The Power Of A Guarantee In Driving B2B Revenue

2
72 views

Share on LinkedIn

To guarantee or not to guarantee, that is the question. In my experience, the benefits of a performance guarantee usually outweigh the disadvantages. A guarantee promises a measurable improvement for a client — for example, the amount of cost savings or increase in B2B revenue that will be achieved by using your product or service. A B2B guarantee also indicates the penalty for non-performance.

Here are six benefits of offering a guarantee:

1. Boosts Revenue: This is the primary reason companies offer a guarantee. Many companies find that a guarantee is often a great way to achieve more B2B revenue because it minimizes purchase risk.

2. Shortens The Sales Cycle: A strong guarantee can be a great way to remove one of the final barriers to purchase.

3. Increases Buyer Confidence: Buyers are wary, especially if they don’t have a track record with you. A solid guarantee can be the difference between getting the order or ceding it to someone else.

4. Provides Competitive Differentiation: It’s simple: If all other things are equal (product quality, pricing, terms, etc.) and you offer a guarantee while your competitors do not, you will likely gain market share.

5. Improves Price Points: You want not only to produce more revenue but to be as profitable as possible as well. A guarantee can help you to accomplish this since your B2B buyer may be willing to pay a higher price to purchase a product or service that comes with reduced downside risk.

6. Forces You To Hone Your Skills: When you’re promising to deliver a certain level of performance to your clients, it forces you to focus on delivering measurable results. This is especially important if you’re in an industry where you’re compensated based on output instead of simply time and effort.

There are two major reasons why you would not want to offer a guarantee:

You are not sure your products and services can live up to your marketing promise. For example, your promotions talk about how your software can improve worker productivity by 20% but because you have your own doubts or because performance depends too much on what the client does (or doesn’t do), you are afraid to guarantee anything.

You believe customers will take advantage. The stronger the guarantee, the more bad customers it can attract. An overly lenient guarantee can get you in trouble, as evidenced by department store Nordstrom, which, until early 2017, had a policy of taking back any item, with or without a receipt, no matter when it was purchased or how it had been used. While this generous guarantee was no doubt an excellent marketing tool, the company had to tighten its policy to reduce the $2 billion in annual fraud costs, as reported by the National Retail Federation.

And while the problem is not trivial, the increase in revenue almost always outpaces any costs of the guarantee program. In our agency, regardless of whether we refer to these as performance guarantees or service-level agreements, we have never had a client implement such a program that did not have a positive impact.

Although it is more prevalent in the B2C world, B2B companies have also suffered from buyer fraud. You need to make sure you have the proper structure in place to protect you from those that would take advantage, and be very precise about the terms and conditions of your guarantee.

Make sure your guarantee is compelling but not so open-ended as to invite abuse. If you are a professional services provider, you can structure the guarantee in such a way that you will provide additional services until satisfaction is received in lieu of financial reimbursement.

Tips For Developing A More Effective B2B Guarantee Program

 Be bold in your claims but be prepared to back them up. As Peter Drucker stated, “Unless commitment is made, there are only promises and hopes … but no plans.” Your guarantee is your commitment.

 Use keywords. Use trust-inducing words in your copy like “warranted,” “guaranteed,” “endorsed,” “authentic,” “validated,” “verified,” “risk-free,” “certified,” “registered” and “accurate.”

 Make sure your client/customer has sufficient skin in the game. If you are selling a product, you can require that the product has been tested/used a certain amount. If you are selling a service, you can require the client to hold up their end of the bargain by completing certain assignments. If you are a training company, you can require participants to attend the entire program.

 Honor your B2B guarantee. In the world of instant cyber communication, the last thing you want is for a frustrated client to go online and share the news about how you did not live up to the terms of your guarantee. The short-term pain you receive by not paying off on the guarantee is not worth the long-term pain from the bad publicity.

 It doesn’t hurt to differentiate your guarantee from the competition. One recruiting firm did this by increasing the warranty on its candidate placements from the typical 90 days to six months. In return, the company has been able to increase its fee by 5%. This is an example of the creative use of an industry-standard guarantee.

Offering your prospects and customers a performance guarantee will set you apart from your competition and drive more B2B revenue. Living up to that guarantee will make you a better company.

Note: this article first appeared at Forbes.com May 16, 2018.

2 COMMENTS

  1. Hi Chris – All guarantees signify risk sharing between buyers and sellers, but what you are talking about here is a performance or outcome guarantee, which is a much different animal from conventional guarantees that certify a product is free from quality, material, manufacturing, or construction defects. From what you have written, it sounds like performance guarantees have been successful for you and your clients, and if they are working for you, by all means, keep using them.

    But they are fraught with risk for vendors. My advice to any company considering a performance guarantee offer: do so only when the risk deck is highly stacked in your favor, and even then, only when your accountant and lawyer have constricted the contract wording so tightly that it screams for oxygen. You are absolutely right that customers will take advantage. If you guarantee that your product will deliver X% revenue increase – an extremely risky proposition – then your contract should include voluminous caveats, conditions, and disclaimers. Otherwise, you will get fleeced. This is because unlike defect or quality guarantees, performance guarantees abdicate much – sometimes all – of the control to the client. No vendor should overlook that reality, and the concomitant risks. And if you don’t have the capacity for those risks, then performance guarantees don’t belong in your sales toolbox. Hard stop.

    One software company I sold for offered a money-back guarantee: “If you don’t like our software for any reason in the first 12 months, we’ll take it back and refund your money.” The context matters: the software was enterprise-level and had a base selling price of around $100K per installation. As the national sales rep, I can attest that customers appreciated the guarantee, and it lubricated the sale of many licenses. But it was a bit of guarantee-smoke-and-mirrors. When a customer buys an ERP system, they have usually invested a substantial amount in hardware, training, and services. Not to mention the fact that the decision makers are so vested in their choice that from a pragmatic level, “returning” our product would be tantamount to an admission that they completely screwed up. Even when the initial implementation got rocky (which it always did), no customer would ever do that, and as the vendor, we knew that fact better than our customers. The guarantee appeared to be risk-reducing to the customer, but rest assured, there was no magnanimity on my company’s part. The chances of being asked to take back the software was infinitesimal.

    Use performance guarantees in the rarest of circumstances, and never, if you can’t sustain the risk.

  2. Andrew, appreciate your comments. It is very important to mitigate the inherent risks in offering a guarantee – particularly when it comes to things you don’t have complete control over – like an increase in the client’s revenue. Your example of the enterprise software company is a good one. It helps when the product or service you are selling is so sticky that a client is not going to go through the trouble to switch vendors just to take advantage. Having once been in the ERP industry myself, I can recall lots of what you call rocky implementations, but very few times when the contract was cancelled.

LEAVE A REPLY

Please enter your comment!
Please enter your name here