Value Based Selling (And Why It Matters)
Scaling in a B2B or B2B2C context requires a method to crystallize and capture value with clients through benefiting directly from their success as a function of your product set or service.
See here for Part 1 of my enterprise sales lessons series illustrating the lessons learnt from scaling a tech business to IPO, here for Part 2 on hiring your first strategic sales leader and here for Part 3 on the emotional aspects of strategic sales.
A strong focus on sales strategy and operational execution, including tying together actions taken by other functional areas such as marketing, product and customer success to support the entire enterprise sales effort involves a strong focus on connecting pricing structures to the amount of value that was being generated for clients.
At its simplest, value based selling involves trying to determine how much monetary value your solution ultimately drives for your prospect and then creating a pricing structure that reflects that.
Without a value based pricing approach, you are usually left with the following options, none of which are ideal:
Simply trying to match competitor pricing or undercutting them.
Applying a cost plus margin model
Why aren’t they ideal? Because usually with software / internet based business models, your initial cost of creation is high whereas your marginal cost of delivery is typically much lower. Trying to apply a total cost plus margin approach instantly removes your flexibility to scale with future customer cohorts. Similarly, this gives competitors wide latitude to price - what they may be doing might be economically wrong but you will be compelled to compete with them, which leaves revenue and margin on the table.
There are two aspects to creating value, reducing cost and increasing revenues. Each has its own subtleties that need to be considered. With both Issufy and MoneyHero Group, I considered both when doing strategic sales - there are nuances associated with both (read on to find out!).
If you are interested in collaborating directly with me to you prioritize to grow REVENUES please…
Revenue
Personally, I think the most powerful way to maximise the value of a commercial partnership is to unlock additional revenue streams for your prospects and clients. This involves spending time qualifying:
The number and type of additional customers you can deliver
The additional $ value that you can deliver to existing customers
The incremental ROI associated with both aspects, taking into particular consideration the upfront cost of purchasing and implementing the solution, along with any further maintenance requirements
Why are incremental revenue gains often a more potent driver of signing bigger and stickier contracts compared to cost savings?
The equity valuation increase associated with stronger and more diversified revenue growth is often multiples of the incremental revenue being generated
For a senior P&L owner (the most likely economic buyer), there is often a bigger personal and professional imperative to finding new ways to increase and diversify revenue sources as compared to reducing costs.
There's naturally a lower bound to cost savings whereas there's a lot more scope to keep increasing revenues. Also, as new revenue sources are found, that often leads to more adjacencies being discovered, leading to yet more revenue.
With MoneyHero, we made a concerted effort to drill down into the total revenue benefit that each customer the company delivered to its client provided, including modelling out the potential LTV of that customer to the financial services partner, the potential quality of the customer cohorts that were being delivered and the key drivers of quality. We made it a point to thoroughly understand all the issues that would prevent clients from putting more money to work behind customer acquisition and systematically resolved them to open up budgets as far as possible.
Costs
The most obvious way to qualify costs is direct costs. These are hard $ savings that come as a result of your product or solution. Usually they come from either a reduction in staff costs or a reduction in the total cost of ownership of competing technology products. Some of the main points to bear in mind here:
A pitch based on reduction of staff costs is usually more difficult compared to a pitch based on a reduction of technology costs. Staff costs can become a major political issue as often, the power of someone’s department is based on the total number of people that they command. Staff based cost savings can be achieved but that is usually based on a longer time frame.
Total cost of ownership calculations need to take into account every aspect of what cost saving means. For example, for a client to deploy your solution may need a certain level of customization, professional services for integrating into an existing solution stack, training users, administration support etc. All of this should be factored in and a line by line comparison done against competing solutions. Don’t underestimate the extent to which your competition will have done this against you!
In practice, if cost reductions are the main benefits your solution is delivering then it really needs to be 5-10x better than the alternative otherwise, hidden costs such as organizational inertia, the internal pain of managing a transformation and so forth will become blockers.
Without a value based selling approach, you can never be considered a partner - you will always remain a vendor and those high $ value deals will always remain out of reach.
If you are interested in collaborating directly with me to you prioritize to grow REVENUES please…