Through the mid and late 1990’s I sold an information solution, delivering live content directly into companies LANs, allowing them to create alerts. Not that big a thing today, but keep in mind this was before the Web, and while the delivery is no longer a challenge, functional and useful alerts, now marketed as triggers by many of the same folks, are still being sold, if not always bought.
The leaders of the company used to carry out a strange annual ritual that demonstrated their desperation and lack of sound business thinking. This specific product sold for $3,000 a month or $36,000 for the required minimum annual subscription. Every December the “Leadership”, would roll out the same special offer, an annual subscription for $30,000 if the customer committed before the all-important year-end, a $6,000 discount for those who bit.
The plan, theory, hope, as it was explained, was that once the service was flowing through the customers’ networks, and they had a chance to experience it, renewing them 12 months later at full price would be a mere formality. Right! To this day I am not aware of one client who renewed at full pop, all the renewals were all at $30,000 never $36,000. Not only did they never recover the cost of acquiring the account, but ended up paying a further $6,000 penalty for as long as the client maintained the service.
There were a couple of lessons and I learned from this, one right away, there other got clearer over time, especially as I sold more involved solutions.
The most important lesson set in after a couple of years of this silliness, when I realised how to leverage the reverse of the phenomenon. Our losses stretched out as long as the client maintained the service, $6,000 per year, four years, $24,000. Therefore, the same had to be true when a client was realising value from our service.
If you can get agreement from a buyer that using your service, they will save $20,000 a year; or using your service they can increase sales resulting in a $25,000 increase in net earnings, you can then extrapolate that out over the life of the service you sell. Most sales people don’t go this extra step, they will stand their ground on that first figure. So if your product costs $20,000 it may not look that attractive at either $20K 0r $25K return; but what if they had the benefit of your product for four years. That changes things; they now have the potential to see an $80,000 benefit from a $20,000 investment.
It is important that you establish two basic things, first, and I mean first, the duration of the positive impact of your offering, it has to be established first, not that hard if you follow a disciplined approach to Discovery. Second, the value gained, whether that is increased sales, reduced costs, longer asset life, reduced time to market, you name it, (well actually let the buyer name, you ask the questions that lead to that). Armed with those two things, you are not only set to achieve full price for full value, but the elimination of a lot of daftness from the sale, for both you and the buyer.
For example, if I can get a buyer to see that my training will bring in an extra three sales a year, and he tells me that each nets $1,200, that’s $3,600. If his average tenure for a rep is five years, that brings it to $18,000; makes the initial investment of $1,500 seem like a steal, even if we added in an annual refresher at $500, still total investment of $3,500 per rep, still leaves a return of $14,500 of the five years. (Note to self, need to raise my prices).
The other obvious lesson learned was not to sell at a discount. Once you sell it at $30,000, you have established the value, and all the dancing and barking you do when trying to renew does not change that fact and the value you set at $30,000. Yes, there are arguments you can make, proof of worth you can present, but all that is just decoration, the fact is you sold it at $30,000, and that’s what it’s worth. Some of the leadership threatened to withdraw the service, but not only did they lack the anatomical make up to do that; but they and the local rep had become addicted to the crack-revenue, and no one was going to suffer the withdrawal pains. Besides, they would have to go out and replace what they lost, and they have shown that that was beyond their means.
What’s in Your Pipeline?
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