[Fredslist] Cost-Justify Your Offering! [promo]

[Gil Effron]

10 Ways To Cost-Justify Your Offering
 
By Winton Churchill and Gil Effron
 
 
If you can't prove exactly how your product or service will pay for itself
in 6 to 24 months, your sales process will move slowly... and you are likely
to lose business to a competitor that can prove the case.
 
We usually look for the cost justification in 3 main areas:
 
    1. Direct labor savings 
 
    2. Reduced inventory cost
 
    3. Overall productivity gains
 
It never fails. All too frequently the vendor thinks the prospect is an
idiot. They get some expert to write an article claiming something like a
20% cost reduction if you used a certain generic product in a manufacturing
process.  Then the individual vendor would email this article to their
prospects and say, "Dr. Reallysmart says you can save 20% if you buy my
product."
 
In days past, some buyers jumped in... sad to say they never realized the
20% savings.
 
This has spawned a whole generation of skeptical buyers who now take the
"prove it" approach. They value the supplier who proves the savings will
accrue in the buyer's facility, the way the buyer will be using their
offering.
 
In very competitive markets, the buyer may ask to run a pilot to actually
prove the savings.
 
In the most competitive situations the buyers could ask for total risk
reversal, saying something like, "We'll buy on the condition that if it
hasn't saved us $X by month 6 you will refund every penny we paid you."
 
For some products or services it is not immediately obvious how to justify
the savings. In those cases we look "outside the box" in the following
areas:

Expanded Time Scale: It might not payback in 6 months... but 2 years may
fully recover the investment. It's first important to determine what your
prospect's time horizon is.
 
Upstream/Downstream Implications: Look for savings in other areas of their
organization. For example, a solution that improves inventory cost may have
a side benefit of speeding up the assembly line. With one client we
discovered that by lowering inventory cost for them they could reduce their
insurance premiums associated with inventory reductions. That made the
payback work out to 8 months instead of three-and-one-half years.
 
Time to market: Particularly if you sell products or services that help
people in companies collaborate and work faster as a result, time to market
can become a big factor. In today's world of shortened product cycles,
bringing a product out a month before the competition could increase your
revenue through the whole product life cycle by 20% to 30% over that of your
next closest competitor.

If you're not crystal clear on the means and timeline by which your prospect
will recover their investment, you will struggle to make the deal.
 
My favorite 10 ways are:
 
    1. Proving direct labor savings 
 
    2. Reducing turnover 
 
    3. Improving customer retention 
 
    4. Direct acquisition cost reduction 
 
    5. Reducing costs incurred in other areas of their business 
 
    6. Reducing costs for acquiring new customers 
 
    7. Freeing up senior executive time 
 
    8. Reducing number and length of support interactions 
 
    9. Leverage sales time 
 
  10. Reduce travel costs 
 
Keep in mind that a motivated prospect is vital to moving your deal along
quickly. And if you lead them properly, they'll work with you to uncover the
related and ancillary benefits. 
 
CONCLUSION:  In every major sale, you must be fully prepared to demonstrate
that your product is free... or that it has sufficient ROI to make purchase
imperative. One thing is for sure. You don't dare make bogus claims. Do your
homework. And always use the client's cost assumptions for maximum
credibility. 
 
If you'd like some additional ideas on overcoming the mistakes that business
owners and sales managers make when attempting to grow their businesses in a
highly competitive economy, send an email to gil at strategiesforgrowth.net.
(Be sure to include your contact information.)  
 
 
Gil Effron
Strategies for Growth
305 Madison Avenue, Suite 449
New York, NY 10165
212-505-4339 or 800-226-2428
Fax 877-805-8037
Gil at StrategiesForGrowth.net
 
Don't Just "WATCH THE GAP," Eliminate It!
 
 
Copyright (c) 2007 by Winton Churchill. All rights reserved. You have
permission to distribute this document in its entirety as long as it remains
unaltered
from its original form with all credits and copyright notices in place.

 
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