If you are a sales professional, you have probably spent a good deal of time communicating the financial value of your solution: the so-called value proposition. Your company’s marketing department has probably spent a good deal of time crafting it for maximum audience impact. And your company executives probably have spent a good deal of time traveling around the world repeating it to anyone who will listen. It might even appear in an advertising campaign or in your company’s annual report.
Chances are your value proposition is structured as one simple financial message suitable for all customer audiences. It’s easy to understand, easy to articulate, and universal in appeal; it’s a beautiful elegant work of prose. Your competitors repeat a similar mantra, but your company is well-respected and known to deliver on its promises. Right?
We Are the Only Provider Who Can Help You REDUCE COSTS …
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In its basic form, there’s a good chance your value proposition sounds something like this: “Our solutions will help you improve productivity, increase efficiency, and REDUCE COSTS.” In its advanced form, it will pinpoint the actual cost bucket where the expense reduction will occur and provide an estimate of magnitude. For maximum impact, the sales professional might even repeat it in a louder tone of voice.
So why aren’t buy-side executives jumping up and down? Why aren’t they showing more emotion? Why aren’t they thanking you for your unsolicited efforts to improve their profitability? Why do they suggest that you speak to purchasing? Wait a minute. Cost reduction is surely on the executive radar screen, isn’t it? Who wouldn’t want to reduce costs and increase profits?
Contrary to Conventional Sales Wisdom, “Cost Reduction” Value Propositions Are NOT Exciting to Buy-Side Decision-Makers
By themselves, they don’t move the needle. They don’t guarantee executive sponsorship. A stand-alone ‘cost reduction’ value proposition is the wrong message for the right audience.
If I had nickel for every time I heard a sales person say “our solution will help you REDUCE COSTS”, I would be rich. Who doesn’t say that? When was the last time you heard a sales person say “our solution will actually increase your costs”?
Most companies specialize in continuous cost reduction every day, every week, every year. They have large organizations completely dedicated to the proposition that expenses can be (and should be) reduced by 5% to 10% or more every year. ‘Cost reduction’ is a responsibility delegated deep down into the organization. It’s the daily responsibility of many, but it’s not an ongoing executive priority.
Sure, there will be exceptions. A few companies may have a singular focus on cost reduction as a matter of economic survival. But are these the kind of companies you want to target for an executive sales campaign? Will they be around to pay for your solution? Do you think price negotiation will be fun?
“REV” It Up!!!
My best advice: rev up your value proposition to get on the radar screen of a customer executive. “Rev”, as in revenue growth (also known as ‘turnover’ in Europe and other parts of the world,) is the number one priority for most buy-side executives particularly in this economic environment. It’s the engine that sustains an organization since profitable revenue growth creates operating cash flow.
For most companies, organic revenue growth (without the aid of acquisition accounting) is hard to achieve, let alone sustain over long periods of time. (Full disclosure: I worked for Rubbermaid Incorporated that delivered more than 50 consecutive quarters – over 12 years – of organic revenue growth. This reputation for consistent revenue growth helped Rubbermaid achieve its ranking as America’s Most Admired Company according to Fortune magazine’s annual survey.)
Revenue growth is the number one priority of most executives and what really keeps them up at night. Don’t believe me? Look at your own company. Is revenue growth a top priority for your executives? Is cross-selling a priority? How about time-to-market for new products and services? International expansion? Perhaps reducing price discounting, or if you’re lucky, raising prices?
Still Don’t Believe Me? Here Is Some More Evidence.
Let me provide some additional evidence to support my point of view that revenue growth is the top business priority for most executives.
For several years now, Frost & Sullivan has released its annual CEO survey. The top issue consistently emerging from these surveys shows that CEOs are no longer struggling with cost reductions but are instead focusing on increasing revenue. Not surprising when you consider that the companies that make up the Dow Jones Industrial average in the U.S. are relying on financial engineering and share buyback programs, in the absence of profitable revenue growth, to spike their EPS growth.
A few years ago, Deloitte Consulting conducted a survey of 200 financial services industry executives entitled Positioning for a New Financial Landscape. The executives were asked “What performance aspects of your business do you think have experienced the most long-term damage from the financial crisis and economic downturn?” The number one answer by a large margin was “less ability to generate top line revenue”.
And this “focus on REVENUE growth” even goes back to 2010, when on CNBC, Mohamed El-Erian, the then-CEO of Pimco, the world’s largest bond fund, stated that investors are dissatisfied with earnings because companies are showing strong bottom lines, but not enough growth in revenue. “The market is giving you a very clear signal. It’s saying ‘Let’s focus on top-line revenue. It’s not enough to focus on the bottom line because we don’t want to see one-off cost containment … we want to see top-line revenue growth because we want to see sustainable earnings’.”
Before We Go Any Further, Let’s Define the Term “Revenue”
‘Reported revenue’ is generally considered the appropriate proxy for ‘revenue’. ‘Reported revenue’ is the top line in an income statement and is often times referred to as ‘net revenue’ on the face of this financial statement. Even if the income statement simply states ‘revenue’ at the top, it is considered ‘net revenue’ by definition according to the accounting Gods.
‘Net revenue’ is defined as ‘gross revenue’ minus product returns and discounts & allowances. In some industries, rebates and promotions (forms of ‘push’ marketing) are also deducted from ‘gross revenues’.
How do you know if your solution favorably impacts ‘net revenue’? If you can articulate a link between your solution and any of the items on this partial check list, you have offered your customer a ‘revenue growth’ value proposition worthy of executive attention!
- Increase number of units sold
- Increase price per unit sold (or decrease discount per unit sold)
- Reduce product returns and allowances
- Increase promotional effectiveness (more sales with less promotion expense)
- Expand into new markets (including global growth), new channels, new customers
- Accelerate new product introductions and time-to-market
- Expand revenue base through acquisitions and alliances
- Up-sell and cross-sell more products and services to existing customers
- Improve revenue mix (sell more products with higher price points)
- For banks, increase interest income
- For banks, decrease interest expense
- For banks, increase noninterest income (especially fee income)
Growing Revenues (NOT Reducing Costs) Is Why an Executive Might Want to Talk to You
Don’t let your competitors beat you to the revenue growth messaging. Now is the time to analyze your value propositions. Review your solution success story testimonials. How many solutions help your customers grow ‘net revenue’? For those value propositions that refer only to ‘cost reduction’ benefits, make sure you aren’t overlooking any connection to the top line. Get marketing involved and reassess your solution messaging. And, at your next executive briefing, don’t forget to kick-off the event with a discussion around how you can help them grow revenues.
The Pressure to Perform Is Immense for Executives
At the executive level, the pressure to produce excellent financial performance is immense. Sales people should take advantage of that fact. Solutions that help customers generate revenues should be elevated in all conversations with buy-side executives. Cost reduction messaging should be demoted or relegated to lower levels in the customer organization.
Now is the time to ‘REV’ up your value propositions to get on the radar screen of customer executives. Don’t miss the opportunity.
- Why is revenue growth declining?
- How can you help your customers with this important KPI?