Nothing happens in Consultative Selling until you get to PIP. At the PIP point, you make your preliminary PIP to customer managers and begin your partnership. This begins the process of putting you in business with them. It positions you as potentially partnerable, permitting the belief that you may provide them with a compelling reason to work with you. At the same time that a preliminary PIP starts the selling phase of the sales cycle, it also forecloses to your competition the customer problem or opportunity you have projected for improvement.
The sooner you can get to PIP, the better. Until you do, you are vulnerable to opportunity cost from not being able to sell. You are also open to preemption by a competitor who can get to PIP faster or by the closing of the opportunity window if customer priorities change, managers change jobs or their positions become consolidated, or funds run out or become reallocated. Simultaneously, your customers are also suffering lost opportunity and may be preempted in industry advantage by their own competitors.
When you sell improved profits, time becomes your enemy. Time downgrades the value of money, which has a time value as well as a dollar value. The rule of thumb about money is that a dollar today is always worth more than the value of the same dollar tomorrow because today's dollar can be invested today to make more dollars. Tomorrow's dollar must wait for tomorrow. This is as true for your business as it is for your customer. The longer it takes you to get to PIP, the less money you make and the more money you spend in cost of sales to make it.
Customer managers are in business to do deals. A deal is an investment that yields positive return. Profit Improvement Proposals are invitations to deal by making an investment in an application of your products, services, or systems to improve customer profits.
From a customer's perspective, there are six major hurdles that your PIPs must clear in order to be considered a good deal:
The expected return, expressed by the customer's question, "How much do I get out of it?" There are two ways of proposing your answer. One is the cash flow from year-one expanded revenues or reduced costs. The other is the net present value of all future cash flows beyond the first year discounted back to the present and calculated over the productive life of the investment.
The proposed investment, expressed by the customer's question, "How much do I have to put in?"
The internal rate of return, expressed by the customer's question, "What is the ratio between how much I get out of it and how much I have to put in?" The answer is the annual percentage return per dollar invested.
The payback, expressed by the customer's question, "How soon do I recover my investment?"
The opportunity cost, expressed by the customer's question, "How much do I lose by saying no?" The answer is the total net positive cash flow payout over the productive life of the investment.
The earliest point at which risk can be controlled, expressed by the customer's question, "If I don't like it once I'm into it, how soon can I get out?" The answer is the first checkpoint at which results are measured.
A PIP becomes closable because it is more advantageous for customers to live with your solution than to go on living with their current problem or inability to take advantage of an opportunity.
Closable PIPs are delivery vehicles for "killer apps"—applications of a supplier's technology to a customer's operation that maximize improved profits. A killer app kills off a problem or kills off competitive proposals to realize the same opportunity. It kills off procrastination because, operationally and financially, its results are compelling. When a killer app is first proposed, it stops debate dead in its tracks. Its top-line and bottom-line contributions make customers want to get their hands on them. The new profits seem realizable. The operating improvements that enable them seem achievable. Delay seems unjustifiable.
At first sight, many killer apps appear to be no-brainers. Quite the opposite. They come out of a consultative seller's grey matter: the ability to reach into his or her database on customer operations along with their needs and objectives, and especially their current contributions to revenues and costs, coupled with the knowledge of how supplier technology can best be applied to affect them. This ability to mix and match reveals the "matrix mind" of the consultative seller. In a continuous filtering manner, the seller is screening customer operating norms through the templates of supplier improvement norms. Killer apps come into being when the two intersect.
Your PIPs must radiate credibility in the advantages they propose. They start out with one strike against them. Every customer manager knows about—or even worse, has lived through—the $250,000 investment that grew to $500,000 in order to save a $1 million return that was promised to be twice as much but shrank to less than half by the time it was realized.
Every manager's common experience also includes the six-month payback that stretched out to sixteen. There are three ways to make your PIPs credible. One is to make all your preliminary calculations on the conservative side, leaving yourself "wiggle room" when you work with your customer's numbers:
Overestimate all costs by 20 percent.
Underestimate all revenues by 20 percent.
The second way is to promise a small number of benefits. It is easier to achieve the correction of a customer's parts shortage all by itself than to combine it with improving productivity, enhancing customer service, and speeding up inventory turns all in the same PIP. The third way is to work with your customer's numbers. If you propose to reduce customers' inventories, start with their current cost of goods sold—for example, $3 million. Then put their numbers to work like this:
A customer values their current inventory at $800,000.
The current turn rate is therefore 3.75, the result of dividing the cost of goods sold by the inventory value.
If you propose to reduce inventory by 10 percent, or $80,000, leaving an inventory value of $720,000, the improved inventory turn rate is 4.16.
If the customer agrees that the cost of carrying $80,000 worth of inventory is 25 percent (to account for handling, insurance, shrinkage, damage, space, obsolescence, taxes, and the opportunity cost of tied-up cash), the total savings come to $20,000.
The customer will buy this number because customer numbers have gone into it.
If customer business improvement is to be continuous, PIPping must also be continuous. The key to seizing competitive advantage as a profit improver is the ability to make fast incremental improvements in customer profits. This requires a fast-cycle PIP capability.
Some PIPs are the result of an unanticipated customer demand. Most PIPs come from a consultative seller's initiative to solve a proposable opportunity.
PIP opportunities are sourced by the seller's use of norms to target a mismatch between a norm and a customer's current performance. An opportunity is triggered whenever the seller's norm can make the customer more advantaged.
When consultative sellers compete against each other, the edge goes to the faster cycler of closable PIPs. It must be assumed that all consultative sellers have equal access to customer information and are equipped with technologies that are at par. Applications skill remains your sole proprietary asset. It allows you to come up with a more closable solution in spite of implementing a similar technology to solve the same customer problem or opportunity. But "time to PIP" is a qualifier of applications skill.
Even a superior outcome based on superior applications skill loses its time value unless it can be fast-cycled. Not only does PIPspeed expand the likelihood of customer preference in the face of alternative choices, it also can collapse a competitor's ability to respond. When this occurs, your credibility for being reliable—to your competitor's detriment—is enhanced.