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Building a business case to defend price
 

Building a business case to defend price

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The business case and buying decision ...

The business case and buying decision

It’s a great feeling! You can see that the client really gets
it. They are doing sums in their head and there’s a small
smile on their lips and a light in their eyes. It’s not just
that they like your solution. That’s important, but it’s not
enough. It is that they have worked out what it can do for
them and they’ve seen how they can get approval.

In short they’ve seen the business case!

Yet all too often we leave the business case to chance or
expect the customer themselves to do the work.

Why does the business case matter?

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    Building a business case to defend price Building a business case to defend price Document Transcript

    • Using business cases to defend price A Mercuri International White Paper The business case and buying decision It’s a great feeling! You can see that the client really gets it. They are doing sums in their head and there’s a small smile on their lips and a light in their eyes. It’s not just that they like your solution. That’s important, but it’s not enough. It is that they have worked out what it can do for them and they’ve seen how they can get approval. In short they’ve seen the business case! Yet all too often we leave the business case to chance or expect the customer themselves to do the work. Why does the business case matter? Building a business case matters to the customer. It matters to you. It matters to the individual decision maker. This matters to you because you need to differentiate. Many of us are having to work in an increasingly commoditised marketplace. Indeed many procurement systems seem designed to remove differentiators and make your offering seem bland and homogenous. Your business case can make it clear to your customer what makes you stand out. This matters to your customer because it demonstrates that you are on their agenda; that their business will benefit; that the risk www.mercuri.net For more information contact: Richard Higham Tel: +44 1932 844855 or Richard-higham@mercuri.co.uk of working with you will be offset by the ensuing rewards. This matters to your individual decision maker because now they can see how they are going to be able to steer your offer (that they really want) through the complexities of budget, procurement and legal processes. In short the business case you build is important to everyone. It’s the key that unlocks the decision making process and the keyhole through which people can see the benefits that your offer could bring. Why does the business case matter? A business case is based on a set of assumptions. These assumptions need to be both credible and coherent. The customer needs to accept the underlying assumptions on which your case is built so they need to be well founded on the facts; and on the facts as the customer perceives them. business case based on the assumption that there was a 20% problem and that the firm must want to address that would be deeply flawed. The business case also needs to be based on a number of components. These could include typical transaction value; frequency of orders; average annual customer spend; normal profitability; productivity per individual; time-lag from offer to order; waste per unit; road ton mile – the list is endless but you need to be clear which components you should be using in your business case.
    • Winning growing and keeping clients The one component you always need is a timescale over which you are going to express ROI. The third element of your business case is the brokendown costs of your offer. These could be expressed as lifetime cost or as purchase cost. The final aspect is the anticipated benefit. Here you will demonstrate the impact of your offer on their business in terms of the components of the case. You will need to be able to prove these likely benefits by referring either to actual cases or to hypothetical situations. These impacts need to be strong enough to impress but conservative enough to be credible. Page 2 (4) Let us imagine that your solution has the capability to reduce this cost of sale to $700. You know there are currently 100 transactions a month and these are growing at a rate of 5% a year but even so you propose basing your calculations on 1,000 orders a year “to be on the safe side”.. You are therefore looking at a saving of $300,000 in the first year. Your offer involves a figure of $100,000 so the client can expect a 3:1 payback. But a few further steps are required to build the business case. What is their current required internal rate of return to justify investment in a project? Find this out and you can strengthen your position. How to build a business case How is profit calculated? The starting point is information gathering. You need to have a deep and broad understanding of the customer’s situation; their mindset; their aspirations and concerns. Your questioning and listening skills need to be in peak state. You will probably need to ask different questions and to cover different ground. You may need to be intrusive in your questioning and your customer may be surprised by what you are asking. So you need to be sure to motivate their openness by explaining your purpose and process and engaging your customer in the shared process of building a business case. Once the data has been gathered. The case needs to be built. The key here is to use conservative figures that will allow the customer to accept your premise without difficulty. So, if you have discovered that the average transaction is $7,300 but that a third of orders are under $2000 you might like to build a case based on a “typical;” order value of $3000. If the customer objects “oh no – our order value is much higher than that” then you are able to counter with “yes but let’s be conservative.” This will reassure your talking partner but will also ensure other parties not in the room are also satisfied. You now work through a range of further figures such as current conversion ratios, number of transactions per employee and gross profit etc. From this you might calculate the cost of each successful transaction – let us say it is $1,000. www.mercuri.net For more information contact: Richard Higham Tel: +44 1932 844855 richard-higham@mercuri.co.uk What is the personal/corporate impact of improved profitability e.g. the subsidiary retains all EBIT above 11% which has to be paid to Group or profit above x% activates a ratchet increasing the equity share of the management team. Timescale: At 100 orders a month showing a saving of $300 each our solution will generate a saving of $30,000 a month. It will therefore take just over 3 months to fund the project from savings. With 6 months left in the financial year your client can be very confident of not only covering the cost of the project but of generating $80,000 ROI. Now the question needs to move to proof. This could be from a named client with hard figures. It could be an endorsement from a client. It could be an anecdotal case study. It could be a number of case studies all showing similar or greater savings. Throughout these discussion you need to come across as confident but not arrogant, transparent and not manipulative, co-operative and not confrontational.
    • Winning growing and keeping clients Top tips for business case 1. Make sure the customer engages with you cooperatively in building the case 2. Ask good questions to get at the detail you need 3. Get help from your own experts where appropriate 4. Always be conservative with your figures 5. Constantly check your assumptions about figures, timescales and perceptions 6. Understand how profitability works in your client 7. Use the business case to help your decision makers make the case for your solution 8. Be calm, confident and co-operative throughout 9. Back up your claims with proofs 10. Be willing to offer risk/reward sharing where appropriate Conclusions Building a business case is an essential weapon in the professional seller’s armoury. At worst it will make the sale easier as you help the decision makers’ job easier. At best it will enable you win innovative business for which no budget exists or permit you to differentiate yourself clearly from your competitors. A robust business case moves you from being seen as a product-pushing supplier to a valued contributor to the client’s success. Richard Higham Global Practice Leader Financial & Professional Services Mercuri International www.mercuri.net For more information contact: Richard Higham Tel: +44 1932 844855 richard-higham@mercuri.co.uk Page 3 (4)