Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Why Partners Who Charge for Technical Assessments Have Higher Growth and Profit

217 views

Published on

Fortinet Channel and Partner Enablement

Published in: Technology
  • Be the first to comment

  • Be the first to like this

Why Partners Who Charge for Technical Assessments Have Higher Growth and Profit

  1. 1. www.service-leadership.com WHITE PAPER Total Profit Solutions for IT Companies™ Why Partners Who Charge for Technical Assessments Have Higher Growth and Profit
  2. 2. © 2017 All Rights Reserved – Licensed Material – Page 2 Table of Contents Context.................................................................................................................................................................2 How High Performing Partners Position Technical Assessments..................................................2 Why Charging for Assessments Results in Higher Performance for Solution Providers......3 What is a High Value Customer?............................................................................................................3 The Typical Pre-Sales Process..................................................................................................................4 Creating an Advantageous Exception..................................................................................................4 Starting Off on the Wrong Foot .............................................................................................................6 Maximizing Win/Win Outcomes ............................................................................................................6 The Operational Maturity Levels of Charging for Technical Assessments.............................7 How Low Performers Position Assessments..........................................................................................8 OML Progression Considerations ..............................................................................................................9 Context The Service Leadership Index® shows that, in each of the ten partner Predominant Business Models© , those in the top quartile of bottom line profit1 , earn about 2.5 times higher profit percent than those at Median profitability for the same business model. They also grow about 40% faster. This higher financial performance is unrelated to the size, location or age of the partner, and it is also unrelated to choice of vendors or customer segments. It is positively correlated to management skill, which we call Operational Maturity Level© . A key aspect of Operational Maturity Level is how the partner approaches doing the necessary technical assessment to produce a scope of work (SOW) and bill of materials (BOM or list of needed hardware and software), to deliver a given solution to the customer. How High Performing Partners Position Technical Assessments Solution Providers in the top quartile of financial performance, most often charge the 1 To be specific, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization or “Adjusted EBITDA”.
  3. 3. © 2017 All Rights Reserved – Licensed Material – Page 3 customer for these technical assessments, even if the customer is a new one. Low performing Solution Providers most often do not charge for technical assessments, whether for new or existing customers. Solution Providers who charge for technical assessments are able to perform high quality assessments for most or all of their engagements, which results in significant benefits to the Solution Provider and the customer: • Better identification and expression of the business value drivers sought by the customer, and of additional value drivers not yet perceived by the customer, • Higher value services and solutions (i.e. bigger, richer deals) being delivered with lower labor cost and fewer errors, • With higher quality (on-time, on-specification, on-budget) delivery and, as a result, • With higher customer satisfaction which results in faster revenue growth. In addition, charging for the technical assessment: • Helps the Solution Provider learn to positively differentiate itself earlier in the sales process, and • More often provides them access to higher-level decision makers in the most desirable customers. In these ways, high performing Solution Providers drive more deals towards higher value add, improving their financial results. Why Charging for Assessments Results in Higher Performance for Solution Providers High performing Solution Providers use an array of methods to attract, qualify, differentiate themselves with, influence, and close, high value customers. What is a High Value Customer? High value customers are specifically those who are seeking a premium solution to their business needs, and who seek to mitigate the risk that the implementation of that solution will fall short of expectations. For the Solution Provider, this means a customer who will pay a win/win price for a full, rich solution. At any given time, and for any given geography and customer segment (size or vertical),
  4. 4. © 2017 All Rights Reserved – Licensed Material – Page 4 about 25% of customer decision makers are seeking to address a business need in this way; they are high value prospects. The top performing Solution Providers, regardless of business model, deliberately seek out these prospects, at the expense of seeking out run-of-the-mill prospects. Even though there are fewer of them, the bottom line and growth impact are material: • Greater profit and greater value delivered result in greater reinvestment and greater differentiation in the marketplace. By refining their sales (including pre-sales) process to qualify for, appeal to, and win these high value prospects, the Solution Provider increases their financial performance. A key way they do this, is to charge for technical assessments, a step that lower- performing Solution Providers perform most often at no cost. The Typical Pre-Sales Process Because many Solution Providers struggle to generate leads at the C-level, they often first enter prospect accounts at lower levels. Typically, then, they seek to differentiate themselves by introducing their pre-sales engineers (sometimes called Solution Architects or other more formal names). This is the correct step: the role of the pre-sale engineer is to, as quickly as possible, determine the right solution for the customer (including needed services and bill of materials) in the form of an assessment, and to impress the customer, with the hopes of differentiating the Solution Provider. In winning the high value prospect, this approach generally fails. Because the Solution Provider is calling too low in the account, while the pre-sale engineer may succeed at these tasks, it is unlikely that success alone will produce the desired differentiation. The most common outcome is the prospect saying, “Thanks for involving your great pre-sales engineer; they really helped out.” This is nice, but not enough to influence the decision-making process in their favor, simply because they did good (free) work for someone who can’t materially influence the buying decision. Creating an Advantageous Exception Therefore, a key purpose of charging for the technical assessment, is to cause the prospect’s procurement process to deal with an exception: one potential bidder wants to be paid for something the other potential bidders will do for free, that is, provide a quote or proposal. To low OML Solution Providers, this sounds patently suicidal. High OML Solution
  5. 5. © 2017 All Rights Reserved – Licensed Material – Page 5 Providers know that if they don’t do this, they will be relegated to again competing for the lowest margins deals with the least ability to differentiate. In short, once the Solution Provider figures out how to charge for assessments, they know not doing so, is suicidal. The request to be paid for the assessment deliberately generates an exception in the prospect’s procurement process. Here is how this exception is dealt with by prospects of differing value to the Solution Provider: • Among the lowest value customers, that Solution Provider is immediately discarded from the process. High performing Solution Providers hope this is so; it frees to them go find more qualified prospects. • Among the mid-value customers, the procurement process will surface the exception to the decision-maker. “Two of the partners will do the assessment for free, but one wants to be paid.” o Some mid-value decision-makers will drop the partner who requested the fee from the process. The high OML Solution Provider will gladly accept this as an invitation to avoid wasting time and instead go find a higher value prospect. o However, a portion of the decision-makers will say, “Really? Hmmm, let’s talk to them and find out why.” This gives the Solution Provider a higher- level audience. Even if they decide during that audience, to do the assessment partly or completely for free, the Solution Provider is in a better competitive position. • Among the highest value customers, procurement will inform senior management: “Two of the partners will do the assessment for free, but one wants to be paid.” The decision-maker will say, “Good work. That’s the one we want to talk with first.” o They know that obtaining the highest value solution with the lowest risk, is best accomplished with a fully-informed, collaborative approach that the Solution Provider cannot afford to do for free. o Moreover, also for risk mitigation reasons, they are seeking the Solution Provider with the business acumen to be a reliable partner. The Solution Provider who charges for the assessment, or who at least requests to charge for it, stands out well in this regard. Instead of relying simply on the technical impressiveness of the pre-sale engineer to
  6. 6. © 2017 All Rights Reserved – Licensed Material – Page 6 differentiate the company, the Solution Provider’s sales process forces an exception which explicitly seeks to gain the attention of the decision-maker, and early on, to get the decision-maker to make a value-based decision. This also enables the Solution Provider to make a value-based decision about the prospect, as early as possible. Starting Off on the Wrong Foot The other benefit to both parties of paid assessments, is in increasing the likelihood that, once the parties have agreed to do business together, the service or solution will be delivered as expected. Whether the sale is a solution (i.e. a system and its implementation) or an ongoing service (such as a Managed or Cloud Service), the likelihood that its design, implementation and operation will be successful, is heavily reliant on the accuracy and completeness of the assessment. The assessment is the foundation on which rest the successful design, implementation and operation what is being purchased. If the assessment is poorly done – most often because it is provided as a loss-leader – then the foundation of the relationship, and the business value to both parties, is weakened. The odds are high that either its design, implementation and/or operation will not go as expected, resulting in financial and operational surprises, usually for both parties. No-cost assessments are typically poorly resourced by the Solution Provider, either in insufficient time, skill, tools or some combination. Likewise, because the customer has no financial commitment to the assessment, they frequently fail to provide access to systems, sites, people and information needed to do a good one. A collateral effect is that any additional values that could have been found with a robust assessment, remain undiscovered, and the value of the transaction is minimized for both parties. Maximizing Win/Win Outcomes The ideal outcome is for all parties to win: the customer, the Solution Provider, and most specifically, within the Solution Provider, the sales team and the service team. When the assessment is charged for, it’s done well, and done under the gaze of the thoughtful decision-maker. The typical results are: • High value customers are most often attracted, • The best-justified, broadest and deepest solutions and services are procured, • The customer gets the best business value with the least risk,
  7. 7. © 2017 All Rights Reserved – Licensed Material – Page 7 • The service team gets to shine and also have good margin, • The sales team earns the highest commission and has a happy customer, making them eager to sell again, • The Solution Provider has the highest profits, the best referrals and testimonials and the more eager sales people, and therefore the best growth. Once the Solution Provider tries this method and has a bit of success, they will generally try it again. If they try it twice, the odds are good they will integrate it into their process for every opportunity going forward. Once they do, their internal enthusiasm and external reputation will stand out in comparison to their former peers. The Operational Maturity Levels of Charging for Technical Assessments The OML Trait called “Charging for Technical Assessments” is one of between 30 and 45 OML Traits associated with each of the ten Predominant Business Models in the Solution Provider business. For those wishing to quickly assess the OML of a Solution Provider with regard to this Trait, here are its the OML scoring questions: 1. How often do you do technical (technology) assessments of prospects or customers to whom you wish to sell something? a. We do assessments when asked by the prospect or customer. b. For about half of the Sales opportunities we have, either when asked by the prospect or customer, or when we feel their technology situation is complex or risky enough that it would better serve them and us to do an assessment. c. For most or all (>90%) of sales opportunities, whether the prospect or customer requests it. It's part of our standard sales cycle and there has to be a good reason to not do one. 2. How do you perform technical (technology) assessments? a. We send out the most senior technical person we have available, and they know from experience and/or a basic checklist, what we need from an assessment. They communicate the results back to whomever is crafting the quote or proposal, in informal written and verbal form. b. We have a formal assessment checklist and process, and multiple senior people are trained on it. We also have a formal assessment report format that is used to capture and communicate all relevant results back to
  8. 8. © 2017 All Rights Reserved – Licensed Material – Page 8 whomever is crafting the quote or proposal. Assessment results are formally included in the quote or proposal process virtually without exception. c. We have a formal assessment checklist, process and tools, which are automated together in a relatively seamless process (as compared to multiple manual components). This includes the feedback into the quote or proposal process. Assessment results are formally included in the quote or proposal process virtually without exception. 3. What level of resource is needed to perform a technical assessment? a. We send out the senior-most resource available. b. A high-mid-level to high-level resource. c. A low-mid-level to low-level resource. 4. How is the cost of doing a technical assessment recovered? a. The cost is absorbed by the Service department. It is not billed to the customer. b. The cost is billed by the Service department back to the Sales department. It is not billed to the customer. c. The fee for the assessment is billed to the customer but is credited back to the customer if the customer proceeds with the engagement for which the assessment was done. d. The fee for the assessment is billed to the customer, and is not credited back to the customer even if they proceed with the Solution Providers with lower financial performance, typically answer “a.” or possibly “b.” to most or all of these questions. Those with higher performance, typically answer the highest or second highest lettered answer, to most or all of these questions. How Low Performers Position Assessments Low-performing Solution Providers most often either don’t see the importance of conducting anything but a bare-bones assessment, or they see the importance of it, but are unable to execute robust, high value assessments, precisely because they do not understand how to charge for them and therefore can’t afford to do them. Mistakes stemming from treating assessments as a sunk cost in the pre-sale phase
  9. 9. © 2017 All Rights Reserved – Licensed Material – Page 9 include: • Trying to reducing the labor cost by eliminating all but the minimal technical description and list of products, leaving out business justification and business value, • Trying to reducing labor cost by assigning the least costly resource, which often produces faulty or incomplete assessments, • Trying to reduce investment by avoiding building assessment tools which can produce higher value assessments (for both parties) in shorter time, increasing competitive advantage. Low performing companies often view the charging for assessment as a likely objection on the part of the prospect, and thus an obstacle to the solution sale, not an aid to it. This in turn makes them reluctant to request being paid for the assessment. As a result, because they must do them for free, they effectively “short sheet” the assessment by doing them in a too-cursory manner. Not surprisingly, this produces less accurate and less complete assessments, which in turn most often results in smaller deals with lower quality service delivery and lower margins. This results in unhappy customers, which in turn results in unhappy Sales representatives, and together these contribute to slowing services and solutions sales at declining margins. High-performing Solution Providers understand that in the hands of a capable Sales team, the assessment is used to identify qualified leads, to differentiate their company and to gain the prospect’s commitment to take action on their offerings. Further, requiring the prospect to pay for the assessment, encourages maturation in the Sales representatives’ skills, such that they become better able to convey the value of the engagement and the solution to the customer in a differentiated way. Asking the prospect to pay for the assessment also drives the higher performing Solution Provider to assure that the assessment process and deliverables are effective and of high quality, irrespective of who on their team is conducting the assessment. This produces happy customers and happy Sales representatives. Happy customers drive referrals and happy Sales representatives are more effective in selling advanced services and solutions. OML Progression Considerations
  10. 10. © 2017 All Rights Reserved – Licensed Material – Page 10 Incorporating fee-based assessments into the sales process should be done carefully. Less experienced Sales teams will often not understand why charging is important, and may view it as slowing down the sales cycle rather than positioning them to increase value to the prospect and to increase the Gross Margin production of the relationship. Progressing on this OML Trait tends to take the form of an “overnight success” that takes some time to actually occur: • Building a robust assessment capability is a relatively straightforward task; most service teams already have a “wish-list” of things they would do in the ideal assessment, because most are suffering from the effects of poor assessments. However, they may need guidance and training on how to capture, evaluate, design for and express business value to the customer. • Moving the Sales team to adopt the paid assessment will take time, but generally succeeds with persistence and repetition. Putting in place incentives to reward the Sales team to win payment for the assessment is essential. At forst, it can be as much as 50% of the assessment fee, or even more. As the Sales team see that prospects will indeed pay for a high value assessment, and as they see the outcomes in terms of larger, richer deals, the incentive can be reduced. The key is to get them to try, and then to get them to charging for at least 90% of assessments. While some Solution Providers can mature on each of these two dimensions relatively quickly, we do not recommend skipping levels. This is because consistent maturation across the levels will produce a stronger outcome in the end on this OML Trait. It is important to recognize that the assessment is not simply a highly competent individual; rather it’s an approach, a process, and one or more discovery tools. A common pitfall is to rely on a great engineer rather than investing in a documented approach that can be consistently conducted by multiple (less costly, more available) team members. Relying on a competent individual won’t scale, and the Sales team will be concerned if they are selling assessments that can’t be conducted in a timely manner by any designated member of the engineering team. The Sales team also has to build their skills to add a “must-do”, and then “must-pay”, for assessments against competitors who may do the assessment for free. They will seek the prospects who understand that, “You get what you pay for,” and that the assessment will be valuable to the prospect whether they the Solution Provider who provided it, or not. The Sales team needs to be able to explain how the Solution Provider leverages best practices to produce an assessment deliverable whose value to the customer stands
  11. 11. © 2017 All Rights Reserved – Licensed Material – Page 11 on its own, and delivers assurance of meeting business needs and of risk reduction. The Service team has to deliver a mature assessment that can be constructed in a routinized manner with consistently strong results, by any member of the Service team. The investments required to build and deploy a paid assessment are mostly soft dollar costs and typically are not substantial. Many of the discovery tools, which can be utilized to conduct a very thorough assessment, are inexpensive or free. It is critical to effectively free up the senior engineering time to build and maintain the assessment methodology, along with drafting the training and related enablement materials to train their peers and the Sales team. As the Solution Provider matures its ability to charge for assessments, the initial signs of success are that first one and then more of the Sales representatives are achieving some success in selling paid assessments. With this early success comes real data, where the Solution Provider sees that the customers who pay for the assessments do yield greater revenue, Gross Margin, profit – as well as more references and higher sales commissions. As both the Service and Sales teams increasingly benefit from the paid assessments, it is important that the Solution Provider keep investing to refine the assessment process – e.g., to improve cycle time, to lower the costs to conduct an assessment, and to improve the customer deliverables, especially with regard to maximizing deal size. It is also important that the Sales team continues to drive up compliance so most, if not all, customer engagements start with a paid assessment.
  12. 12. © 2017 All Rights Reserved – Licensed Material – Page 12 Service Leadership is dedicated to providing total profit solutions for IT Solution Providers, directly and through industry consultants and global IT vendors. The company publishes the leading vendor-neutral, Solution Provider financial and operational benchmark: Service Leadership Index® . This includes private diagnostic benchmarks for individual Solution Providers and their business coaches and consultants. The company also publishes SLIQ© , the exclusive web application for partner owners and executives to drive financial improvements by confidentially assessing and driving their Operational Maturity Level© . Service Leadership offers advanced peer groups for Solution Providers of all sizes and business models, and individual management consulting engagements for Solution Providers from US$15mm to US$3bb in size worldwide. In addition, Service Leadership provides global IT vendors with advanced partner enablement assets, partner ROI models, management consulting and advanced peer groups, as well as executive and industry best practices education and speaking. Please visit www.service-leadership.com for more information. Notice: The terms and concepts of SLIQ© , Service Leadership Index® , (S-L Index™), Predominant Business Model© (PBM© ), Operational Maturity Level© (OML© ), the OML scoring questions and answers, Normalized Solution Provider Charts of Accounts© (NSPCoA© ), Total Cost of Managed Services© (TCMS© ) and Service Factory© are proprietary to Service Leadership, Inc. All Rights Reserved. About Service Leadership, Inc.

×