Business leaders face perplexing decisions brought on by the pandemic and its effects on the economy. Choices on where to invest resources are complicated. While select economies are reopening, states and countries face increasing daily case counts and a potential resurgence later this year.
This uncertainty should cause sellers to reconsider their conversations with buyers. Although sellers might not hear the word “risk” from buyers, it’s on the mind of today’s financial decision makers. Many companies are in “cash preservation mode” until there is more confidence in what the future holds. As a result, buyers are likely to be skeptical of seller promises of future value.
Buyers can solve this dilemma by proactively addressing this skeptical mindset. Consider the two elements of risk that are best tackled by a value selling program: time and outcomes.
The Time Element of Risk
When companies are in “cash preservation mode,” the most important financial metric is payback period. This answers the question, “How long before I get my money back?” Payback period, which is sometimes referred to as the breakeven point, is usually expressed in months. It is the point in time when a company recoups its cash outlay for a particular investment.
Payback period is a useful measure of risk. The shorter the payback period, the shorter the window of time during which something can go wrong causing the company to lose money on its chosen investment. All things being equal, projects with a shorter payback period will get funded before those with a longer payback period, especially in today’s environment.
The Outcomes Element of Risk
This aspect of risk deals with the failure of the projected benefits to materialize. On the surface, a $1 million investment projected to deliver $5 million in cost savings over three years might look like a sound investment. But current circumstances have executives wondering whether they will get the full value of the cost savings if something unforeseen happens.
There are three strategies sellers can take, alone or in combination, to actively manage this understandable concern.
Use conservative projections when estimating cost savings or revenue growth. Project sponsors will be wary of excessive benefit claims and sellers needs their support when the business case is evaluated by internal approvers. The chances of closing a deal are slim if the project sponsor does not believe in the business case.
Prepare a worst-case scenario as an alternative estimation. Even if sellers conservatively calculate the solution’s value, preparing a worst-case scenario shows evaluators and approvers what the downside might look like. When financial justification can withstand scrutiny at this level, it improves the chances of closing the deal.
Present a full inventory of benefits. Sellers can improve their solution’s business case by comprehensively evaluating the buyer’s problems and quantifying the value of solving each problem. In the buyer’s mind, benefits beyond the core benefits or largest value drivers can cushion the impact of possible shortfalls.
Uncertainty about future business conditions is giving buyers pause. To sell successfully in these circumstances, sellers should adjust how they approach their sales process and focus on buyers’ big-picture concerns. When business cases reflect the buyers’ need to mitigate risk, the chances of closing deals improves.
Connect with David Svigel on LinkedIn.
Visit the ROI Selling Resource Center.