In almost all high-tech start-ups (and actually also in most Fortune 500 companies), profit aggregation only happens at business unit or company level and not at customer level. That is mainly because customer responsibility is in Sales. And Sales usually only cares about revenues because that is the key indicator they are measured on. Most managers do not see customer profitability as a priority because they make the false assumption that profits can be optimized by simply adjusting fixed costs (usually meaning human resources). However, understanding customer profitability is important for two reasons: If you have non-profitable customers it has an impact on your bottom line; in order to address this you have to know which customers these are Especially in start-ups, customer profitability relates to opportunity costs, which matters much since resources are scarce and growth goals aggressive … Read more
Customers typically use reference prices when making purchase decisions. It is very hard, if not impossible, for anyone to assess the absolute value of a product, service or solution. Therefore, customers compare the price with alternatives. Such alternatives can be other methods of solving the same problem or they can be competitive solutions from other vendors. But customers also compare prices with previous prices, special prices or standard list prices. Therefore, once you set the right pricing based on the value of your product, the question is if new customers can be won and revenue can be increased by offering price promotions (also called price frames). There is an interesting study by the US Office of Fair Trading, conducted by the University College London. They investigated how customers react to various promotions. Even though it … Read more
When you sell to a business customer, you don’t sell to a single decision maker but to a group of people, the so-called buying center. The buying center usually consists of all persons that are involved in the purchase decision. These are mostly the people responsible for the business area that your product addresses. The buying center can include, but must not necessarily, the Chief Executive level of the company. In my experience of selling cloud products (and really, in high-tech software sales there will be nothing else pretty soon) I identified four key buying influences: Product management The technical buyer The economic/financial buyer The buyer representing the customer (if that is not product management) Re 1.: The most important group is the product management group. They decide whether or not it makes sense to … Read more
Sales Outsourcing is something many start-ups have heard of and might consider as an option. The decision is not as easy as it seems. As everyone knows, the general rule is to only outsource functions that are neither your company’s core competence nor key to its success. But really, which corporate function is a core competence in a start-up? This article is trying to help making the right decision about Sales Outsourcing. If we look at definitions of outsourcing, they mainly focus on either one of the following criteria: Contracting out the task Having the task performed outside of the company Both criteria do not really seem to capture the main issue. The mere development of a contractual agreement that specifies the terms of outsourcing is not a big deal. Also, in today’s flexible world … Read more
