It’s no secret that problems cost money. Yet, too often, customers and salespeople focus on the cost of a proposed solution. The most critical cost, the cost of the problem, is often overlooked. This remains the best kept secret in the selling
The cost of a problem is the financial impact this situation has on your customer’s business due to the absence of the value your solution could bring to them. It includes the cost of staying the same and the cost of the pain of changing. When customers do not have a clear picture of these two cost groups, the timing and quality of their decision will be relegated to guesswork.
Sales professionals frequently ask two questions: “How can I speed up the sales cycle?” and “How can I protect my pricing from last minute negotiating pressures?" It’s amazing what happens to timetables and priorities once the customer truly understands the cost of his or her problem. How the “cost-of-the-problem” concept works:
One of our clients provides management software to hospitals. They proposed a $700,000 solution to a hospital in August. The hospital had placed it into next year’s first quarter budget. This was accomplished without determining the cost of the problem that this software could resolve. The decision to purchase the system was driven by the desire for the latest technology. We soon learned the purchase was delayed to second quarter and then to the following year.
When the second delay was announced, our client requested a meeting with the hospital’s CFO. The purpose: to determine if the CFO knew the cost implications of delaying the system until the following year. (Our client had just begun to work with the cost-of-the-problem concept.) The question asked was: “We understand there are financial considerations that have led to a decision to delay the new software system into next year. We will be pleased to work with you when you decide the timing is right. But we are wondering if you are comfortable with the financial impact the delay will have on your reimbursement revenues.”
The CFO asked the salesperson what he felt that impact was. The salesperson replied that in the rush to get the project into the budget, it had not been calculated specifically. He asked if the CFO would like to work with him to put together the numbers, which would allow the CFO to judge if the delay was the correct course of action. The CFO agreed and they met the following week.
During that meeting, using formulas suggested by our client, the cost of the problem was calculated to be about $220,000 lost revenue per month. The financial impact of delaying the decision was significantly more than the impact of the alternative project. Needless to say, priorities were changed and the hospital requested that the new system be installed within 90 days. What happens once you know the cost of the problem?
Once you have diagnosed a customer's situation and defined the financial impact on their business, there are three possible outcomes:
- The financial impact may be large enough to justify the investment; you move forward and do business.
- The financial impact is not as great as other issues the customer is facing; you determine when it will move to the top of the list.
- The financial impact is not enough to justify your solution; you may have to scale back your proposed solution or it may be more lucrative to find a greater opportunity elsewhere.
The primary question for most customers is: “Why should I invest my limited resources in your solution?” If the only way you can answer that question is by talking about the features and the value of your solution, you will not answer the customer's concerns. You must help your customer understand what it costs NOT to own your solution. Ignoring the cost of the problem can be fatal:
This situation creates two critical errors in the seller’s judgment:
- The salesperson assumes that the client knows the cost of the problem and will use it in the decision-making process.
- The salesperson assumes that the prospective client has the ability to do a proper self-diagnosis of the problem.
Even if both of these assumptions are correct, the greatest error made by the salesperson is the failure to receive and verify the necessary information from the customer. But keep in mind: the customer does not go through the justification process on a regular basis and so will not be as thorough as you can be. As a trained professional, you have the ability to harness the resources of your company, along with your client’s information, to enhance the quality of the decision process.