S T R A T E G I C A C C O U N T M A N A G E M E N T A S S O C I A T I O N

**REPRINT** VOLUME 15 Issue 2 2013

Using financial insight to drive value selling

Using financial insight to drive value selling

V alue selling centers on creating customer-specific value propositions, no doubt a familiar term. Rather than

simply presenting what he has, the account manager and his organization focus instead on understanding the client’s business. What are its drivers? How does the customer deploy them in developing market strategy and setting financial and business objectives? Only by answering those questions can the supplier begin to demonstrate the true value of its solutions and avoid the features-and-functions trap that so easily pushes down margins. Being able to identify and articulate the client’s top five business issues and demonstrate how the seller’s solutions address one or more of those issues are key. Research by Mercuri International shows that two out of three companies consider value selling their No. 1 strategic sales issue, regarding it as a clear competitive differentiator. However, they also give themselves a poor rating for value selling, typically ranking their performance halfway down their skills range.

As we know, value selling is always more effective with financial, commercial value attached to the proposition. This might be a simple formula spelling out your solution’s return on investment, but that is often insufficient for senior management, which will be focused on its organization’s balance sheet or even share price. Let us look at a company that leverages financial acumen for value selling. With almost 300 manufacturing locations and 360,000 employees worldwide, Siemens AG operates in 190 countries, occupying leading market and technology positions globally in energy, health care, industry and infrastructure. The business employs 1,200 key account managers and conducts training programs with Mercuri to support Siemens’ key account management certification program that started last year and is mandatory for all new key, corporate and regional account managers.

“Sustainable customer relationships are the basis for all our business and have been for over 160 years,” says Hajo Rapp, Siemens’ senior

Using financial insight to drive value selling

Financial and business

acumen are value selling’s

greatest weapons.

By Dave CusdinPartner and global technology sector leaderMercuri International

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vice president of KAM and market development. “We employ a structured key account management approach throughout the company to look after our key customers.”

The KAM certification program includes a financial skills course run jointly with Mercuri and co-developed with Performance Methods Inc. that uses the Celemi Apples & Oranges business simulation tool, an interactive company model that helps participants learn to read and interpret financial statements, identify critical factors affecting profitability, analyze financial ratios and monitor key performance indicators. Siemens also informally involves its financial services arm in the process and, significantly, asks course takers to present to its participating senior managers. Rapp believes that the organization’s executive-level, top-down inclusion in a course of this kind is unique.

“It motivates our people and secures senior management buy-in to the program internally, which cuts across any company silos,” he says. Financial and business acumen are key elements of the training process that have “led to better business results with higher than average growth in the specific areas of the company where they have been applied, measurably higher customer satisfaction and, for those involved, higher Siemens employee motivation.”

Financial and business acumen make up the skill set that enables an account manager to build financial arguments that value-sell solutions to the customer and build the case for internal investment in the customer-specific value proposition the account manager or KAM team wishes to develop. The first step for the account manager is to understand the criteria used to make financial decisions. The second step is to gain working knowledge of the key financial metrics and ratios needed when selling value to the customer and building internal support. And the third step is to apply what has been learned and show (or in financial terms, prove) to the customer that the proposition offers

greater financial value than the account manager’s competitors.

For financial insight to drive any value sale, the account manager needs to pinpoint the customer’s core financial criteria for purchase: the basics of internal rate of return. Typical IIR metrics include payback period (the time taken to return the amount of money invested in the solution); return rate, which consists of payments (negative values) and income (positive values) occurring at regular intervals; and hurdle rate (the minimum return rate required by the customer before it will consider making an investment—that is, its capital cost plus the estimate of a project’s risk/success measured as an outcome). Usually the customer compares IIR with the hurdle rate to determine whether to invest in a project or customer-specific value proposition. If IIR is greater than the hurdle rate, then the investment passes the hurdle.

Financial metrics include cash flow and particularly cash conversion rate. The account manager needs to understand, among other ratios, how profit is generated, the mechanisms of amortization and depreciation, and the dynamics of working capital. It is possible to acquire functional knowledge of those areas as part of a KAM training program. Strategic account managers in some cases may have a master’s of business administration degree or accounting qualification. That is always helpful but not a prerequisite, as information is sought only to the extent that it supports financial value selling. Some companies (Siemens being a good example) gather financial KPIs for target sectors. Other companies might do so on a case-by-case basis. Financial KPIs typically involve revenue; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; recurrent net income; cash flow from operations; business performance (sector comparative); capital expenditure; earnings per share;

10 questions that measure an account manager’s financial and business acumen

Is financial knowledge under-exploited in your customer-facing and internal sales environments? Assign a score from 1 to 10 for each answer, with 10 meaning excellent.

External

How well do your account managers:

1) Understand the financial and operational metrics that matter most to the customer’s senior management?

2) Construct and articulate compelling value propositions that align solutions with the customer’s key financial measures?

3) Benchmark the customer’s financial performance against the customer’s industry, then use the results to create demand and urgency?

4) Understand the customer’s buying and budgeting process and any ROI analysis that might be used to measure the solution?

Internal

How well do your account managers:

5) Consider the financial consequences of their chosen accounts and opportunities?

6) Understand the key operational and financial measures within your organization?

7) Understand how discounting and commercial terms impact profitability, internal cash flow and margin?

8) Build business cases aligned to your metrics to help executive decision making?

9) Really understand the impact of a 5 percent discount on earnings before interest and taxes?

10) Understand the effect of inaccurate forecasting?

Scored 70-plus? Looking good. 60-plus? Be vigilant. Under 60? Take action.

Both lists are © Mercuri International.

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dividend growth; return on capital employed; and profit/net income.

Comparing the customer’s KPIs with those of the industry’s other companies helps the account manager identify where improvements can be made and highlight the value her proposition can add. She uses her skills to build a financial value hypothesis, which has five stages:

1. The customer’s KPIs—how does it measure success?

2. The customer’s desired improvement areas—what KPIs does the customer want to improve? How do they compare to the competition? Do they meet goals of management and shareholders?

3. Value levers and drivers—what are they for KPIs the customer would like to improve?

4. Our solutions—which of them can address the value levers that can help the customer achieve its KPI targets?

5. Financial value—what is the quantified value we can bring to the customer by using our solutions to drive value levers and improve KPIs?

KPIs are used to link the customer-specific value proposition to the financial value hypothesis. The key is for the

account manager to understand how the solution impacts the customer’s revenue and cost drivers and therefore the customer’s profit and loss. An important outcome of any KAM training is the development of intelligent questioning. This comes from giving the account manager the confidence to have a financial conversation with, say, a C-level decision maker. Being able to ask the customer for its financial metrics so you can measure the affect your solutions could have on its business is often enough to differentiate your company from competitors. Financial and business acumen are value selling’s greatest weapons.

Dave Cusdin is partner and global technology sector leader at the consultancy Mercuri International (www.mercuri.net) and can be reached at dave-cusdin@mercuri.co.uk or + 44 (0) 1981 550 447. He can also be found at http://uk.linkedin.com/pub/dave-cusdin/0/3ba/64.

Additional resources

For more information on this subject by this writer in SAMA’s library, the editor recommends: Dave Cusdin, “On-demand webinar: creating and presenting customer-specific value propositions—Part 2,” Nov. 3, 2010, www.strategicaccounts.org; and Dave Cusdin, “On-demand webinar: creating and presenting customer-specific value propositions—Part 1,” Oct. 13, 2010, www.strategicaccounts.org.

Eight reasons financial acumen is good for business

Using financial and business acumen, account managers can:

1) Show the customer how they will meet its need for real business impact when it invests in their solutions

2) Win support within their organization for the investment needed for their customer-specific value propositions

3) Talk to customers’ chief financial officers, chief executive officers and other senior executives in financial terms that resonate

4) Differentiate their offer from competitors by leading with the added financial value

5) Better understand the customer’s financial position and identify opportunities through competitor and industry (sector) benchmarks

6) Secure buy-in from internal and external stakeholders by demonstrating compelling financial value

7) Present attractive financing options to the customer

8) Navigate their way through the customer’s procurement process, a competitive advantage in itself

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dIstRIbutIon wIthout expRessed peRMIssIon Is stRICtly pRohIbIted.