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Value Based Selling

The current economic climate has forced most companies to look very carefully at what they purchase and the terms of that purchase. With the amount of discretionary spending substantially reduced, only those requirements that really add value are being considered.

Definition

"Adding value from the client’s perspective might be a product or service that lessens or prevents loss,or it may be one that makes a positive contribution that can be quantitatively measured. The usual measure is the ‘bottom line’."

Understanding

For a sales person it is important to understand “what is the bottom line for the prospect or client?” To truly understand the parameters important in the decision making process, the sales professional needs to go beyond just the price and related discounts. It is becoming increasingly important to effective selling that there is a practical understanding of finance, which is after all “the language of business”.

This understanding begins with a fundamental knowledge of financial terminology; not accounting- speak, but the terms used by decision makers in the evaluation, presentation and approval of projects or investments. Terms like operating margins, cash flow, variable and fixed cost of sales, asset turnover, net present value, return on net assets are basic terms used in the transactions between senior decision makers in any organisation.

Example: An example of how a better understanding of finance can assist a sales executive is in the prospecting phase. When calling on a new prospect it is good practice to examine their annual report. Their financial statements often give useful clues on the current state of their business and priorities. What are the performance metrics of the organisation? Return on Capital (ROCE), Economic Value Added (EVA), Earnings Before Interest and Tax (EBIT)?

Cash

Cash is a crucial issue for most companies these days. When a company is in a cost-cutting or saving mode, it is sometimes because cash is tight or their profit margins are being squeezed. It is important to know the different factors that effect cash and those that impact profitability. A better understanding can help guide the presentation of a proposal in the best light.

Example: A very important consideration for sales people to know is the basics for the financial analysis of their proposal. When a company is purchasing something requiring a capital expenditure, it means spending a large amount now with the benefits/return to come later. Their Finance Department may conduct an investment appraisal using techniques such as Discounted Payback and Net Present Value (NPV). One should understand these techniques sufficiently so as to be able to demonstrate the appropriate added value for the proposition.

One of the best places to learn about these benefits of the understanding and practical application of good financial discipline is at home. Most Sales and Marketing Departments have seen budget cuts over the last year or so. How to justify further investment in sales is accomplished by making a good business case. Often it is necessary for a sales executive to assist their prospect or client in preparing a solid case to justify the expenditure. A sales executive can add value to the process by being well versed in how to frame such a presentation.

Familiarity with finance terms and an appreciation of how certain business drivers affect the key performance indicators (KPIs) of an organisation is a big step forward. If a sales executive’s understanding of finance goes even further (for example, towards an understanding of the parameters of financial decision making, as with discounted cash flow) then he or she becomes a creditable partner in the internal sales process.