Generating Profit Improvement Proposals

A consultative seller's day-to-day work is the generation of Profit Improvement Proposals. Each PIP adds value to your customer's profit objectives through the application of your product and service systems to the customer's business operations. Through such added value, you are able to merit added margins in return.

The process of generating profit proposals must be a continuing one. Once it begins, it can go on endlessly because the profit-improvement opportunities in a customer company are limitless.

You will find the task of selecting your profit-improvement portfolio easier if you apply five criteria. They will steer you toward PIPs that have the greatest chance of succeeding.

  1. New profits should be achievable within 365 days. Longer time frames incur unpredictable risks. They not only defy ready calculation but invite disenchantment or cancellation of PIP projects already under way.

  2. New profits should be significant for both you and your customer. Shared profit improvement should not be confused with equal profit. The first objective—profitability for both—is a vital aspect of the concept of partnership. The second—equal profit—is both impossible and unnecessary.

  3. New profits must draw on a major product or service capability to be profitable for your company. Similarly, in order for your customer to profit, your proposals must affect a major product, service, or operation.

  4. New profits must be measurable in terms of a net increment or a decremental investment in operating assets. If it cannot be measured, or if no provision is made to quantify it, agreement on whether improvement even took place may be impossible to obtain.

  5. New profits should not be an isolated entity but a module that leads naturally to the next infusion of profits and then to the next one after that.

Box Two business managers are managers of cost centers or profit centers. Whatever operation their particular business function may perform or whatever markets their line of business may sell to, they are essentially in the business of asset management. They are funded by their Box One managers with assets in the form of cash or credit. They are expected to invest these assets in their operations to turn a profit on the original investment, which they will allocate to fixed and operating assets "under management." How good they are at this determines how much they will get the next time.

Consultative sellers can take on the role of contributing to their Box Two partner's success as an asset manager in three ways:

  1. They can help their customer managers improve their ratio of selling successful proposals to Box One by adding high-quality investment opportunities to the managers' portfolio and helping them to obtain more funds.

  2. They can help their customer managers improve their turnover rate of accepted proposals to Box One by adding more investment opportunities to the managers' portfolio and helping them turn them over faster.

  3. They can help their customer managers improve their success ratio of implementing projects by adding expertise that will help earn more profits or earn them sooner and with greater certainty.

Consultative Selling is based on a universal management principle: Never add an asset to a customer operation without an asset management program to reduce its cost of ownership or to earn back more than its price.

For customer businesses in many industries, infinitesimally small problems can add up to significant costs. A leak of only 0.01 percent of oil passing through a refinery valve can add up to 1.2 barrels per hour, 28.8 barrels per day, and 10,512 barrels per year. At $10 a barrel, one leaking valve can cost $105,120 in lost annual sales.

If you sell leakproof valves, the $105,120 revenue gain per valve—multiplied by the total number of leaking valves in the refinery—is your product.

In a similar way, a $75,600 revenue gain per valve is your product if you can stop contamination from leaking into a 2,520 million gallon premium oil tank and downgrading it to regular oil that must be sold for $.03 less per gallon.

In business, money has one purpose: to make more money. To be a consultative seller, you must position yourself as adding the values of "more money faster and surer" to your customers. This is the supreme product. All customers need it all the time. There is always demand—no matter what you sell—because no matter how much money is on hand, there is always a short supply. There is never enough soon enough; "more money yesterday" is the only answer a Box Two manager ever gives to the question, "How much do you want and when do you want it?"

Every dollar that Box Two managers have is on loan to them. The loan, in the form of allocated funds from Box One, is callable on the date that the managers' proposals have pledged to achieve payback on Box One manager's investments. But that is only the beginning. Box One managers do not invest to achieve payback. Their objective is to maximize the return on their investment and to do so as quickly as possible. In this sense, the funds they lend to the Box Two managers who report to them are trust funds: Box One managers trust their Box Two managers to return the funds at a profit.

Consultative Selling(c) The Hanan Formula for High-Margin Sales at High Levels
Consultative Selling: The Hanan Formula for High-Margin Sales at High Levels
ISBN: 081447215X
EAN: 2147483647
Year: 2003
Pages: 105
Authors: Mack Hanan © 2008-2017.
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