Consulting Room: Financial Fitness and Partner Profitability
- 03 August, 2010 16:42
I recently participated in ARN’s Partner Profitability roundtable, which fostered spirited discussion around some of the business and profitability issues facing the channel, as well as new profit opportunities going forward.
While much of the debate focused on topical channel issues such as business climate, rebates and engagement rules, one thing which deserves to be discussed in greater detail is the “financial fitness” of key sales staff. By “financial fitness” I mean having sales staff with the required level of knowledge and skills to make the right product and financial customer decisions that will positively affect the overall financial well-being of their organisation.
As trainers, it never ceases to amaze us how many channel sales professionals come through our programs where we include a component or module covering finance that:
a) Show a lack of knowledge or make fundamental mistakes in straightforward workshop exercises covering essential and basic financial calculations. This includes margin, mark up and volume/discount impact. If sales people are making financial errors or don’t know the answer in the workshop, we wonder what is happening in the real world.
b) List finance training on their overall feedback forms as having had the greatest personal impact of the entire workshop.
While much of the ARN roundtable discussion was about things affecting partner profitability that were often outside of the immediate and/or direct control of the reseller participants, the financial fitness of key sales staff is not.
Take control Both vendors and resellers allocate a great amount of time, money and effort to sales product training and technical training, but this is miniscule in comparison to improving the sales and business skills of their key staff. Without fully competent staff in front of the customer, your sales people might as well be entering a gun fight with a knife!
The challenge is that vendors see their role as providing product and technical training, while resellers see their role as having the customer relationships and skills to be able to deploy these products. No one is really focused on the critical business and finance component of a sales person’s skills.
The assumption is that sales people already have the selling, business and financial skills to be able to articulate their value proposition and negotiate a satisfactory financial outcome for all parties. But in our experience, most customer-facing sales people do not fully grasp the impact of discounting by “just a few points” or offering extended terms on company margins, working capital and cash flow. They either have never had the training, or it was so long ago they have forgotten the fundamentals. Here are a few things that should be top of mind for any sales person.
Create value, don’t discount “Companies that solely focus on competition will ultimately die. Those that focus on value creation will thrive.”- Edward De Bono, business guru.
If there is little apparent value around your proposal in the customer’s mind, then the customer will focus on price and bring the cost down to a point where the discounted level meets their value expectations. Discounting is often the path of least resistance for people with sales responsibility and poor selling and business skills. But while market forces are at play in determining the “street price” of most products, it is up to the sales person to create and communicate enough value that the customer will agree to the proposed price.
A true ICT sales person has a balance of technical or product knowledge, business or financial skills and of course is able to bring this together into a well articulated customer value proposition.
Financial lingo In the B2B market, and especially in larger businesses, the customer is not buying a technical product but a business outcome. In this case, the question being asked is what is the business outcome the technology will provide? This has to be expressed at some point as a financial metric such as return on investment or internal rate of return as is what a managing director, CXO or board member will be looking for before granting approval.
There are various and somewhat complex methods around, but ROI is generally expressed as a percentage return. So the percentage ROI is the benefit, divided by costs, then multiplied by 100 get the answer. The concept and calculation of benefit is usually greater than just profit as it could include productivity.
A final note of caution: The ICT industry is awash with acronyms. If your sales people are using financial buzzwords and acronyms, ensure they fully understand their meaning and the right context of where or when they should be used.
Financial fitness quick check Try this quick financial fitness test and see how you go. I’m buying the product at $900 and my current margin is 10 per cent, so I sell the product for $1000. But if I discount so my new margin is now 8 per cent (a discount of 2 per cent), how much as a percentage will this affect my profit and how much more do I have to sell to make the same amount of profit as the non-discounted sale?
Answer: The old profit per sale is $100. The new sell price is $978, therefore profit is $78. So a 2 per cent drop in margin will result in a 22 per cent decrease in profit and you will have to sell 28 per cent more to make the same $100 as the first sale.
This volume/margin/profit calculator is available on our website at http://www.channeldynamics.com.au/resources/calculators.html
Cam Wayland is a director at channel consultancy firm, Channel Dynamics. email@example.com