this economy and tight credit market
- Total cost of ownership over X years
- ROI
If we can show a faster payback, lower cost of ownership, and higher ROI relative to the competitor’s offering, it is fairly obvious who is going to win. Yes, there are other factors in the buying process so this is not a guarantee, but it is close.
It is not easy to build the model. The model has to take into account many things including labor use costs, energy, material use, initial investment, ongoing maintenance and periodic repair, impact on the buyer’s production/service process, etc. Getting at the prospect’s data may not be easy or even possible (although we rarely find that to be the case because buyers are interested in learning how much money they can save). Assumptions may have to be made when hard data is not available and being able to demonstrate why the assumption is reasonable is part of what makes the model credible. This model building exercise requires financial analysis skills that most likely do not exist within the sales or marketing departments. Finance can help and so too can existing customers who may have already done much of the analysis.
A sophisticated salesperson will insist on having the tools to engage in ROI based selling because he knows that in this day and age trying to sell without presenting the business case in financial terms is a tough mountain to climb. When salespeople are not given the tools to succeed, and then they don’t, whose fault is it?