- March 7, 2016
- Posted by: Dave Kurlan
- Category: Understanding the Sales Force
Most salespeople can calculate ROI and explain it to their prospects, but many of them find it equally difficult to articulate that same ROI after they have been presented with a price objection. They become defensive, review features and benefits, and make the situation worse for themselves instead of better. We are going to review the case history of a salesperson who had an $85,000 solution that would increase company revenue from $10 million to $20 million. Despite promising a $10 million gain, he was unable to overcome what he heard from his prospect: “That’s too much money!” In this article, we will discuss how it’s done.
The prospective client had 30 outlets and needed to grow from $10 million to $20 million, the magic number for the CEO. At $20 million, volume and pre-payment discounts would increase his bottom line by 10 points or an additional $2 million over and above what the $10 million in organic growth would produce. $20 million was also the key milestone to sell the business to a strategic buyer and get a 10:1 return on EBITDA. If ever there was a compelling reason to move forward, this CEO had it. Unfortunately he was looking at the $85,000 cost as a line item rather than an investment to achieve a $10 million return. Rex, the salesperson, was unable to get him to see the $85,000 through that lens, so he turned to me for help.
I asked Rex what the prospect’s average project sold for and learned that it was $35,000.
When you put that in context, that is 10 additional projects, per outlet, per year, to capture the additional $10 million. And if we break it down even further, it’s each outlet, selling just 3 additional projects, every 4 months. At a 30% margin, it requires only 8 projects in total to break-even or 16 for a 100% return on investment. That can be achieved when half of their outlets sell 1 additional project in a year! So what does that tell us?
Rex never put this in context or he would have closed this in about 2 minutes flat.
It also means that the prospect had probably not done the math either. If he had, then he was betting that Rex’s solution wouldn’t help half of the 30 outlets sell even one additional project over the entire year. Rex was betting that his solution would help each of the 30 outlets sell ten additional projects over the entire year.
Articulating this particular ROI is simply about having a discussion on the point spread!
Did the prosopect think so little of the solution that he really believed it couldn’t help 30 outlets capture 16 additional projects between them in a year, or did the prospect fail to do the math?
Most of the time, selling has little to do with features, benefits, products or services. It always has a great deal to do with math – the quantification of the compelling reason to buy – in this case $10 million – and the articulation of the value proposition in the context of the prospect’s real world situation – 30 outlets capturing a total of 90 additional projects between them over a year.
Selling is all about the math.
For example, the candidates in the 2016 US Presidential primaries have been presenting their plans and much of that revolves around math. I am not making a political statement here; I’m simply providing three examples of math used by the candidates in their attempts to support (or not support) their plans. The challenge for most of them is that their math doesn’t always work and that leads to issues with credibility, but not necessarily their popularity!
Bernie’s plan is about free everything, but when you do the math, free will actually cost taxpayers $1.5 trillion per year. That math doesn’t work. Donald has used the $58 billion trade deficit with Mexico to demonstrate how he will use that as leverage to get Mexico to pay for a wall. That math works. Ted wants a 16% flat tax. I didn’t know if that math worked, so I did some research. I found that the total of American wages paid is around $10 trillion and the total of corporate revenue is about $16 trillion so at 16% that would generate around $4 trillion in revenue to the US Government. The 2016 US Federal budget is $3.5 trillion so that would leave $500 billion surplus to pay down the debt. If that surplus could be sustained, the debt would take 36 years to pay off! So does that math work? Only to balance the budget.
Learn to do the math and you’ll make it so much easier for your prospects to understand your value proposition as it pertains to them.