Dan:

My company has historically focused on selling consumables. Now we are explanding to include the sale of capital equipment. Given your experience selling

capital equipment, I wonder if you can highlight some best practices for us as we venture into this field.

Thanks,

Jim

Janesville, WI

Jim:

Great question! What comes to mind immediately is

the need to understand the importance of your target account's fiscal year and related budget processes.  

Superstars understand that no big purchase at any company is made without budget approval. TTS workshop attendees and readers of my book, Building Trust, Growing Sales, know that budget is the very first item that must be understood as a part of the BMPCC account qualification criteria.

We all deal with the importance of having a budget in our personal lives. The person in the family responsible for  finances typically extrapolates twelves months down the road to plan for expense needs. The CFO of a business does the same thing but with quite a bit more rigor. Most businesses have a formalized process that begins months before the start of their financial year. The financial year, or "fiscal year", may or may not be aligned with the calendar year. For example, ABC Corp may have a June fiscal year. That means that all of their budgeting and financial records start from that point and extend twelve months beyond June.  

Unlike most families, a CFO will follow an exhaustive process of analyzing which projects are to be approved and which will be denied. This process is usually initiated the finance department months before the

the beginning of the fiscal year. A request is sent to all department leaders in the business to submit "budget requests".  You could consider this their holiday "wish list". The CFO then has the task of prioritizing which projects and costs are approved and which are denied. 

All capital equipment requests are placed under intense scrutiny given their impact on the financials of the business. For example, the purchase of a $1M machine is not undertaken without a great deal of analysis which can involve factors such as Present Value, Net Present Value (NPR), Payback, Return on Investment (ROI) and Internal Rate of Return (IRR). Often times the CFO will set up a "tollgate" approach to sifting and paring down the wish list of capital requests. Typically, a capital request won't make it through the first tollgate unless it directly impacts one of the top three goals that the CEO has set out for the year. To make it through the second and third tollgates the purchase must demonstrate a Payback in fewer than 18 months and an IRR greater than 30%. The bottom line is that businesses do not have unlimited resources and must find a fiscally responsible way to narrow the wish lists to a select few.

Why is all of this important for the Superstar to know?  Let me answer that by sharing a conversation I had recently with a senior sales executive of very large corporation. We were talking about his budgeting process and he said, "our budgeting process is really not fair". That piqued my interest, and he explained, "Because I understand budgeting, I have an unfair advantage over other departments. I know exactly how our CFO evaluates the capital equipment requests for each fiscal year. When I submit a capital request, I put together such a sound economic argument tied specifically to his key variables (toll-gates)  that all my projects fly through his approval process. Other VP's have no clue and feel that simply sending two or three vendor quotes for their projects will do the job. It doesn't.  Meanwhile, I get my budget approved and they end up with rejection letters."

Given that information, what are you to do?

In short, "If you want to understand why the CFO buys what the CFO buys then you must see the world through the CFO's eyes."

You may wonder, "What if the customer has not budgeted for my offering? Does it mean I have to wait until the next fiscal year?" The answer to that is "yes" if you are an "average rep".  Superstars, however, don't look at the budget as a hard and fast rule but rather a "guideline" which can be modified under the right circumstances. They know that the budgeting process is simply a prioritization of the company's projects. The fact that there is no budget currently only means that a Superstar must work with the client to help him prioritize. Again, that is accomplished by helping the customer focus on the business case and passing the necessary toll-gates to prove that his project should enjoy a superior position. Further, the Superstar knows that creative financing options can assist. Certain financing alternatives can cause an acquisition to be considered an operating cost as opposed to a capital expenditure. These are often referred to "off-balance sheet financing" solutions.

Jim, I hope this info is helpful to you and your team as you begin helping your customers invest in capital equipment.