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Utilizing the Five Steps of Financial Justification

FiveStepsofFinancialJustification

How often are you the lowest priced vendor bidding for new business?

If you are like the vast majority of my readers, the answer is almost never. The reality of selling is there will always be some competitors who will under-bid you and others to win the business.

So how are you and the rest of your sales team communicating your lowest total cost solutions, especially when you are not going to be the lowest price? How developed are your financial justification skills of walking a customer through the math to prove you are indeed their lowest total cost alternative, even when charging a higher price than your competitors are?

As critical as financial justification skills are in today’s hyper-competitive markets, the majority of sales professionals have still not been taught, nor are they skilled at walking a customer through the line-by-line financial costs and savings with a customer to quantify and prove your lowest total cost solution. How strong are your financial justification skills?

The Five Steps of Financial Justification

The five steps of financial justification apply to, and can benefit, any sales professional whether they are selling capital equipment, services of consumable supplies.

Even though you and your sales team want to follow consistently these five steps of financial justification, it is still critical you present these steps as a unique personal effort developed and worked through just for this customer. This process cannot seem canned or standard to your buyer but instead needs to be presented as a unique and intimate conversation being discussed and reviewed just for them.

You need to walk your buyer through these steps of financial justification starting with a blank sheet of paper and, if possible, using no notes. The more standard, pre-printed, or repetitive your financial justification efforts appear to your buyer the less sincere and effective your financial presentation will come across to them. A customer will always relate better to you sketching out your proposed saving on a sheet of paper compared to you walking them through a pre-prepared printout off of your company’s online pricing configurator software.

Step 1 – Position Your “Higher Price – Lower Total Cost” Philosophy from the Beginning

The first step in financial justification starts before you have even issued a price, at the very beginning of your selling process with this prospect or customer. Success selling any higher-priced product or service begins with you taking control and positioning you, your company, and the added value of your solutions against your competitors.

This first step will decide if you can sell at a higher price. Buyers at the beginning of any buying process will always assume there is no difference between vendors and the services they can provide. In addition, once a buyer assumes there is no difference between companies being considered they will then naturally focus on price as the way to evaluate who can do the best job for them and their needs.

Buyers also assume they can get the lowest price or “best deal” when multiple competitors are interested in their business. If you don’t position your buyer from the beginning that you’ll be a higher price they’ll listen to all your explanations of value and uniqueness as only the reasons to select you, not to pay a higher price. How many times have you been offered a buyer’s business if you match the lowest price they have found?

Your job as a sales professional is to communicate your uniqueness and value from your first call. The best way to begin any selling relationship is to explain how “you and your company will most likely not be the lowest price, but want to explain and demonstrate how you can be their lowest total cost alternative.” How are you answering a prospect before they even ask, “Why…based on all the alternatives available to them…do they want to buy from you?”

You might want to review my May 2008 sales article from my newsletter titled “You Can Always Sell More…By Strengthening Your Strategic Selling Skills” to learn more about how to communicate your uniqueness and value.

Step 2 – Make Sure You are Talking “Apples to Apples”

The phases of any multiple-call selling process are straightforward no matter what you are selling. First, you work on finding the right people to talk to. Second, you do your research to understand your customer’s needs and concerns, and to uncover your selling opportunities.

The third phase is to present and demonstrate your proposed solutions. During this third phase, you will also deliver some type of written proposal that explains your unique approach and value, quantifies what you are proposing, and explains what it will cost.

Once your final proposal is delivered, you now move to the fourth selling phase of beginning your financial justification efforts by making sure you are talking “apples to apples” between everyone’s proposals.

Buyers will naturally look at the last page/bottom line of all the proposals received to identify what is indeed the lowest price bid. Since buyers also assume everyone is bidding similar stuff they will believe any higher priced proposals are full of padded extra profit and things they probably do not really need.

This is a critical step in your ability to win at a higher price. Before you start explaining and negotiating your price and value, you need to help your buyer discover and quantify the differences between you and your competitor’s proposals. You will never be able to justify a buyer paying your higher price if they do not first realize how much more your proposal includes or involves compared to your competitors.

Before you deliver your final proposal is a good time to start positioning your buyers by saying something like “In my ten years in this industry I don’t ever remember a selling situation where all of my competitors proposed…and could deliver…the exact same configuration of products and services. There are always differences in what is bid even when buyers like you give us detailed instructions of what you want. Once you get all of the proposals I’d like to talk to you about the differences…to help you make sure that everyone has proposed…and can deliver what you want and need…and to help you understand what the differences really are.”

It always seems ‘higher quality/higher priced’ competitors over-configure their proposals, proposing the “Complete Solution” for what they think their customer needs while the lowest priced competitors under-configure their proposal so then can offer an even lower price.

If you are a higher priced vendor then you need to initiate the discussions of what those differences are. You cannot wait for the buyer to discover these differences on their own. Did you include additional items or services in your proposal that your competitors left out? Can you prove you have proposed a larger, stronger, or more durable piece of equipment? Did you include faster response times, stronger guarantees, or more complete service packages than your competitors do?

By the end of this fourth phase of selling, and this second step in your financial justification efforts, you need to make sure you have leveled the competitive playing field by everyone being forced to re-propose similar solutions or levels of offers. You also should have identified and proven there are differences and greater value in your proposal compared to any others.

Step 3 – Outline Your “Hard Dollar” Justification and Savings

Once you have quantified and proven your proposal is different, more complete, or of more value than your competitors, it is now time to prove why these additional efforts and expenses are of more value than your competitor’s alternatives. This is where you begin working your buyer through your financial justification efforts to prove that even though you are a higher price, you are indeed a lower total cost.

Starting with a blank sheet of paper in front of your buyer, you want to first list how much higher in price you are compared to the alternatives they currently have proposed. The goal of these next steps, steps 3, 4, and 5, is to quantify for your buyer exactly how and why paying your higher price can and will save the buyer’s company more money and can lower their risk compared to any other alternatives.

You want to move your buyer through a prioritized discussion of your savings and improvements to prove this lower total cost alternative. The first step or proof will focus on
“Hard Dollar” savings. “Hard Dollar” savings are savings your buyer can quantify and prove they can receive from you compared to your competitor’s proposals.

Two criteria need to exist to make anything a “Hard Dollar” savings. Your first criterion is that any number quoted needs to be quantified as a solid number. This is not the place for vague generalities. Moreover, your second criterion to make something a “Hard Dollar” savings is it needs to be validated or confirmed from some type of third party source. Independent confirming sources for your “Hard Dollar” savings numbers helps prevent a “we say-they say” stalemate between you and your competitor’s promises.

If you sell equipment, your “Hard Dollar” savings might include a greater resale value that can be proven through auction listings on the Internet or through independent studies that have proven your greater fuel efficiency or additional time between required maintenance.

If you sell parts or supplies, your “Hard Dollar” savings might include your longer usage life in your products or your free product delivery and stocking efforts (assuming your competitors charge for these things).

In addition, if you sell services, or an intangible such as advertising or consulting services, your “Hard Dollar” savings might include your inclusion of additional services, training, or design efforts for which your competitor’s are charging.

Step 4 – Outline Your “Soft Dollar” Justification and Savings

Once you have listed and totaled up all of your relevant “Hard Dollar” savings, you will next want to begin listing any “Soft Dollar” savings. “Soft Dollar” savings are unique savings or additional offerings compared to your competitors. “Soft Dollar” savings can be somewhat quantified, but not as clearly as a “Hard Dollar” savings item can. “Soft Dollar” savings also will tend only to be proven by your company or customer’s validation, not from independent sources.

If you sell services or intangibles, your “Soft Dollar” savings might include your more experienced implementation team that can get the customer’s work done faster.

If you sell parts or supplies, your “Soft Dollar” savings might include your expanded inventory, meaning your buyer can order everything from you but would have to split their order between two or more of your competitors. You also might talk about your customer labor savings due to you providing free inventory restocking in their facility.

In addition, if you sell equipment, your “Soft Dollar” savings might include your offers of on-site maintenance parts programs or your larger fleet of field repair trucks that can get a customer up and running faster than your competitive alternatives.

An effective way to present your justification is to work to make any “Soft Dollar” savings look “harder.” You can make a soft number look harder by first getting the customer to agree to a savings number they believe you could produce as a “Soft Dollar” savings, and then, once you’ve written your customer’s savings number on your justification paper, cross a line
through the number your customer gave you and instead write down a smaller number. Taking a more conservative number than the one your buyer has already agreed to makes any “Soft Dollar” number now look more attainable making that number look “Harder” and more provable to your buyer.

Step 5 – Outline Your “Insurance” Policy/Justification and Savings

Notice how we are walking your buyer through a “stepped down” financial justification process?

To prepare for walking your buyer through your financial justification we first discussed and made sure you knew as much as possible about how your proposal compared to what your competitors have quoted.

Then, when you sit down with your buyer to walk them through your financial justification, you will first cover: Step 3, listing any “Hard Dollar” savings you can prove, savings that can be easily quantified and agreed to by your buyer and confirmed through independent sources. Then, in Step 4, you now cover any “Soft Dollar” savings, you can provide, still valid and at least somewhat quantifiable, just not as solid or provable as your “Hard Dollar” savings are.

Listing and totaling all of your relevant “Hard and Soft Dollar” savings should significantly narrow your quoted price compared to your competitors. At this point, you do not have to be the lowest price after you include all of your “Hard and Soft Dollar” savings. The goal with these “Hard Dollar” and “Soft Dollar” steps is to narrow the spread between your price and your competitors. It is great if you have shown you are by this point a lower priced total cost alternative, but it is not critical to a successful financial justification walk-thru.

At this point in your financial justification, you should now have a smaller difference in your price compared to your competitors. Now your next and final step is to list and explain your “Company’s Insurance Policy.”

Your “Company Insurance Policy” items are all the extras and added value offerings you and your company can offer, but cannot necessarily assign a specific or “hard” number to. These will tend to focus on your reliability, your low risk approach, or your stronger support organization.

Would having more distribution centers available be a savings and value to your buyer? Probably yes, but nothing you could quantify or place a dollar value on for your buyer. The idea with this final Step 5 is to talk about all of the “difficult to quantify” savings and benefits you can offer, but do exist.

Your “Company Insurance Policy” could include things such as your larger number of distribution centers to pull inventory from; your stronger Internet order tracking systems; your more complete employee technical training and coaching support; or your local, private ownership. These are all areas that can offer value to a buyer but cannot be quantified as to how much they will really save your buyer.

How to Summarize Effectively Your Financial Justification and “Ask for the Order”

Let us say your original proposal was for $20,000.00 worth of products or services and after completing all of the above steps, you are still about $1,000.00 or 5% higher than the buyer’s other quotes. You want to close your review of all the “Company’s Insurance Policy” offerings and added value benefits in this final justification Step 5, by asking your buyer, “For only $1,000.00 extra…or $200.00 extra per year over this product’s five year life…or less than $17.00 per month over this product’s life…our company can provide these additional support offerings or ways we can do things to help you lower your risk and make your life easier…Is it worth paying just $17.00 more per month to increase your ability to not have as many gaps, disruptions or problems with your suppliers?

Use Your Entire Sales Team to Develop Your Financial Justification Models

These five steps of financial justification can provide you and your team with a powerful and persuasive way to quantify and prove how and why you are a higher price, but still offering a lower total cost to your customer.

However, these five financial justification steps have to be researched, developed, and practiced as a team before ever reviewing this information with a potential buyer. You need to be prepared to know all of the areas you can talk about. How you can justify, prove, or validate what you present, and help the buyer discover and feel comfortable that you are the higher value and ultimately lowest total cost for them and their company.

Meet with your sales team and technical support to discuss and brainstorm the things you can talk about under “Hard Dollar” savings, “Soft Dollar” savings, and your “Company Insurance Policy”, using your actual company name. You want to prioritize everything you plan to cover so you can review and explain your biggest savings that are most provable. This way if you only get half way through your justification discussion you have still significantly narrowed your buyer’s perceptions of your total cost compared to the others.

Another way to help you and your team increase their financial justification skills is to save work copies of all buyer financial justification efforts so that future financial justification preparations become easier.

After all, we know you and your company can offer more value and lower risk to your buyers. Now the only question is…are you ready to get better, and willing to invest the time to practice and prepare, so you can quantify, prove, and win the sale even with a higher price?

Jim Pancero