Workshop: How To Close High-Margin Sales

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Consultative Selling is the trademark of Mack Hanan. Copyright 1999 Mack Hanan. All rights reserved.

This seminar is an adaptation of the executive summary of Mack Hanan's book, Consultative Selling.

Consultative Selling is profit improvement selling. It is selling to high-level client decision makers who are concerned with profit and, indeed, who are responsible for it, measured by it, evaluated by it and accountable for it. Consultative Selling is selling at high margins so that the profits you improve can be shared with you. High margins to high-level decision makers: This is the essence of Consultative Selling.

The high margins that accrue from Consultative Selling are your reward for knowing more than your competitors about the client operations you affect and being able to improve them. Margins are merited by mastery of how a client runs the business functions that are your sales targets. The more you know about them, and the better you are able to implement what you know in proposals for performing them more cost-effectively, the greater your value will be to your client. Accordingly, your services will command a higher price.

Consultative Selling is industry-dedicated, and within each industry it is function-specific. Business functions in client companies are your end users, your true markets. According to the way they operate, they create the costs that you can reduce or do away with entirely. They can add new sales revenue or productivity, if you can show the client how. Your clients' business functions are the sources of the problems you will have to solve. They will also showcase the value of your solutions and give testimony to your capabilities. Scoping your clients' ways of operating should, therefore, be your constant preoccupation.

Remember, if you are going to sell in a consultative manner, client business functions will be the subject matter of your consultation. The only alternative is to talk about your own processes and the products or services they produce. And, in that case, you will be talking to the purchasing tier in the client's organization and selling on a basis of competitive performance and price. Your opportunity for high margins will have vanished.

In order to know client functions from an operating perspective and from the point of view of their financial structure, you will have to get inside clients' businesses. Generic knowledge of a function based on industrywide generalizations is important and useful, but insufficient. Norms and averages can be extremely helpful, especially if used to learn the specifics of individual client operations, but they are inadequate by themselves.

The only business function profiles that clients will recognize are their own. These are also the profiles clients guard most zealously. There is good reason for this. Little perceived value comes from releasing functional operating or cost information. There are many people and organizations that can use it detrimentally, and few, if any, who might use it helpfully. So, if you want to qualify as a helpful source, you must first pay your dues. Do your homework on client businesses. Then, on the basis of what you have learned and how well you can apply it, you may be invited to propose improvements.

The ability to profile a client's business function is essential to selling at the top tier. In client functions, you will find the problems you will propose to solve. Unless you know the nature of these problems,their importance, their financial values, and the language in which your clients' top management discusses them,you will be talking to yourself when you get to the top tier.

Developing a Business Function Profile

There are three ways to profile a business function that correspond with top-tier management's own ways of auditing it. One is to examine its financial role within the client's company. The second is to evaluate its operations. The third is to analyze its principal areas of intensiveness, the cost areas it depends on the most for its operations. There is a fourth way, too: study and understand a function's decision makers.

Every client operating function is a miniature business. The research and development function is a miniature science laboratory. The product engineering function is a craft workshop. The manufacturing function is a machine shop and assembly line. The sales function is a distribution organization.

Each function is tolerated by top management because management has decided that it is more cost-effective to own capabilities than to buy them from the outside. All capabilities operate at a cost. In some companies, manufacturing is expected to produce a gross margin, and sometimes the information-processing function will market portions of its database and bring in revenue. But, in general, only the sales function is regularly charged with producing profits. Because every business function is a cost center, each has the potential to run up intolerable expenses that significantly erode profits. To prevent that from happening, cost control becomes a paramount consideration. Management thinks of this mission as controlling a function's contribution to cost.

This is the financial context in which client business functions exist. You must know how these functions contribute to cost or sales, that is, how many dollars they generate inside your client's business as if they were your own. From the Consultative Selling point of view, they are your own; your own market.

Evaluating a function's operations

Business functions are processes. All processes have a flow. They have a beginning, a middle, and an end. Manufacturing begins with raw materials and ends with finished goods in inventory. Data processing begins with raw information and ends with reports. There are costs at both ends; in between, there is nothing but costs.

Every financial process has its critical few "crunch points" -- the places, times and activities where major contributions to value are made and major costs are incurred. Unless they work in the most cost-effective manner, the output from the entire process may be throttled.

Consultative sales representatives should be able to chart the flow of the key client processes they affect. They should be able to assign appropriate costs to the most critical points that control the process -- the 20 percent that contribute the 80 percent -- and be able to prescribe the optimal remedy to reduce these costs or rule them out entirely. Some of these remedies will be therapeutic: that is, they will lower an existing cost. Other remedies will be curative: they will alter a process, combine it with another, or eliminate it from the flow. In still other cases, the remedy will be to change the architecture of a process so that a completely new set of cost centers will result.

In most client operations, workflow is cost-ineffective. It incurs unnecessary costs or it processes work ineffectively. If you can optimize it, you can improve its contribution to profit. Every dollar of cost you take out can drop to the client's bottom line. Every improvement you make in productivity can also lower operating costs and raise the output from each dollar invested in labor, energy and materials.

Analyzing a function's intensiveness

All client business functions are intensive in their use of one or more resources. The sales function is labor-intensive. Research and development is technology-intensive, as well as labor-intensive, at an extremely costly and highly educated level of labor. Manufacturing may be energy intensive. Plant construction and equipment modernization are capital intensive.

The areas in which a function is intensive define the type and volume of its cost configuration. They therefore set the targets for consultative sales. If a process you affect is labor-intensive, you will want to focus your sales on reducing the amount of labor required; improving training so that lower cost, lower skilled labor may be substituted; replacing labor with technology; substituting external contract labor for the internal workforce's; or improving productivity so that each worker can increase the contribution to profit for each dollar of wages.

In dealing with technology intensiveness, newer forms of science, such as electronic controls, may contribute more cost-effectiveness than electromechanical controls. On the other hand, increasing the intensiveness of labor may be more cost effective than upgrading a technology.

Your consultative expertise will necessarily fall within the intensive areas of your key client business functions. You must be an assembly process expert for labor-intensive clients and a distribution process expert for sales-intensive clients. In everything you do, however, you must be expert in either reducing investment or increasing its ability to generate return.

Evaluating a function's decision makers

Decision makers preside over every business function, usually as function managers. Primary players directly affect a function. Outside their circle are the secondary players who are affected by their decisions. These may be primary players in other functions. Taken together, they represent the deciding voices in the acceptance or rejection of your proposals.

You cannot claim to know a client's business unless you know the decision makers and where they set their minimum thresholds for making affirmative buying recommendations. How much improved profit meets each decider's minimum criteria? How quickly must it start flowing in order to be regarded as soon enough? How certain must it be? How much proof is required to be convincing? What kinds of proof are most meaningful? Only when you know these things about key client decision makers can you work with them in a consultative manner. Only then can you deal with them on a businesslike basis, as opposed to simply a buyer seller relationship. Knowing decision makers means knowing what is decisive for them when it comes time to invest their funds with you.

Scoping the Options

When you make your initial penetration of targeted client operations, you already know a good deal about the business functions into which you sell. Even if you have only been vending, you have learned about at least three major subjects. In terms of products and services, you probably understand what already has been done by clients to make their functions more cost-effective. You know what they have purchased, from whom, for how much, and with what results. You also probably know what other companies in your client's industry have done to solve similar problems. Some of them may be your clients too; others may be prospects. From whom have they bought? For what performance benefits? Third, you undoubtedly know something about upcoming new products and services that might create a difference in client operations. Just by being in business, you know most of these things. But as a consultative seller, you must know more. From the outset, you must know the options available for improved client profit. You will have to study client business functions so that you can prescribe the optimal mix of cost reducing options and value adding options for each of their main problems.

1. Cost reducing options.

When you screen a business function, you must be able to learn its costs on a before-and-after basis. What are its costs right now, today? You must then be able to prescribe the best mix of available options that can accomplish some or all of three objectives. They must leave a client with fewer dollars in costs; they must take a shorter time to reduce costs than other options; and they must be highly certain to perform.

2. Revenue-adding options

At the same time you screen a client business for its costs, you also should profile the options for adding new dollar values. How can revenue generating operations be strengthened? By how much? How can productivity be magnified? By how much, and what dollar value? Here again, you must be able to prescribe the best available mix of options that can accomplish these improvements. They must bring a client more money. They must bring it in more quickly than other improvements and they must be highly certain to perform.

There is no such thing as the universal solution. No one option will fit all clients, even if the function being penetrated is the same throughout an industry. The closest you can come to broad scale generalizations are these:

1. If you can combine more value at less cost, you have the ideal solution.

2. If you can provide more value even at more cost, you may also have an ideal solution, as long as the added value sufficiently exceeds the added cost.

Either of these options represents a Consultative Selling strategy. You should have them in mind as you approach a client business with the objective of learning its costs or its ability to generate revenues. By knowing what your options are, you will be better able to select the most relevant profit improvement recommendations.

Profiling Target Function

To vend, you need to know your own costs. To sell in a consultative manner, you need to know client costs. To vend, you need to know your own sales opportunities. To sell as a consultant, you need to know client sales opportunities. Realizing that you must come up with a cost reducing or revenue-adding option, how can you earn a client's current costs in the business functions that are important to you? How can you get a fix on the client's unachieved sales potential? In profiling client functions, how can you quantify with reasonable accuracy the problems and opportunities that will form the base of your penetration plans?

You will need to develop three databases that will become the basic resources for top-tier selling to key accounts:

1. An industry database on each of the industries in which you serve key clients.

2. A client database on each key account client you serve in an industry.

3. A client's client data base on your key accounts' key accounts.

From your industry database, you will learn average costs, average profits on sales, average inventories and receivables, and other industry norms. The information in each of your key client databases will allow you to compare client performance against industry averages. In categories in which a client falls below the norm, you may find sales opportunity.

Your individual client databases will teach you the concentration and distribution of client costs. Where do they bunch up? Are these the same places for the industry as a whole? How heavy are they? What are their trends? Are they rising or are they coming under control? Your client databases also will provide you with knowledge of where potential new sales opportunities for a client may be found. How can your clients sell more? How can they sell at higher prices? How can they extend sales into closely adjacent markets? How can they invade new markets that offer superior profit opportunity?

In order for you to know your clients' business, you must know more than the performance and cost characteristics of the internal business functions that you can affect. You also must know the markets to which your clients sell. Their needs cause many client business functions to operate the way they do: To manufacture the kinds of products they make, to advertise and sell the way they do, to communicate inside and outside their businesses with the telecommunications and data processing technologies they use. Only when you know your clients' clients can you understand the complete spectrum of the consultative relationship that will be available to you, the full range of costs that can be reduced and sales opportunities that can be enlarged.

The essential elements of information you will need to know about your clients' clients are exactly the same as the data you must develop on your clients themselves. You will have to learn the major cost areas your clients affect in their own key account businesses and the main sales opportunities they help them achieve.

The joint development of information is one of the strongest bonds for partnering. Shared discovery is an alliance of adventures, each adding new values to the other. Joint research also can be cost sharing, another partnering act. At best, your key clients will realize that they will have to expand their knowledge of their own clients if they are going to be able to help them improve profits. They will, of course, also be able to use client knowledge to sell consultatively themselves. At worst, you may have to suggest a cooperative starter survey to demonstrate the value of market knowledge.