Consultative Selling: Real-Life Buying Analysis

Consultative Selling: Real-Life Buying Analysis

Yesterday, I met with an appointment-setting and lead generation company that specializes in enterprise software. The purpose of the meeting was to better understand their services and how we might use them to further scale our business. As I sat on the other side of the table, both literally and figuratively (I am generally selling, not buying), I continued to link ROI, payback and certainty to solving my problem (scale). Would these services help me scale the business? Were these services a good investment?

Fast-forward to the end of the meeting. Based on a volume discount, the cost of the program would be $500 per appointment. The company defined an appointment as identifying the decision maker; asking them qualifying questions; confirming a need or interest; scheduling a meeting; and guarantying attendance. The company proposed the program last 60 business days or three months (whichever ended first). Since I was interested in increasing our professional services business, I did a basic ROI analysis as an initial screen.

ROI. As part of the company’s offering, 100 appointments were guaranteed. To be conservative, I said 50% of those appointments would generate an opportunity. Of the 50 opportunities generated, I used $20,000 as the core contract value (entry-level, but I like to be conservative). Thus, 50 opportunities at $20,000 each would generate a pipeline of $1,000,000. I then applied our current closure rate of 30%, which translated into $300,000 of closed revenue. The $250,000 revenue gain ($300,000 in revenue less the $50,000 investment) equated to a 500% ROI (see below).

Payback. Since the average sales cycle for the core professional services offering is 90 days, I also calculated the payback period; i.e., how soon we would recoup our investment. If 50 opportunities were generated, closing 30% would mean 15 total. If each opportunity closed at $20,000, it would take the first 2.5 opportunities to close in the 90-day period to breakeven. Once payback occurred, the investment risk would disappear and the remaining 12.5 opportunities would be incremental revenue. The payback period then would be 90 days (relatively fast).

Certainty. Because the future is uncertain, investing involves risk. The faster an investment is recovered, the less risk is involved. That is, a shorter payback period increases certainty of recovery. A longer payback period decreases it. While earning a ROI of 500% within a three month period is attractive, making a $50,000 investment is significant. The fact that the company has successful worked with several enterprise software companies and generated positive returns is helpful. Their offer to connect me with stakeholders in current and past clients is as well.

Consultative Selling: Real-Life Buying Analysis

Lessons Learned
• Consultative selling involves helping customers solve problems, reduce costs and increase revenue.
• A meaningful ROI must be greater than the customer’s internal hurdle rate for incremental investments.
• The faster an investment is recovered, the less risk is involved. The greater the risk, the greater the return required.
• A shorter payback period increases the certainty of recovery; i.e., confidence in making the investment.

All contents copyright © 2012, Josh Lowry. All rights reserved.


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