The Difference Between Cost Savings And Business Value
By Tamara Schenk, Nov 3, 2020
“Business value? Sure, here are my cost savings.” Let me show you in this article why these two terms are not the same.
This deal is a “must-win” deal. We have the best solution, we have a great relationship with the customer, and we save them a lot of money with this new application management service. We all know overconfident sales statements like this one, don’t we?
The deal goes south. The customer chooses a competitor. Why? Because this competitor offered a much bigger business impact, connected to the customer’s relevant financial metrics. It’s a disaster for the sales team, the funnel and the quarter.
Cost savings are a translation of features and functions into business value.
Cost savings don’t connect to the customer’s desired business results per se. They are a prerequisite for getting to their specific business value. Cost savings are still in the category of what a product, a service or a solution IS (features and functions) and what it DOES (saving money), but not what these cost savings MEAN to the customer.
The typical question of a finance role will be: “So what?” Let’s look at the critical customer behaviours. One of these behaviours is that customers decide how they calculate their business value. In various studies over the last couple of years, it became obvious that customers require formal calculations on business value (ROI, TCO, related to their specific business cases, etc.) before making a buying decision. Now, in the current crisis, the behaviour is even more evident as budgets are cut, buying decisions postponed and approvement-cycles are more complex.
Top sales performers know that their products, services, and solutions are only one element in the customer’s approach to solving a problem
Value always lies in the eyes of the beholder, the customer. As customers make every decision differently, the customer’s desired business value must be slightly different from the vendor’s product-oriented cost savings. There is a natural gap by definition. This gap is one of the reasons why traditional ROI calculators never impress a customer stakeholder who has a financial focus. Those ROI calculators are, most of the time, product-oriented, which means they only cover one element of the customer’s solution, the provider’s offerings.
Top sales performers map their product’s cost savings to their customers’ broader business value calculation.
That means that in the customer’s business case, the offered product’s cost savings will often be only one line item. World-class sales performers know how their cost savings can impact other financial metrics in general. Their expertise in understanding the customer’s context and the stakeholders’ different concepts allows them to figure out which financial metrics are important for this buying team, this time. They also identify the strategic business initiatives and connect the dots between their product-based cost savings, the directly impacted financial metrics and their impact on the customer’s strategic business initiatives.
Understand your customer’s financial performance and identify financial metrics that matter to them
Many sales professionals were trained to focus on their ROI and TCO as discussed above. That worked if (in our example of cloud-based application management), IT departments and technical buyers made the decisions alone. Now, as we observe a huge shift to business buyers and cross-functional and complex buying teams, business value calculations become very different. Why is this the case? Because there are no IT projects anymore. Every IT project that exists has at least one business reason, why it exists. Consequently, business values are calculated differently. In general, there is a switch from efficiency and budget optimization to effectiveness and investment thinking.
Understanding your customers’ current financial performance and their goals is the first step to identifying metrics that make a difference to them. Financial reports, analyst views, strategic initiatives are great sources to educate yourself. Learning additional financial metrics such as e.g. return on assets (ROA), return on equity (ROE), operating costs, cash flow, EBIT and EBITDA, as well as net and gross profit margins are essential to creating outstanding value for your customers next time.
Create a value mapping chart for the entire buying committee
Such a document includes the business reasons for every buyer, their desired solution and their desired tangible results and intangible wins, and how they measure success. Then, map back to the relevant metrics of the strategic initiatives, identify alignments, gaps and maybe inconsistencies. Then, come up with an overall approach to your customer’s business value calculation, integrating the stakeholders’ relevant metrics. Being prepared like this shows that you work backwards from the customer’s context and the stakeholders’ different concepts and that you made a lot of efforts to create extraordinary value for them. That’s the entry ticket to have effectiveness and investment focused conversations on eye-level. This is where you should be to win the next deals.
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