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Selling Services When No One Has Money to Spend
By Todd YoungbloodMany successful service providers have found that a focus on sales, service design and development, finance, service delivery and quality assurance is fundamental. Spend a day thinking about each of these aspects and how you can improve your service business. Here are some comments to help jump-start your thinking.
Monday – Sales
Services sales reps need different skills from product sales reps, and the ability to quickly segment prospects according to their likelihood to buy is foremost. Using a 2 X 2 matrix to map prospects into four quadrants according to “Propensity to Pay For Services” versus “Value Perception.”
With a few simple, direct questions, a prospect’s service buying history can be determined. A customer whose expectation is “service comes as part of the product price,” would rank low on the “Propensity” scale. If the customer typically expects services to be unbundled and priced separately, it would rank high. Similarly, if the account perceives value to flow strictly from a product or service itself, it would fall on the left side of the “Value Perception” scale. If the customer intends to leverage as much of your firm’s knowledge and capabilities as possible, it would fall to the right.
Clearly, those who land in the upper right quadrant are the best—and most demanding—services prospects. Those in the other quadrants should by no means be ignored, they just need to be treated differently. A “lower left” does not (and probably will not) think much about the value of service add-ons. With these prospects, stress features, functions and “pricing for the highly knowledgeable buyer without any fancy extras.”
An “upper left” does not care much about the business or technical nuances you bring to bear, but is willing to pay. For this customer, define your services very clearly and stick strictly to what you promised.
The “lower rights” are the toughest. They’re savvy and want to get all they can. With them, lay out a detailed business case and show them how to save money by doing some of the work themselves. The key point about prospect segmentation is to sell what they want. Wearing your “Partner” hat when talking to a “Bare Bones” prospect will frustrate you both. So will any other mismatch.
Services sales reps must also become highly skilled at understanding and working with processes and business process engineering. Unfortunately, this is something rarely taught in sales seminars. (See www.ypsgroup.com/spe.htm.) Detail on this is beyond our scope here, but almost anyone can execute “ABC Selling.”
ABC refers to activity-based costing. Train your reps to develop “before” and “after” cost scenarios. This begins with thinking through and writing down—in painful detail—each step the prospect must currently execute to achieve a given objective. Next, get an estimate of the time spent by the person who executes each step, along with what that person is paid. If multiple people are involved, do the multiplication and addition to determine the total “before” cost.
Next, do the same type of calculation for the “after” scenario, when the prospect is using your products or services. The result is an “ABC Analysis” that clearly shows how your solution is more cost effective. (Send an e-mail to info@ypsgroup.com requesting our basic ABC spreadsheet tool, and we’ll send you copy.)
Given that services usually are extremely complex and highly customized, a services sales rep also needs outstanding writing skills. Talk about something not commonly taught at sales seminars! A rep MUST be able to clearly and concisely write down exactly what service will be delivered at what price and when.
This document is the Statement of Work or SOW. It is the key document in a services deal. It lays out precisely what will get done, by whom, by when and according to what specifications. It must be read, understood and signed by both the customer decision maker and the responsible service provider executive before any work commences. Please read the above paragraph three times.
Here’s your TO DO… Make The Elements of Style by Strunk and White required reading. Many believe that it’s the best tutorial on writing ever written.
Tuesday – Service Design & Development
Be honest with yourself: You think you and your company can do more than you really can. All successful business people have the same attitude—it’s a requirement. If you’re not careful, though, in a services business it can kill you.
You need a tool to guide yourself and your team with a reality check. Again, a 2 X 2 matrix is a great help.
This time, the vertical scale shows how much of the responsibility for actually doing the work belongs to you. The horizontal scale shows how much of the management responsibility you carry to ensure that the work is done as specified, on time and on budget.
A pure consultant is a “Bottom Left,” providing nothing but knowledge. As you move upward in the matrix, knowledge is applied to actually accomplish the required tasks. As an “Upper Left,” however, you still do not worry about any of the management tasks.
The conductor of an orchestra is a great “Bottom Right” example. He or she is ultimately responsible for the quality of the performance, but plays not a single note.
“Upper Right” outsourcing is quite common today. Quite often it makes good economic sense to turn over total responsibility for an entire business process to an outside firm.
The farther “up and right” you go, the more money you can make. Along with the cash, however, comes more complexity and risk. As you design and develop services, use this matrix to keep your enthusiasm in check. Like it or not, you must evolve slowly. The best strategy is to slowly and carefully migrate your firm either up or right in the matrix, not in both directions at once.
Wednesday – Finance
It is very easy to underestimate the effort required to execute a service. It is very, very easy to assume that you will execute the service correctly the first time, every time. You’ll never need rework. You’ll never misunderstand the customer. The customer will never change his mind after you have started work. Right.
I’ll never forget a lesson I learned from one of my mentors. Although I had 15 years under my belt as a product sales guy, it was early in my services career and I had never even heard of ABC. I found a deal. I researched the heck out of it. I checked and re-checked the specs, the requirements and the skills needed. I had it priced to produce a 35 percent net margin.
I reviewed the proposal with my mentor, who said, “Excellent job. Don’t change a thing except for the price. Double it.” I was stunned (and insulted). But I doubled the price, delivered the proposal, won the deal and ultimately got only an 8.3 percent net margin.
A second point regarding finance: Value has absolutely nothing to do with what it costs you to deliver a service. Services are based on the knowledge required to execute a process. The value of knowledge varies immensely over time.
New knowledge can be worth a fortune. You would probably be willing to pay a safecracker $100,000 to open a vault that contains $1 million. What would you be willing to pay if you already knew the combination?
If relatively few people have the knowledge required to perform a service, a value-based pricing model should be used. That is, if a service will save the customer $1,000, it would be logical to pay $900 for it. Even if it only costs you $10 to provide the service, the customer is better off.
If, after a few years, a large number of people have picked up the knowledge to provide that same service, a cost-based pricing model will become necessary. At that point, you won’t make sales with anything more than a $13 or $14 price tag.
The trick to maintaining your profitability is to properly manage the transition from value-based to cost-based, or commodity, pricing. Move too quickly and you leave money on the table. Move too slowly and your competitors will outbid you and take the business.
“Gainsharing” is a very useful technique in this regard. Tell the customer—right up front—that while the initial price is $1,000, you intend to share the benefit of any efficiency improvements. Take $1 off the bill for every $2 you save. Set up regular checkpoint review meetings. Not only does that keep the price at a competitive level, it also provides additional opportunities to build customer relationships and discover new and additional opportunities.
Thursday – Service Delivery
Even if the designer/developers and finance folks are comfortable that a services deal will be profitable, the pricing job is not finished. Many times the designer of the service is not the same person who actually performs it. It is essential to have a “certification” step before setting the final price so that the “doer” has a chance to make sure that the designer didn’t miss anything.
This certification should consist of a “war room” meeting that includes Sales, Design, Finance and Service Delivery. The agenda should consist of a thorough review of the entire deal and a formal signoff by all parties that indicates, “we have thought of and included everything possible to ensure that we can both satisfy the customer and make a reasonable profit.” Only then should the deal be proposed to the customer.
As your company becomes more sophisticated at delivering services, delivery teams can be assembled from a greater number of sources. For example, you may be trying to win a contract to provide maintenance services for all of a prospect’s electrical equipment. You might discover that the customer is also looking for maintenance of hydraulic equipment and the conveyor system.
Even if the expertise of your employees is electrical-only, by forming alliances with a hydraulic contractor and a conveyor company you could provide a single-source solution. The customer reduces the number of vendors from three to one. That’s good. Your two partners don’t have to invest in a sales effort; you’re already in there. That’s good, too. You get a bigger deal and a piece of both the hydraulic and conveyor profits along with the electrical dollars. That’s even better.
The key is your SOW skill. Remember Statements of Work? It might make sense to read that paragraph a few more times.
You could object to this “general contracting” approach because it violates the “stick to your knitting” rule. If, however, the service you provide is getting more and more commoditized, you are driven closer to a cost-based pricing model and your margins will be shrinking. (NOTE: It is inevitable that services become more commodity-like as the knowledge required to execute them becomes more common.)
The ability to combine services from multiple providers into a single, integrated package delivered with high quality will become a core source of sustainable competitive advantage for a services company.
Friday – Quality Assurance
The objective of Quality Assurance is to drive the continuous improvement of every process in your company, especially for the “Monday through Thursday” processes just discussed. The key tasks are to set standards, measure and communicate.
QA is not about intrusive inspection. It’s about accountability. It is the leader’s responsibility to set the standards and establish a culture where consistently meeting those standards is expected. It must all be very objective and unambiguous. Here’s the target. Here’s how we measure it. Did you/we meet the target or not? If yes, there’s no need to talk about it further. If no, what was the ultimate cause of the problem and what will we do to prevent recurrence?
The “war room” concept mentioned earlier is an excellent vehicle for the communications part of QA. War rooms consist of regularly scheduled meetings where all key functions of the organization are present, reports are reviewed, problems and opportunities are discussed and decisions and commitments are made.
(For an excellent real-life example, read the “Accountability” chapter in Rudi Giuliani’s book Leadership.)
QA is really not difficult. It simply requires relentless persistence on the part of the company leader in pursing perfection.
One final note… Since knowledge is the foundation of services and the source of their value, gathering and creating it is the most important process. Every individual in your company must be committed to learn, learn, learn!!!
That’s it! Nothing to it! Well, not really. Clearly, there is a lot more to sustaining growth and profitability from services. By keeping this “handful” of sub-processes in mind, however, along with a methodical customer focus, you can stay a step or two ahead of the competition.
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