How Much?

How do you handle questions like this?

How Much?There are four key factors to consider when responding to this basic question, no matter how it is phrased; when, what, who and why. When (in the buying cycle) is the question being asked, exactly what (price, cost or something else) is being asked, who (their role in the decision making process) is asking and why are they asking.

When – if you sell a simple product and the transaction is typically concluded in a single meeting or call then it is reasonable that the money question is raised and you need to address it then or commit to provide an answer soon after the meeting. However, if what you sell is more complex involving; a number of meetings with different people, requirements investigation, production of a specification, presentations and proposals then answering something like “how much” in one of the early meetings is not realistic and should be avoided.

Tip one – “How much?” is a classic tactic used by someone who is looking for an early opportunity to terminate a sales prospecting conversation – don’t rise to the bait; politely park the question to be dealt with later.

Tip two – Your sales process should include specific stages when it is appropriate to handle the money question and you should use this to manage the interaction with the prospect.

Tip three – don’t feel you have to wait to be asked about money; when the time is right you raise it.

What exactly is being asked? “How much” is a catch-all phrase that could include; what is the price, what is the cost, what is the monthly rental or lease fee, or something else. It is important that you know exactly what you are being asked before you answer otherwise you could create a misunderstanding that could in turn lead to you being eliminated as a potential supplier before you have the opportunity to fully explain what you have to offer.

Note to self. “How much …?” If the answer you give is your price, you’ve immediately transformed the conversation into a pricing discussion missing the opportunity to talk about cost and more importantly value and benefits. Price is only one component of the cost.

One other important factor to consider is whether the prospect is asking the right question. For example; if they are considering a purchase of low energy industrial lighting the price is one important factor but as it will be recouped several times over during the life of the installation, as a result of the savings in energy costs, knowing exactly what will be saved is even more important than knowing the price

Note to self. Decision making should consider the total cost of acquisition (all the elements required to become the owner), total cost of ownership (all the elements required to use what has been purchased e.g. fuel for a car) and risk; the risk of going with a new supplier, the risk of staying with the existing supplier and the risk of starting/continuing to do it themselves.   A brave supplier will raise the risk arguments so they are debated in the open; if you do not you are leaving the prospect to give themselves sleepless nights on their own and unchallenged.

Tip one – use your own questions to ensure you know exactly what is being asked of you before attempting an answer.

Tip two – if you feel you are being asked the wrong or an incomplete question say so. Don’t be afraid to gently challenge with something like “Of course we can let you know the fully fitted price once we have done the lighting survey and we will provide a breakdown of how much you will save through lower energy usage as well”. You have achieved several things here; you have delayed answering the question until you are ready, you have brought in the topic of energy saving that they may not fully appreciate and you have planted a seed with “fully fitted price” which will leave them wondering whether your competitor may charge extra for fitting. Always nice to plant a small landmine for your competitors.

Who is asking? If you are sitting with the sole decision maker then they are the right person to be having the conversation about money. You still need to judge whether they are asking the right question at the right time but they are the appropriate person to be asking you the question so you need to deal with it.

If you are selling a complex proposition where the buying process will involve multiple steps, a decision making process consisting of several stages and a decision making unit (DMU) consisting of several people from different disciplines, then who is asking the question becomes very important. Within the DMU you may find; budget holders, decision makers, influencers, users and others and each could be seeking different information when they ask “how much?” Consider the low energy lighting example; the engineering director will be interested to know whether there will be an installation and on-going cost implication for his maintenance function while the FD will be more focused on the overall RoI so will look at energy savings as well as installation and maintenance costs. The FD will also be interested in funding options as he will have reasons to consider both capital and expense options.

Tip one – your sales approach should include a process to profile all members of the DMU to help your sales people identify what is most likely to interest and motivate each person in the DMU. Having the relevant information to present to each person will increase your credibility and their appreciation for the role you might play in solving their current business issue.

Tip two – if, for example, you are sitting with the FD you can explore what financial information they will want and in what format and also how they will finance the purchase. If you feel they have not considered something important such as maintenance costs, politely suggest they should consider this – “would it also be useful for us to provide a comparison between current and future maintenance costs?

Tip three – although all members of the DMU are important there will typically be one or two who have the power and authority to sway the decision – make sure you know them and that you have done everything you can to satisfy their needs and wants.

Why are they asking? The obvious answer is that they want to know! But why do they want to know? There are many answers to the question and understanding this is a key aspect of competitive strategy and objection management. The important thing is to ensure you know exactly why they are asking before you provide the answer and combining this with the understanding gained from exploring when, what and who will put you in a powerful position to give the prospect exactly what they need and gain you an order for new business.

Tip one – during the early stages of your sales engagement process explore the prospect’s decision making approach to gain an understanding of how money will feature in the decision. This will enable you to pre-empt potential objections about price or cost by ensuring what you are offering delivers value and a demonstrable return not just a bill.

Tip two – whatever the question, always explore why (reasoning, hidden agenda, …) before answering it.

Additional thoughts

Ask yourself and the prospect if they have considered “The cost of doing nothing?”, as doing nothing is the most common outcome to a sales negotiation in some business sectors you should explore whether the prospect has given due consideration to the cost of doing nothing. Doing this at an early stage will help to avoid protracted negotiations that ultimately go nowhere and it can also provide you with the information on imperatives, timescales, etc., to help you guide the situation towards a successful conclusion.

We help you save …” is a powerful conversation piece because it focuses on improvement (customer satisfaction, productivity, lower expenses, higher quality, etc.) and savings are forever not just at the point of purchase. The discussion changes from what they have to spend to what return they can get from the expenditure.

We help you make more money” is even more powerful as most organisations are hungry to increase revenue and profits. If, for example, your solution reduces waste or speeds up production this will help your customer make more money.

Warning – if your answer to “How much …?” triggers the retort; “that’s more than XYZ company” it is a sure sign you have failed to establish the value argument. Take this opportunity to grasp the nettle and re-visit the value arguments for your solution. As you re-emphasise your value arguments ask the prospect how this compares to the competitor’s offering – make sure they are comparing like for like.

Previously published on LinkedIn Pulse

 

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Cartoon courtesy of Timo Elliott

Using RoI modelling as a selling tool

Return on Investment (RoI) modelling is a simple yet powerful concept that is very useful for comparing the value of different approaches to a project or other activities. As a result it is also a very useful selling tool as it enables a sales person to help a prospective customer understand the value of what is being offered compared to; a competitive solution, the option of the customer doing it themselves, or doing nothing at all.

For some, RoI is a tool that can only be applied to products but it is potentially even more useful when comparing service or solution alternatives. Your prospective client will have resources dedicated to delivering what you are proposing to provide and they will be using whole resources. Consider an IT installation, they will require; people, hardware, software, an equipment room, air conditioning and office space. All of those resources are dedicated 100% of the time to the IT function whereas a service provider will be able to time share resources so the client will only pay for what they use rather than what they own.

Another benefit of using RoI in a service or solution environment comes from its ability to help make the intangible tangible; it forces people to appreciate the true cost of what they are currently doing rather than just seeing the direct costs.Cartoon courtesy of Timo Elliott

While most people accept that RoI is a simple concept many find it hard to apply and as the character in the cartoon suggests the most common problem is finding available data to populate a RoI model.

I do not think the data is a big issue and having found this to be such a powerful and useful selling aid I would like to share some ideas and tips as to how you might overcome the data issue enabling you to apply RoI when selling your propositions.


When considering RoI there are a number of related concepts that need to be considered as well.

Total Cost of Acquisition (TCA) – the total amount you have to spend to complete a purchase and become the owner. For example; when buying a car there will be an advertised price but to acquire the car you actually want will have to spend additional money over and above the price e.g. optional extras, insurance, road tax, delivery charges, etc.

Total Cost of Ownership (TCO) – the total outlay to own and use what you have bought. Continuing with the car analogy, in addition to the TCA, the TCO will include; maintenance and repairs, roadside recovery service, fuel, renewal of insurance and road tax, interest if you buy on a loan and, the big one, depreciation. You may even have to include the cost to garage the vehicle, or purchase a resident’s parking permit.

Price Cost Value (PCV) – simplistically, the price is the TCA, the cost is the TCO and the value is the difference between what the purchase costs and what you gain from making the purchase. If owning a car means your commute to work will take less than an hour whereas you now spend close to two hours with several changes on public transport the value in the purchase is the convenience and comfort of travelling in your new car along with the additional hours of free time.

If you present a RoI case, to support something you are trying to sell, you must take account of TCO and PCV as basing it simply on TCA will produce a misleading result that understates the position which in turn damages the credibility of the claims you make to support your proposed solution.

This is a timely point to remind ourselves that decision making is not just a simple clinical calculation and it will involve subjective and emotional as well as objective assessment criteria. RoI mainly focuses on the objective evaluation but to gain best value you need the prospective client to trust you so you will need to pay attention to the emotional and subjective factors as well.

All too often prospects use “you are too expensive” without fully appreciating what they are currently spending. What RoI achieves for you is to create a clinical comparison between current and potential future cost.

What is so hard about RoI?

A practical way to answer this question is to refer to a recent conversation that I had with a customer who provides a range of hosted IT solutions hence often finds themselves in the position of needing to justify their proposed costs, compared to the costs of a competitor’s solution or to the client doing their own hosting. The key point that came out in the conversation is that most potential clients omit certain significant but disguised items when providing current IT costs which leads to an unfavourable comparison with our customer’s proposed solution. This is the nub of the matter; for RoI to function properly as a comparison tool, the data types used must be the same or equivalent in all cases. A simple illustration of how this might manifest itself is:

Provision of an IT service requires; hardware, software, security, air conditioning, people and floor space. There are many other smaller items but these are the main building blocks. I will use the people element as an example to illustrate the importance of like for like information being used for a RoI comparison. The TCA calculation of employing a person must consider the costs of; recruitment, induction, training, salary, NI, variable compensation (including emergency overtime), sick pay, pension and management, facilities & HR overhead. However, it is common for a client considering moving to an externally hosted solution to consider just some of the cost elements of employing their own IT staff and typically just; salary, NI and other direct costs such as sick pay and pension. However, the other cost elements are a factor and they will no longer be there if the decision is taken to outsource the hosting of IT so must be included in the comparative evaluation.

Using such a limited data set will generally tend to make the external solution look relatively expensive. While this is not good for a potential supplier it is even more serious for the client as it means they do not have a real grasp of their actual IT costs.

So, the dilemma is; if potential clients do not have a complete picture of their current costs, or they disregard some items that should legitimately be included, how can a fair comparison to be drawn with an outsourced solution?

How can you address this dilemma?

One successful mechanism is by building a RoI model that incorporates all of the cost elements relevant to a particular proposition or business sector and offering this to the prospective client for them to use with their own figures. The key steps are:

  • Build the model around the particular proposition; the information from a generic model will never be as believable as that from a specific one. So, for example, in the case of a hosted IT service the model will include a people element and this must include all the employment costs not just the direct ones.
  • Once developed present a blank copy of the model to the prospective client. Ask them to populate it using their own figures. If the client says they do not have some of the figures provide them with industry norms using well recognised and respected sources – agree this in advance.
  • Ask the prospective client to share their findings with you and compare their result with your quotation for providing the service. If you have established a good working relationship with the prospective client there should be no problem with them agreeing to this. If they do not wish to share then simply ask them how their figures compare with your quotation.

Things to bear in mind when considering a RoI approach:

  • Decision making involves a mix of quantitative, qualitative and emotional factors so depending purely on RoI is unlikely to work.
  • At the beginning of the engagement with a new prospect undertake a process of discovery where you can explore everything that the prospect will consider when making a decision.
  • Your RoI model needs to cover all of the direct and indirect cost elements that the prospective client is already meeting. As you are providing an alternative solution you are fully aware of all the components of cost so it is easy for you to build the cost model.
  • If the prospective client is unable to populate some areas of the model you can help by providing norms from respected industry bodies.
  • Your prospective client may not accept some of the cost elements that you will want to include so you need to gain their agreement as to what will be included before you present the model and if the relationship allows
    • develop the model collaboratively
    • populate the model collaboratively
    • evaluate the findings together
  • RoI mainly looks at cost and having created a genuine comparison between current and proposed costs you now need to move to the evaluation of value as this is what will justify a higher price if that is what the RoI model has suggested. Even if the cost of your proposition is lower you need to focus on the value you will deliver to satisfy the emotional component of the client’s decision making process.

Consider as an example of value; your discovery process established the client is keen to improve the service it provides to its customers. They are much more likely to decide in your favour if you have demonstrated that your solution will deliver the required improvement in customer service. Even if the RoI model showed your solution as being more expensive the value of improved customer service that your solution will deliver is still likely to win the day for you.

Selling Tips:

Even if they do decide to stay with their current solution, they now have a clearer view of their real costs. Be aware – rarely is no a “no never” it is most likely a “no not now” so you should re-visit them at some point when you may well find yourself pushing against an open door. They will have had time to reflect on what they learnt from engaging with you and the idea of change may seem less scary with the benefit of hindsight. They may also have recognised the value you added through your approach which is likely to make them feel you will be a good partner that they can rely upon.

A common question is – when should you re-visit a prospect that has said no? When the time is right! You will know the right time if you have asked the right questions during your discovery process. The right time will be; when an existing supplier contract is due to expire, or when they are formulating the next annual budget, or when they are opening that new branch office. When you return, focus on what you discovered that will matter to them and they will appreciate the fact that you have empathised with their position.