Many deals are lost to competitors or labeled “No Decision” because the sales team didn’t fully understand and properly respond to the buyer’s evaluation criteria. The criteria I’m suggesting is what the buyer is comparing your offer against.
Buyers evaluate deals from one of two perspectives:
Against the status quo. I call this the “Do Nothing” comparison because buyers are either going to purchase a new solution or continue with their current environment (i.e., do nothing).
Against a competitor’s solution or another alternative such as an internal solution. This is the “Do Something” scenario because buyers have decided to act but are unsure about how to best address their business problems.
Sales must first understand which comparison buyers are making before crafting the appropriate strategy for each.
Scenario #1 – “Do Nothing”
Buyers aware of their problems and who are invested enough to seek a solution can become customers. If they, however, fail to see the financial benefit of solving those problems, they will opt to stay with the status quo, and the deal will be lost to no decision.
This situation requires an ROI analysis, which estimates the cost savings and/or revenue gains that the solution can deliver to each buyer. The analysis also considers the required investment to solve the buyer’s problems. It’s best for sales to take the lead in creating this financial justification. If left to buyers to create on their own, not only does the resulting business case often miss various benefits but sales forgoes an opportunity to add value to the buying process.
A business case not only illustrates a solution’s net value to buyers, but also helps the offer stand out against other internal investment options. For example, a CFO evaluating an investment in a talent management system having a strong business case associated with it, in contrast to a business intelligence platform with ill-defined financial returns, is likely to write the check for the former.
Scenario #2 – “Do Something”
Buyers aware of alternatives to solve their problems are trying to make the right financial decision. They know they need to do something to fix their problems so they compare vendors and research DIY solution options.
A total cost of ownership (TCO) analysis, which compares the lifetime net value of each alternative, can facilitate buyers’ evaluations. Again, sales should take the lead helping buyers with this analysis for one important reason: “lifetime net value” and “lifecycle costs” are not the same thing.
Lifecycle costs such as deployment time, maintenance expense and energy consumption are important but not the only considerations in a proper TCO analysis. Left to make their own ROI calculations, buyers often subtract the lifecycle costs from the selling price or internal development costs to see which alternative comes out the winner.
Lifetime net value though, also considers other cost savings and/or revenue improvements enabled by each alternative. With the proper TCO tools, sales can show buyers additional solution benefits and how that affects the projected financial outcome. Oftentimes, these incremental benefits more than overcome any perception of a “lower TCO alternative.”
Understanding buyers’ potential alternatives (e.g., staying with the status quo, buying from a competitor, or developing an in-house solution) is critical to setting sales on the right path. In general, if a solution is unique or disruptive, an ROI analysis is the right direction. If buyers indicate they are considering other vendors or internal options, a TCO analysis is appropriate. Having the insight into to make that determination will improve your results.