The Key to the C-Suite: What You Need to Know to Sell Successfully to Top Executives

The KEY to the C-SUITE

AMACOM

Chapter One

C-level executives spend the majority of their time focusing on strategic objectives. Their primary objective overall, however, is to sell more products and services and make their companies as profitable as possible. Basic profit is determined by how much you sell in comparison to the cost of what you buy. When C-level executives make major buying decisions, they take into account the cost to purchase and its effect on a set of simple metrics that they use to help them determine such things as when to buy, the method of payment, and the value to the company relative to the amount spent. In addition, they will often look into the effect that this purchase will have on their financial statements and annual reports.

Communicating with these decision makers (C-level executives) requires a different set of sales tools and selling skills, and a basic knowledge of their vernacular. In this chapter, we reveal to you the language that C-level executives live by, the metrics they use in making buying decisions, and how to establish a foundation for building the tools necessary to succeed when selling to the C-Suite.

The C-Suite Effect: C-level executives make buying decisions based on the strategic effect that a purchase will have on a set of key financial metrics or levers.

For example, let's begin with a prospect's chief financial officer (CFO). The CFO is the originator of much of the information that is used to make most buying decisions in every organization. The CFO keeps all of this information in places where it can be used for the analysis of such things as what to buy and when to make a buying decision.

Here is a revelation for you: ROI is no longer the key metric that the CFO really cares about in the buying decision process.

The basic problem with ROI is that it is typically calculated (estimated) before purchase and implementation, but rarely calculated (proven) after delivery. In addition, even when you do return to measure the value delivered, it is usually too late to make a move to correct issues that arose over the course of the project implementation.

This lack of measurement after implementation renders ROI calculations a useless tool for today's sales professionals to rely on in the sales process. In addition, there are some instances in which ROI is not achieved for several years. A more effective approach is to discuss your prospect's issues, pains, and goals as they relate to your product's value and its effect on the key financial metrics that CFOs use to understand their company's financial stability and make informed financial buying decisions—in other words, the C-Suite effect.

MAJOR C-SUITE METRICS

There are more than 20 metrics that CFOs may use to monitor the financial health of their organization and calculate or track spending. We are going to focus on 10 of the most popular metrics that are used in various ways to evaluate most strategic buying decisions within a corporation. If you have a basic understanding of what each metric means and its impact on the buying decision, then you have achieved the first step in effectively moving beyond selling using ROI, TCO (total cost of ownership), or other financial models.

In this section we will identify 10 of the major C-Suite metrics (financial levers) followed by their definition and a breakdown of their calculation. (Tip: Keep this list close to you for future reference.) These metrics are:

1. Return on assets (ROA)

2. Return on equity (ROE)

3. Earnings

4. Operating costs

5. Net and gross profit margin

6. Payroll as a percentage of sales

7. Sales per employee

8. Debt-to-equity ratio

9. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin

10. Days' sales outstanding (DSO)

Return on Assets (ROA)

ROA is an indicator of how profitable a company is relative to its total assets. The assets of a company are supported by both debt and equity. The ROA percentage gives investors an idea of how effectively the company is converting the money that it has to invest into net income. It is most effective to compare the current ROA to the previous year's ROA. The higher the ROA percentage, the better, because a higher ROA means that the company is earning more money on less investment. For example, if one company has a net income of $10 million and total assets of $50 million, its ROA is 20 percent ($50 million/$10 million); however, if another company earns the same amount but has total assets of $100 million, it has an ROA of 10 percent. Based on this example, the first company is better at converting its investment into profit. Calculation:

ROA = Net Income ÷ Total Assets

Return on Equity (ROE)

Sometimes called "return on net worth," ROE measures a corporation's profitability by revealing how much profit it generates with the money that shareholders have invested. Displayed as a percentage, ROE is useful for comparing the profitability of a company to that of other firms in the same industry. Calculation:

ROE = Net Income ÷ Shareholders' Equity

Earnings

Earnings are revenues minus cost of sales, operating expenses, and taxes over a given period of time. Calculation:

Earnings = Revenues - (Operating Expenses + Taxes)

Operating Costs

Operating costs are the day-to-day expenses incurred in running a business. For example, the cost of sales and administrative costs are considered to be operating costs. Production costs are not considered operating costs.

Net and Gross Profit Margin

Net profit margin is the bottom line—the amount that is left after every other expense is taken out. Gross profit margin is revenue minus what it costs to make the product. Calculations:

Net Profit Margin = Total Revenue - Total Expense

Gross Profit Margin = (Sales - Costs Directly Related to Those Sales)

Payroll as a Percentage of Sales

This simple calculation is important because our research indicates that much of the value delivered by organizations comes from a reduction in labor cost. The average U.S. corporation keeps this figure at around 20 to 23 percent, depending upon the market that the corporation serves. Calculation:

Payroll as a Percentage of Sales = Total Payroll Expense ÷ Total Revenue

Sales per Employee

Once again, this metric is one of the most affected when calculating value delivered. If your product or service increases revenue or reduces labor cost, it will positively affect this metric. Calculation:

Sales per Employee = Total Sales ÷ Total Payroll Expense

Debt-to-Equity Ratio

This ratio is used as a relative measure of debt—in other words, what a company owes in relation to what it owns. The two components in the calculation—i.e., total liabilities and total equity—come from the balance sheet. Calculation:

Debt-to-Equity Ratio = Total Liabilities ÷ Total Equity

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin

This metric is used to assess a company's profitability by comparing its revenue with its core earnings. EBITDA is earnings before interest, taxes, depreciation, and amortization. Calculation:

EBITDA Margin = EBITDA ÷ Revenue

Days' Sales Outstanding (DSO)

DSO is the average number of days that a company takes to collect revenue after a sale has been made. A low DSO means that it takes the company fewer days to collect its accounts receivable. A high DSO means that a company is selling its products on credit and taking longer to collect payments. Calculation:

DSO = Accounts Receivable ÷ Total Credit Sales for a Period x Number of Days in the Period

THE VALUE OF METRICS IN SELLING TO THE C-SUITE

The key to using the metrics just described in the sales process is to understand the importance and relevance of your products or services to the financial levers that lead to your prospect's strategic buying decisions.

For example, if you sell a product that has a significant impact on DSOs, it is critical that you:

• Understand the meaning of DSOs.

• Understand the calculation of DSOs.

• Articulate your value as it relates to lowering DSOs.

The C-Suite effect takes place when you are able to communicate your value as it positively affects your prospect's C-Suite metrics. For example, an uninformed sales professional might say, "Gee, Mr. Customer, we can lower those DSOs for you, no problem." A better approach would be, "In the past we have lowered our customers' DSOs by as much as 10 days. In fact, last week I was talking to ABC Company, and we helped it reduce DSOs by almost three weeks." Note that in the second statement, you are specific about the impact of your product and provide proof of your success at other customers' sites.

Let's try another example. An uninformed sales professional might say, "Our products can help you sell more." A better approach is, "We have increased our customers' revenue as much as 10 percent in the past, leading to higher earnings and an increase in net profit. When you talk to our customers, you will hear them talk about 5 to 10 percent increases in profit margins."

When you are initially identifying a prospect's issues, pains, or goals (what we call "pain discovery"), it is important that you direct your discussion toward the impact on metrics like net profit margin, earnings, and operating costs rather than toward revenue increases or cost reductions. The financial levers that C-Suite executives rely on are based on the metrics, not the total revenue increases or cost reductions. Remember that the pain defined has a direct impact on the metrics that the C-Suite is using to make a strategic buying decision. Your conversation may sound something like this: "I understand your issues with rising labor costs and their effect on your financial reports. However, our automated system can help you with labor cost reduction and put more profit on your bottom line, reducing your operating costs and increasing your net profit." This statement better defines your value as it relates to your prospect's financial goals and levers. Your impact is not only labor cost reduction, but operating cost reduction and increases in net profit margin, leading to higher earnings potential.

The fact that you mention the effect on your prospect's strategic financial levers will set you apart from competitors who are still selling features, benefits, and ROI. With a new focus on impact on the C-Suite, you will be able to shift the paradigm from you as a sales professional to you as a consultative sales expert.

SUMMARY

In this chapter, we identified and defined the key C-Suite metrics that C-Suite executives use to determine the organization's strategic direction and make purchasing decisions. Be sure you understand what these metrics mean and how they relate to your product's value.

Your role in the C-Suite effect involves communicating the impact that your product or service has on the financial reports, metrics, or levers that your prospect tracks and the overall financial health and well-being of the company you are trying to sell to. Remember these key points:

• Learn to use and master the financial vocabulary. • Study and understand the C-Suite metrics and their calculations. • Know your product's value as it relates to the C-Suite metrics. • Through conversation, gain an understanding of what the C-Suite metrics mean to your prospect.

Using this concept will change the way you currently sell. You do not need to be a financial expert to understand the concept of the C-Suite effect. You do, however, need to understand how the metrics are represented and how they are calculated.

Strategic buying decisions are made at the C-level every day. These decisions are driven by their effect on a corporation's financial health and goals. The company's financial reports reflect whether it is expanding or contracting. You need to know if the company is in a cash crunch or is cash rich, whether it is profitable or going under. It is crucial that you understand your impact as it relates to the strategic direction in which an organization is heading. The C-Suite effect will help you with this understanding.

Chapter 2 outlines how to build your value inventory. This is a critical step toward understanding your value as it relates to the C-Suite metrics. You will need the concepts laid out in Chapter 1 to complete the exercises in Chapter 2. If you are still unclear as to the definition and calculation of these C-Suite metrics, keep a copy of the definitions nearby as you complete the value inventory exercise.

Chapter Two

In his Little Red Book of Selling (Bard Press, 2004), Jeffrey Gitomer wrote, "Why do people buy is a billion times more important than how do I sell." I often wonder why organizations spend millions of dollars on teaching their sales professionals how to sell, but very few spend a dime on helping them to understand why their customers buy. This question is where we begin the journey of creating our value inventory.

THE USES OF A VALUE INVENTORY

Building a high-quality value inventory takes time and effort, but the payback comes tenfold. It is crucial to engage people from both sales and other areas in this effort. We believe that anyone who interacts with your customers should participate in the process of building a value inventory, if possible. These people probably will have an opinion as to why your customers bought your products and services in the first place, as well as how they are using and deploying them. The exercise in this chapter is designed to collect data on your customers so that you can use them to better understand your market and its issues, and the value of your products and services as it relates to the problems that you solve for customers. Building your value inventory will serve as the foundation for correlating value to the C-Suite metrics discussed in Chapter 1.

CREATING A VALUE INVENTORY MATRIX

To begin the process of building your value inventory, create a matrix in a spreadsheet program like Microsoft Excel®, with the following headings: "Why Buy?," "Business Issue," "Desired Outcome," "Stakeholder," "Solution," "Value Metric," "Value Proposition," and "C-Suite Impact" (see Figure 2-1).

The completion of this matrix is the foundation for building and deploying sales tools for each phase of your sales process. It is critical to your success to gather a diverse group of customer-facing personnel, such as:

• Sales professionals. This exercise will provide valuable insight into why your customers buy from you, and specifically what value your products and services provide to your customers. In addition, upon completion of this exercise, you and your team's confidence level as it relates to your organization's ability to deliver high-value solutions will typically increase.

• Marketing staff. Creating a value inventory is a natural extension of marketing's primary job: creating interest in your products and services. The problem has been and continues to be that Marketing and Sales seem to be on different planes. According to a study by the American Marketing Association, more than 80 percent of the materials that Marketing produces are never used in the sales process. By participating in this exercise together, marketing and sales professionals will become closer. They will begin to see each other's point of view and better understand exactly what you sell, the problems that you solve, and more precisely who your target (stakeholder) market really is.

(Continues...)

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Excerpted from The KEY to the C-SUITE by MICHAEL J. NICK Copyright © 2011 by Michael J. Nick. Excerpted by permission of AMACOM. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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