Are You Only The Tip Of The Iceberg?

When it comes to the customer’s costs, your price may only be the tip of the iceberg. That is important if you are selling a quality solution and want to avoid being hammered on price. 

The Iceberg Principle In Selling

Just like an iceberg much of the bulk of the buyer’s total cost may not be obvious. The price of your solution is plain to see, however it may account for only a relatively small proportion of the customer’s total cost.

If the customer is not aware of that fact then he or she is going to be more difficult to sell to when it comes to price.

By making your customer aware of The Iceberg Principle you can move the conversation off price and onto value.

Total Cost Of Ownership

The iceberg principle is a powerful metaphor for your customer’s Total cost of Ownership. It suggests that:

• There are costs that are often hidden. They can dwarf the purchase price.
• The cheapest solution can turn out to be the dearest. Buying a cheaper solution is a false victory, unless it improves the total cost equation.
• It is important that your customer has an accurate picture of the total cost of fixing their problem or addressing their need, as well as of the price of your solution.

Draw Your Iceberg

Draw the iceberg for your customer – showing the cost price of your solution above the water and the rest of the customer’s other costs below the water. Such costs might, include:

• Internal time and resources
• Overheads
• Expenses
• Opportunity cost

These can exist under headings such as the following:

• Buying (sourcing, selecting, contracting, procurement, etc.)
• Inventory
• Logistics
• Packaging
• Customization
• Quality control
• Implementation
• Switching costs
• Training
• Support
• Ongoing licences
• Maintenance
• Energy and other operating costs

The list of possible costs that make up TCO is endless – so it is important to determine the specific costs for your customer and how they are measured.

When you have your iceberg created help melt your customer’s iceberg, starting from the bottom up.

Price Really Isn’t Everything

Today’s buyers are increasingly obsessed with price. However, most salespeople can justifiably argue that when it comes to buying their solution “price isn’t everything!”

A supplier price renegotiation may only be a false victory for the buyer, where the purchase price accounts for only a small proportion of the buyer’s total cost. While negotiating hard on your price the buyer may be missing out on the real source of savings.

Where Savings Can Really Be Made!

The supplier’s price, while it is the most obvious place to look for savings, is rarely the most profitable. This can be seen by reference to the table below.  

For example, a saving of 10% (left hand column) on a purchase price that amounts to only 15% of the total cost (top row), results in only a saving 1.5% overall.  

Indeed on the same basis saving just 5% of the overall total costs would require a massive 35% cut in supplier price.

The lesson is an obvious one – buyers are often focused on getting savings in the wrong areas. Sellers must help the buyer to cut the total cost of ownership.

                                                                                          Figure 1: Price saving ratio

Use the table above to calculate the relative scope for savings based on the proportion of total costs accounted for by your solution.  

Then draw the buyer’s attention to the fact that the savings that can be achieved by working together is many multiples of a supplier price cut.

Inspirational Icebergs

Swiss industrial faster supplier Bossard uses the iceberg model to powerful effect. It is what they call “The Rule of 15-85″ in respect of the TCO model in fastening:

Figure 2: The Rule of 15-85

Here is how the explain it on their website:

“On average, the fastener itself makes up to only around 15% of the total costs. The remaining 85% of the costs come from development, procurement, testing, inventories, assembly and logistics. This chain of events is adding costs to the entire fastening ecosystem. Experience in the industry has shown that cost savings of 50% and more can be achieved in the areas of logistics and engineering. This has a lasting effect on the total costs of the end product.”

How does this fit into the company’s sales proposition? Well, “at Bossard, every solution we create, is designed to reduce costs, according to the TCO concept in fastening. ”

Slippery Icebergs

Yes it can be difficult. Calculating the TCO is is not straightforward. Here are just some of the challenges:

• Different aspects of the TCO may come out of different budgets and accounting periods
• Many of the costs may be discounted as soft rather than hard savings by those who apply accounting principles
• May be fixed costs – for example salary overheads
• It involves assumptions and scenarios

Add to these factors the fact that the seller may only have limited access to the information. But just because it is difficult that makes it all the more worthwhile.

Icebergs can be dangerous!

Selling to a customer who has only a surface level appreciation of the cost puts your margin and perhaps even the deal at risk.

• The buyer who does not spot the iceberg is a risk of an unpleasant surprise.  He, or she has clearly not got their numbers in order and sooner or later somebody is likely to draw attention to it.   It may call the very viability of the decision into question, or cause the purchase to stall.
• If the seller is unaware of the total iceberg in terms of costs then he or she is disadvantaged in terms of negotiating on price and will struggle to move the conversation off price and onto value.  Helping the buyer to build the justification for the decision requires that the customer understands their total cost.

References

Collis Ray: Buyer Seller Insight: Sellers: Are You Only The Tip Of The Iceberg? Retrieved September 19, 2013 from http://buyer.sellerinsights.com/2013/06/13/are-you-only-the-tip-of-the-iceberg/

Blanka Cigler

Senior Consultant, Coach & Project Manager

In complex sales, your fiercest competitor is often “do nothing”

It’s bad enough when, after a long, complex and resource-intensive sales campaign, you end up losing to the competition. But at least you’ve got the satisfaction of knowing that somewhere in the process you were probably outsold, or failed to acknowledge a competitor’s advantage that was always going to be difficult to defeat. 

But what about the growing number of apparently well-qualified sales opportunities that fade away with the prospect deciding to “do nothing” at the end of the day? You might attempt to derive some comfort from the fact that at least you weren’t beaten by anyone else. However, that’s a pretty unsatisfying conclusion.

According to research conducted by CSO Insights, “do nothing” decisions have become increasingly common - and in today’s risk-averse buying climate you can understand why prospects behave in a deliberate and conservative manner. But what causes “do nothing” decisions, and what can you do to avoid them? Here are 3 common reasons: 

The issue was never important enough

You can persuade prospects to talk to you - often at length - if you have something that is interesting to say or offer. You can get them to conduct a serious evaluation if what you have to say or offer is interesting to them. But unless you’ve identified an issue that is critical and urgent, chances are they will stick with the status quo. 

Successful selling requires you to satisfy the following questions, in approximately the following sequence:

• Why should the prospect change at all?
• Why should the prospect change now, rather than later?
• Why does your approach offer the least risk of all available options, including “do nothing”?

If you haven’t successfully answered all three questions, you probably deserve to lose - and you’d be better off recognising that early, and changing your sales strategy or qualifying out, rather than throwing resources at a dead or dying cause.

Your “champion” was never influential enough

It doesn’t matter how supportive your champion is - or even how positive the whole buying decision group are - if they lack the power and influence to get their recommendation approved by the final authority.

It doesn’t matter that you’ve beaten off all the obvious competitors - at this point, the real competition are all the other things the prospect organisation could do with the money and resources that could be spent on your project. This isn’t just about creating a positive ROI: it’s about emerging as the best of all the options open to them.

Not spending the money at all is one obvious choice - and if you haven’t equipped your champion to make the strongest possible case for change, it's an uncomfortably likely outcome. But the real competition could be a completely different project, potentially in a completely different part of the business.

You can be sure - particularly if your project is budget and resource-intensive - that someone in authority is going to ask something like “can you tell me again why we need to do this, and why we need to do this now?” If your champion doesn’t have a good answer, you’re probably toast...

Your sales people weren’t smart enough 

It’s bad enough when sales people get outsold by the competition. But I'd argue that it’s no better when they get outsold by the status quo - and that’s where sales managers have a key role to play in curbing the sales person’s natural optimism and enthusiasm. 

“Tell me again, why is it that the prospect actually needs to do anything” and “what else is going on within the prospect that could compete for the budget and resources” are two questions I suggest every sales manager should ask of every sales opportunity.

And if you don’t like the answer, make sure you do something about it. Stimulate your sales people to think "out of the box" and put themselves in the prospect's shoes. Is their current approach really strong enough to challenge the lure of the status quo? 

References

Inflexion-Points: Building Scalable Businesses. In complex sales, your fiercest competitor is often “do nothing” Retrieved September 19, 2013 from http://www.inflexion-point.com/Blog/bid/100863/In-complex-sales-your-fiercest-competitor-is-often-do-nothing

Blanka Cigler

Senior Consultant, Coach & Project Manager

Why sales people should NEVER DEMO their PRODUCT?

Have you ever been on the receiving end of a product demo that seems to go on interminably until you feel that you have lost the will to live? Ever felt that the sales person is simply lobbing feature after feature at you, desperately hoping that that at least one of them will be of interest? Ever believed that they aren’t going to let you out of the room (or off the call) until they have shown you absolutely everything? 

Well, you’re not alone. That’s exactly how most prospects that have been subjected to a classic “everything bar the kitchen sink” product demo feel. As a fellow victim recently remarked, “it’s as if they are just flinging a random stream of s**t against the wall in the hope that some of it will stick”. And these deluded demo-ers aren’t just boring or irritating their victims with this approach (as if that wasn’t bad enough, anyway) - scientific studies have shown that this  information overload has a slim-to-none chance of being retained. 

The argument for delaying the demo 

Don’t get me wrong. Demos have a place in many complex sales processes. But far too often, they are used way too early in the sales process - before the prospect has any context for what they are being shown. It’s been said before, and it bears repeating: your prospects are not interested in your products, they are interested in how you can help them to address their business issues. 

And if the demo-er doesn’t know - and hasn’t agreed - what the prospect’s critical business issues are, they are inevitably inclined to show them everything in the vain hope that the prospect might somehow be capable of joining the dots up for themselves. Which - unless you’re in an early adopter market full of smart dot-joiners, is unlikely. 

If you're in a mainstream market, then you’ve really shot your bolt, because what sane prospect would want to subject themselves to more torture later? The simple fact is, most demos happen too early. And even if your prospect has asked you to show them your product, you should hold back, until you know enough about what they are interested in to show them something that is specifically relevant to their situation. 

Demonstrate potential solutions, not products

That’s what I meant when I declared in the headline above that you should NEVER demo your product. But it does not mean that you should never do a demo. It simply means that you should defer your demonstration until you’ve got to the point where you have a clear sense of what a potential solution might look like, and show the prospect that. 

When you demonstrate a potential solution, rather than a product, good things happen:

• You can be selective about what you show the prospect - and restrict the demo to things that you know are going to be relevant to them
• You can put each feature in context with what you know that the prospect is trying to achieve in their own business
• You can construct a compelling narrative and storyline that allows the prospect to visualise how your solution could work in their environment 

Of course, this requires preparation. It requires a proper discovery process. It requires that your sales people invest in understanding their prospect’s situation, and not just their own product’s capabilities. But the rewards - in terms of demo-to-close ratios - can be spectacular. It’s not unusual to see a 10-fold (or more) advantage between a properly tailored demonstration and a spray-and-pray approach.

Flinging is not a strategy

Here’s a final thought: if your sales people are happy to take a “flinging s**t against the wall, hoping it will stick” approach to demos, what do you imagine they might be doing during the rest of the sales process? And how much of it do you imagine any sane prospect is going to be prepared to take?

References 

Inflexion-Points: Building Scalable Businesses. B2B Complex Sales: why sales people should NEVER demo their product. Retrieved September 17, 2013 from http://www.inflexion-point.com/Blog/bid/98255/B2B-Complex-Sales-why-sales-people-should-NEVER-demo-their-product

Blanka Cigler

Senior Consultant, Coach & Project Manager

Calculating How Getting Involved Earlier Could Help You Sell More

Figure 1:  How Getting Involved Earlier?

You wouldn’t show up 30 or 40 minutes late for a 60 minute meeting with a potential customer, would you? The answer of course is ‘No’.

But everyday sellers are doing something similar, even worse – they are turning up more than half way through the buying process. This tardiness is costing sellers dearly.  

In this insight we will help you to build the business case for getting involved earlier in the prospect’s buying process. 

Buyers And Sellers Live In Different Time Zones!

We asked a group of 81 sales people from more than two dozen industries what when they entered into the buyers buying process.  

Using the industry standard seven step procurement model (with which so many professional buyers are familiar) we asked salespeople what stage they became involved.  The results are shown visually below. 

Figure 2: When do Sellers get Involved? 

As the visual above suggests buyers and sellers exist in different two time zones!  But what is the business case for getting involved earlier? 

The majority of salespeople surveyed are arriving late in terms of the buyer’s process, with 6 out of 10 only getting involved at step 5 in the buying process.  That is the point where supplier were contacted and proposals or quotes requested.  

How Late Is The Typical Seller?

 

There is a price to be paid for showing up late in the customer’s buying process. It can be calculated in terms of access and engagement, but ultimately in terms of margin.  

Sellers who arrive late in the buying process often find that there is little to discuss other than price. With the specification set, they inevitably struggle to move the conversation off price and onto value. 

Are you arriving too late in the buyers process?

We asked people what they thought the probability of success was if the seller arrived at the point where multiple potential suppliers were being asked to quote. Most people suggested somewhere between 0% and 20%. That resulted in a staggering insight: 

Figure 3: Are You Arriving too late in the Buyers process? 

From the seller’s figures it can be inferred that:  60% of the time the seller is engaging in opportunities with less than a 20% rate of success. That is a worrying figure and a problem if a good overall win rate are to be achieved.  

Only A Minority Get Involved Earlier

Only a minority of sellers get involved at the earlier stages of the buying process.  In our survey only 3 out of 10 got involved at step 2 in the buyer’s process – that is the buyer’s supply market assessment.

In these cases the seller’s attention was typically triggered by an inbound inquiry, a white paper download from their website, or somebody signing up for a webinar.

Just 1 in 10 sellers said they got involved at step 1, that is the internal assessment of needs within the buying organization. The reason being that they were considered an expert or trustworthy adviser. 

By getting involved at these earlier stage they believed that the chances of winning the sale jumped to 60% and above.  That means ‘the early bird gets the worm’ is a principle that applies in selling too. 

Figure 4: What Are The Chances Of Success? 

Only one or two salespeople said their objective was to get involved before step 1, to trigger the needs analysis. As one salesperson put it this was sales nirvana – although it was associated with a very high cost of sale. 

So, what do these numbers really mean? Well, we believe it is the outline data that enables building a proposition, or business case for getting involved earlier. 

If we told you that you could double your chances of success with respect to new deals you would no doubt be curious. Not surprisingly however, there is a string attached. In order to do make it happen you would need to double your cost of winning the sale. Would you still be interested? 

Figure 5: The Proposition

The Case For Earlier Involvement

Let’s recap on the proposition: 

• A 200% increase your chances of success on a request for tender, or quote
• A 200% increase in the number of selling days involved for each opportunity.

What do you think – would you go for it? 

On paper at least you’d more than likely be a lot better off.  You can download this spreadsheet if you want to explore what the maths look like.  It will allow you to establish the business case for getting involved using your own metrics.

The Cost Of Getting Involved Earlier

Not surprising most salespeople recognize that there are additional costs associated with getting involved earlier. It is going to involve more emails, calls, meetings and so on.  It means investing in opportunities that may not pay back this quarter, perhaps even this year.

Our analysis suggests that in many cases getting involved at step one as opposed to step 5 in the buyer’s process will double the sales effort (measured in days). Where air travel and overnight accommodation is involved in meeting the customer the extra associated costs can be significant too.  So the spread sheet applies this to calculate the impact of getting involved earlier.

So getting involved earlier is going to cost you. But then getting involved late is costing you anyhow, specifically in terms of a lower win rate and the increased price pressure associated with being involved later in the sale.

The Trade-offs To Be Made

The reality is that you are probably going to need to significantly reduce the number of opportunities pursued.  That is unless you can increase the size or capacity of your sales team. 

However, even when this happens the maths is still very good.  In the spreadsheet we have assumed a 20% reduction in the number of opportunities that are managed in the ‘getting involved earlier’ scenario. 

Investing additional sales time in each opportunity in order to reduce the risk, or more precisely increase your odds of success, would appear to make sense.  This is particularly true where opportunities are effectively pre-qualified, or at least profiled. 

Putting It Into Action

Take 10 deals where you were involved early and 10 where you were involved late. Then compare the win rate and margin achieved in respect of each group.

Use the spreadsheet to calculate the impact of increasing the proportion of deals where you are involved earlier.  In doing this you are building the business case for earlier involvement.

Finally, set about creating a plan to get involve earlier.  That is going to involve working more closely with marketing, as well as a system to nurture those prospects who you contact but are not ready to buy. 

References

Collis Ray: Buyer Seller Insight: Sellers: Calculating How Getting Involved Earlier Could Help You Sell More. Retrieved August 27, 2013 from http://buyer.sellerinsights.com/2013/08/08/why1/

Blanka Cigler

Senior Consultant, Coach & Project Manager

Why Is Important Offering Options In Your Sales Proposals?

Figure 1: Do You Provide Freedom of Choiche? 

Choice is good. That is a fundamental principle of western economics. However research now suggests that the choices contained within your sales proposals and quotations can have an important role in determining their success.

What Choice Do You Offer?

You have gathered the client’s requirements, asked lots of questions, including the uncomfortable ones about budget and price. Now it is time to propose a solution and pitch your price. Based on your historic win rate what you propose has a 60% chance of being accepted.

However it is not a perfect science and as many as 4 out of 10 times the sale is lost. This can be explained by the fact that there is still an element of guesswork required in respect of the proposal. Not all your questions were fully answered and in particular the buyer may have ‘played it coy’ in respect of what he, or she was planning to spend.

In many cases the seller only gets one shot at the proposal and naturally feels compelled to get it right. But in the absence of full information and engagement on the part of the buyer and without being able to read the buyer’s mind, the seller is force to make some choices on the part of the customer. That however is risky and can lead to a situation where the seller proposes and the buyer disposes.

Do You Provide Freedom of Choice?

Many sales proposals don’t present options or choices for the buyer. The formula is limited to ‘here is the product – here is the price’. As a result the decision for the buyer is limited in scope to ‘buy from us’ or ‘don’t buy from us’.

Does the choice you offer your customers go beyond buy from us, or buy from a competitor?

Predicting how the buyer will react, or how competitors will respond is not easy. So why not ensure your proposal provides the buyer with options to chose from? Instead of a single price – solution, it can be advantageous to offer the buyer greater freedom of choice.

As a salesperson you shouldn’t have to choose for the customer. Instead, present him, or her with the choices – ‘this for that price’, ‘this plus that for this fee’ and so on.

Why Offer Only A Single Price Offering?

Many sellers in writing their quotes and proposals end up making their customers choices for them. They present the buyer with a single price offering and few options. Reasons are: 

• A particular product is being pushed by the seller at this time (encouraged by sales targets and incentives).
• The salesperson is only comfortable or familiar with a particular product and does not have the confidence or skill to sell other variations, or to creatively package or bundle a range of solutions.
• There is siloed approach to selling within the sales organization with little cross-selling or up-selling across the different product or brand ranges sold. There may even be competition between different product, or brand teams.
• The seller has interpreted the buyer’s needs and feels confident enough to be able to propose the seller with a single ‘optimal’ solution. Perhaps no interpretation was needed with the buyer setting out in detail what he, or she required.
• The proposal contained the usual disclaimer – this proposal is based on our understanding of your requirements at this time. “We would however be delighted to discuss other options or additional requirements at any time”.

Are you effectively making the choice for the customer by limiting the options you propose?

Most sellers I know want to keep the dialogue open even after the proposal is submitted (just as the text above suggests). The problem is that when presented with several proposals from different suppliers the buyer may not be willing or able to re-open discussions with a seller.

Do your proposals prematurely restrict the customer’s choices?

To often the proposal is a ‘do or die’ episode for the seller, one that may be foisted on the seller prematurely.

Always Offer Your Customer A Choice

The advice for the seller pitching has long been to ‘offer a choice of something or something else, rather than something or nothing’. Even in respect of a detailed tender specification and an exhaustive consultative sales process, it still makes sense for the seller to avoid being boxed into a corner.

Could offering your customers more choice increase your likelihood of success?

Presenting the buyer with choices can help the him, or her to decide. That is the scientific reality based on cognitive research by experts such as Dan Ariely. It points out, for example, that most people don’t know what they want until they see it in context.

The bottom line is that choices offered by the salesperson and how they are presented has an important bearing on the buyer’s decision.

Putting It To Work

Do you sell like DELL? Dell is a good example of maximum choice for the customer. If you buy a computer on Dell’s website you can choose the processor, the RAM, the storage memory and of course the color you want.

The price is calculated based on your choices and you can adjust it upwards or downwards by adding or removing features. Imagine if you could do something similar with how your solution is sold! Well let’s experiment with doing exactly that.

The Choice Set You Offer

What is the choice set that you offer to your customers? The more technical term for it is ‘Choice architecture’.

Think of your in terms of a set of choices, rather than a ‘take it or leave it’ proposition. Then think of the buyer’s decision in terms of the choice set from which the customer must choose.

Try putting the customers choice set in a table that makes comparing the alternatives for the customer easy – as per the example below.

To do this list the decision criteria in the far left hand column, then the options shown column by column after that.

Figure 2: What is the choice set that you offer to your customers?

Creating a comparison table such as this can be a challenge. It focuses attention on the real choice variables for your customers. These are not always what your marketing seeks to highlight, they may not even be what you consider to be the basis of your company’s competitive advantage. They have to really matter to the buyer.

You could take it a step further an assign a weighting in terms of importance in the customer’s decision to each of the choice variables (e.g forms = 20%, style template=10%). You can also do this with the totality of the choices faced by the customer, including the competitor offerings.

What is the variable that (for your customers) is not really as important as your marketing suggests?

A table comparison of options is all very rational. It suggests that the customer will weigh up the alternatives and select the best solution, the best price-value mix. However remember there is another dimension to the choice-making process – one that is less rational-analytical in nature. As seen earlier, there are 6 ways in which the seller can influence this aspect of the decision.

References

Collis Ray: Buyer Seller Insight: Sellers: The Importance Of Offering Options In Your Sales Proposals. Retrieved August 27, 2013 from http://buyer.sellerinsights.com/2013/06/25/the-importance-of-offering-options-in-your-sales-proposals/

Blanka Cigler

Senior Consultant, Coach & Project Manager