Welcome back to our latest installment of A Sales Leader’s Guide to Selling Value blog series. At this point we have established the importance of:
- understanding the customer’s business
- how to solve the customer’s business challenges
- differentiating the value created
to executing a value creation selling approach. It is time now for Key #4, Quantifying the Value Created.
Winning more deals and opportunities
One of our goals for utilizing a value creation selling approach is to win more deals. To win more deals, the importance of quantifying the value created cannot be understated. In today’s markets, we are competing not only against other companies, but the status quo as well (competitor = “no decision”). Customers and buyers want and need to see proof of a return on investment. They need this proof before they are comfortable taking on the risk of the investment. If we have done our homework and executed the three previous keys correctly, we should welcome this part of the equation.
Customer’s financial and operational Key Performance Indicators (KPIs)
When quantifying value, we focus on the impact the solution has on the customer’s financial and operational Key Performance Indicators (KPIs). Most businesses have KPIs they use to track progress against goals and to indicate they are progressing appropriately to their desired future state. Determine which KPIs your solution has a positive impact on, find out where those KPIs fit into the customer accomplishing its priorities and then the process becomes math with a high impact.
To quantify the value created, follow these 5 steps:
Step 1: Determine Current Performance
For the KPI we are measuring, determine the customer’s current performance. For example, the customer’s field engineering software has an up-time of 94%.
Step 2: Determine Potential Performance
For the KPI we are measuring, determine what the performance could be if the customer implemented your solution. For example, the customer’s field engineering software would have an up-time of 97% with our solution.
Step 3: Quantify Financial Value
Determine the financial impact for the customer in terms of additional revenue or decreased expenses from implementing your solution. For example, the engineering department loses $1,000 in potential revenue every hour that their software is down.
Step 4: Calculate Across Organization/Time
Calculate the financial windfall from one day in one department across the whole organization over a year or multiple year period. For example: There are 1,600 hours a year of engineering work and the customer loses 96 of those hours due their current down time of 6%. 96 hours of down time, multiplied by $1,000 in lost revenue per hour, equals $96,000 in lost revenue for the year. Reducing this from 6% to 3% would amount to $48,000 in additional revenue.
Step 5: Repeat for other KPIs
Does our solution positively impact more than one KPI? If so, repeat steps 1 through 4 for the other KPIs and combine the value. For Example: $48,000 of additional revenue in the engineering department from increased up-time (94% – 97%). Plus $33,000 in decreased expenses in the research department from increased efficiency. The solution is creating $81,000 of total annual value.
Are we 100% ready?
So now that we have created and quantified the value, we are ready to execute the approach, correct? Unfortunately, we are not ready just yet. We have one key left. Consider our final key to be tied with Key #1, Understanding the Customer’s Business, as most important to executing a value creation selling approach. Without Key #1, we can’t execute Keys 2 through 4, and without Key #5, all of our previous work would be a waste. See our final key to executing a value creation selling approach: Communicating the Value Created and Delivered.
A Sales Leader’s Guide to Selling Value – Key #4: Quantifying the Value Created