Consultative Selling at the Executive Level

Consultative Selling at the Executive Level

Consultative Selling by Mack Hanan is one of the best, if not the best, business-to-business sales books ever written. The net of the book is, consultative selling is about partnering with customers to improve their financial performance and competitive advantage to create a long-term, profitable relationship for both parties. In the book, the author sets forth The Hanan Formula, which describes the three questions that customers want answered before they decide to invest in a company’s product or service. The three questions are:

1 – How Much (Value)? Not how much is the product or service going to cost, but how much money am I going to get back if I invest? What is my return on investment or ROI? Returns come in two forms: increased revenue and reduced costs. If a customer invests $1,000,000 in your product and gets back $350,000 in increased revenue, their annual ROI is 35%. Note most customers require their return to be equal to or higher than the company’s internal hurdle rate (or minimal rate of acceptable return) to justify the investment.

2 – How Soon (Payback)? How soon am I going to get my investment back? What is the payback period? Payback is calculated by dividing the investment by the incremental cash flow created by increased revenue or reduce costs. In the example above, the payback period is 2.9 years ($1,000,000 / $350,000). That is, it will take 2.9  years for the incremental cash flow to pay back the investment. Once payback occurs, customers are relieved of investment risk. Each company has a payback period that they use to screen investments.

3 – How Sure (Certainty)? What is your (salesperson’s) confidence level in the ROI and payback? Investment involves risk. The faster the payback period, the more certain the customer can be about making the investment. Because the future is unknown, an investment with a 2.9 year payback period is more certain (less risk) than the same investment with a 5.8 year payback period (more risk). Consultative selling involves using past successes (e.g., case studies, use cases, etc.) to convey certainty to customers.

All contents copyright © 2014, Josh Lowry. All rights reserved.

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One Response to Consultative Selling at the Executive Level

  1. Kellie Bey says:

    A lot of helpful information here. I am going to send it to a few people. Thanks for sharing!

    Like

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