Selling Additional Monthly Services and Reducing Emphasis on Price

To protect the confidentiality of our client and their customer, we have not detailed names.

Profile

Many sales professionals fear the introduction of buyers into the sales process where often the initial price of the solution becomes subjected to a request for a discount. These requests are traditionally passed back to their own organisations... and the supplier's margins are immediately under pressure. How do sales teams use the balance between initial cost and monthly charges to protect their own margins while giving the customer the apparent initial discount that they crave?

Background

A global provider of managed telecommunications solutions is offering a new managed IP network to a major industrial client. This managed IP network will replace a number of alternative services from another provider. The guaranteed service level for the existing services is 99.5% and the new service will have an Service Level Agreement (SLA) of 99.9% leading to improved service availability.

Problem

Switching to the new service will incur upfront costs for equipment and installation work and these are acting as a barrier to changing the current arrangement. The client had not planned for the change, doesn't have the financial budget and so needs an economic business case to justify the spending and associated disruption. This scenario is not unusual, but it can be difficult to get internal approval for a discount from the provider's own organisation.

Solution

In-depth sales negotiations with the customer revealed that downtime costs are £30,000 per day of network outage. With the agreed cost of downtime and the improvement in service availability entered into Shark, it was demonstrated to the customer that a 33% reduction in the initial costs would be very quickly recouped by increasing the monthly service charge by 7.1%. Shark demonstrated a payback period of 5.5 months for the customer with greatly increased revenue over the contract period for the service provider. This was combined with corresponding NPV and IRR measures to automatically produce a Board Report for delivery to the customer's decision-makers.

Result

The customer sponsor was able to obtain fast-track sign-off for the project as it showed that they had obtained their requested discount and their Finance Director was pleased with the NPV and IRR figures. It was also demonstrated that the increased monthly revenue would mean that the deal was not unprofitable despite the discount: a win for both customer and supplier!

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