How Much Does The Problem Cost?


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How Much Does The Problem Cost?
By: Jeff Thull
Issue: 2005nov

Problems cost money! More often than not, however, the only cost on which customers and salespeople focus is that of the proposed solution. The most critical cost—the problem—remains the best-kept secret in sales.

A problem is defined as a less-than-positive or undesirable situation experienced by your customers. The cost of the problem is the financial impact this situation has on customers’ businesses due to the absence of the value your solutions bring them. It is also the financial impact of staying the same, and the cost of the solution is part of the pain of changing. When customers do not have a clear picture of these two cost groups, the timing and quality of their decisions will be relegated to guesswork.

However, by working hand-in-hand with clients to determine the costs not only of implementing solutions but also not implementing them, sales professionals can often speed up the sales cycle and protect their pricing from last-minute negotiating pressures.

It’s quite amazing to see what happens to timetables and priorities once customers understand the true costs of their problems. Their perception changes their thinking.

Financial Impact Comparisons Work
As a sales and marketing strategist, I teach clients how to determine the cost of a problem to use in their sales calls. Here’s a real-world example of how the technique worked and closed the deal.

In August, a technology firm submitted a bid to create and install a management software system for a hospital. The $700,000 cost was placed in the hospital’s budget, and the purchase was scheduled for the first quarter of the next year.

As time passed, however, the decision to purchase was delayed from the first quarter to the second quarter and finally put off until the following year. It seems the funds were prioritized for another project. While this software system would keep the hospital up-to-date with the latest technology, administration members considered it “nice to have” rather than a critical need because they didn’t understand the actual costs associated with keeping the old system.

Once the technology firm learned of the ongoing delays, it requested a meeting with the hospital CFO to determine the cost implications of postponing the new system until the following year. After crunching the numbers, they realized it would cost about $220,000 of lost revenue per month not to upgrade. The financial impact of delaying the decision to implement the new system was significantly more than the impact of the alternative project that had been considered more important. Thus, priorities were changed, and the hospital requested that the new system be installed within 90 days.

There are many initiatives begging for funding, especially in complex business environments. Your customers can get so caught up in trying to address these issues that it’s sometimes simpler to do nothing. On the other hand, if you can help them conduct a thorough financial impact comparison, they can see how much a problem impacts the bottom line. They will want to take action, and the response may be immediate.

The cost of the problem influences the decision process/sales cycle like nothing else. By helping customers determine all the costs associated with problems and solutions, the salesperson’s credibility will rise exponentially and the sales cycle can shrink dramatically. By helping your customer establish the severity of the situation and addressing concerns and expectations, you are positioned as a very credible and valuable advisor.

What Happens Once You Know How Much The Problem Costs?
Once you have diagnosed a customer’s situation and defined the financial impact on the business, there are three possible outcomes:
1. The financial impact is large enough to justify the investment required for your solution, and you move forward doing business.
2. The financial impact of the problem you’re solving is not as great as other issues the customer is facing. In this case, you plan when it will move to the top of the priority list.
3. The financial impact is not enough to justify your solution. Given this situation, you may have to scale back your proposed solution to match the financial impact, or it may be more lucrative to find a greater opportunity elsewhere.

The primary question most often in a customer’s mind is “Why should I invest my limited resources in your solution?” If the only way you can answer this question is by talking about the features and the value of your solution, you will not answer the customer’s concern to his or her satisfaction. You must help your customer understand what it costs not to own your solution.

Ignoring The Cost Of The Problem Can Be Fatal
Ignoring the cost of the problem creates two critical errors in the seller’s judgment. First, the salesperson assumes the client knows the cost of the problem and will use it in the decision-making process. Second, the salesperson assumes the prospective client has the ability to do a proper self-diagnosis of the problem. If this were true, all the salesperson would have to do is present the solution. Even if both of these assumptions are correct, the greatest error made by the salesperson is the failure to receive and verify the information from the customer.

Here’s the point: The customer who does not go through this justification process on a regular basis will not be as thorough as you can be. As a trained professional, you can orchestrate the resources of your company along with your client’s information, bring many more cost factors to the customer’s equation and enhance the quality of the decision-making process.

Developing a mutual understanding as to the cost of a critical issue or problem is a mark of a true professional salesperson. It’s the best way to prevent stalls and handle price objections before they ever arise. It clearly separates the amateur from the professional.

As President and CEO of Prime Resource Group, Jeff Thull has designed and implemented business transformation and professional development programs for companies like Citicorp, IBM, Georgia-Pacific, Microsoft, Shell Global Solutions and 3M. He is the author of the best selling book Mastering the Complex Sale—How to Compete and Win When the Stakes are High and newly released, The Prime Solution: Close the Value Gap, Increase Margins and Win the Complex Sale. Contact him at support@primeresource.com or 800-876-0378.

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