I recommend that every company provide its salespeople with a model to assist them with value justification. Keep in mind that every
prospective
customer will have his or her own way of analyzing value and the return on investments. Nonetheless, you’re always better off being prepared and presenting a
projected
ROI based on what you’ve learned. Unless you’re asked
otherwise
, keep it simple, and if the customer wants to take the analysis further, you’ll gladly assist him or her. (See Appendix A for a sample value justification.)
VALUE JUSTIFICATION ELEMENTS
The key to a successful value justification is making sure the customer owns it. After all, it doesn’t matter what you think; it’s what the customer thinks. I
encourage
salespeople to answer the five following questions with their value justification models:
-
What elements of the customer’s business will be impacted and measured?
-
Who is responsible for the changes in the impacted areas?
-
How much impact and value is possible, and over what period of time?
-
What capabilities will be needed?
-
When will the investment pay for itself?
Element 1: What Will Be Measured?
Many elements and measurements are superfluous. You can clutter your buyer’s vision if you choose measurements that detract from the real issue. Find out the few elements that if changed will make a significant difference. When two or three elements or reasons for the problem align with your products and services, make those the key points in the value justification. Examples include the following:
Profits
Remember, this is the reason most organizations exist. If you don’t include profits as one of your elements in the value justification, you’re making a mistake.
Revenues
This element is very powerful because businesses (and even
nonprofit
organizations) depend on it to survive. Cash flow is critical, and revenues are needed to sustain good cash flow. Organizations depend on revenues to pay staff, suppliers, and shareholders, so revenues tend to have immediate, direct consequences. Revenue measurement can focus great buying attention on your capabilities.
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Cost
Whether absolute or relative, I’m talking about cost reduction or cost containment. This is a very big area of opportunity because every part of every organization is a cost center. The two types of cost reduction you should focus on are displaced cost and avoided cost.
Displaced Cost
If your products and services can
displace
or get rid of an existing cost, you want your buyer telling you how and by how much.
Avoided Cost
If your products and services can help a customer avoid future spending, again, you want your buyer telling you how and by how much.
Intangible Benefits
These benefits, such as employee
morale
, customer satisfaction, image, reduced stress, goodwill, and quality of life, are hard to put a dollar value on. However, if the customer is willing to assign a value to them based on the capabilities of your solution, I suggest you include them in your value justification model.
Element 2: Who Is Responsible?
It is critically important that the customers own the value justification. This comes into play when the customer is ready to make a decision. If the person ultimately responsible for making the decision asks about the value justification and the response is, “I don’t know where those numbers came from” or “I don’t know if we can achieve those results or not,” the decision to move forward with your proposed solution will likely not happen. On the other hand, if the person being asked responds, “Yes, those are my
numbers
, and yes, we can achieve the results because of the capabilities being proposed,” the decision to move forward with you will happen.
Element 3: How Much Total Value Is Possible?
How much can profits improve? How much can revenues increase? How much can cost be reduced, either displaced or avoided? The value justification must answer all these questions, and the answer needs to cover a period of time—one year, two
years
, and so on.
Element 4: What Capabilities Will Be Needed?
The value justification must state what capabilities will help change the business. If this question can’t be
answered
with assurance, why would a
prospective
customer take the risk? For example, if a company was experiencing
rising
costs in the customer service department and this was negatively
impacting
profitability, you would want to link specific capabilities you offer to reducing or avoiding additional cost in the customer service department. For example, it might sound something like this: “What if you could allow your customers to access their own accounts online and see frequently asked questions from other
callers
, thus eliminating your need to hire three new customer service representatives and the additional $250,000 in expenses you’re scheduled to take on this year? Would this help? Would this be of value to you?”
Element 5: When Will This Investment Pay for Itself?
Value justification must answer this question. Buyers want to know when the breakeven point is. They want to know when the numbers start to
turn
from red to black. The answer is when the cumulative total benefits, including the increase in revenues and the reduction in cost, exceed the cumulative investments made to acquire and implement the products and services, including services suggested in any Implementation Plan. (See Appendix A: Part 2 for an example.)