Understand Your Customers' Cost Centers

Selling to cost centers is akin to working with the Lost Baggage office at the airport- some days are better than others, but on balance you are always dealing with the realm of the negative, whether lost suitcases or unreturned organizational spending.

Costs centers are the red lines in the spreadsheet, the place where capital goes into the ether and are at best considered “the cost of doing business” and at worst an incision point for the budgetary scalpel. Cost centers are delicate places to do your selling but they often cannot be avoided entirely.

So….

There are three things to keep in mind when selling to a cost center:

1. Price counts: Despite the lessons to sell value from CEOs and Sales VPs everywhere, if you are selling into a cost center you will not be competitive if another company can do most of what you do for a significantly lower price.

2. Because price counts, you must engage in a dual front battle with the cost center and associated profit centers. It is easier to sell your value to a cost center if you have leadership from profit-creation roles as your champions. Still, unless your strategy is to sell on price (a valid strategy provided your own cost basis is low enough), you will have to be in the same ballpark as your competition or the cost center leadership who is ultimately writing your PO will find a reason to buy the cheaper alternative. They will call it “making the tough decisions for the business.”

3. Part of your ongoing analysis to determine your most receptive target markets should include consideration for your company’s ability to impact the profit centers that are intertwined with cost centers (see my post on Profit Centers for more detail.) If you cannot impact the black lines on your customer’s spreadsheet, then you will sooner or later find yourself in a reverse auction against a competitor, frustrated that your crisp marketing has gone out the window and you are in a price battle. Sales people will hate marketing people, finance people will hate sales people, anarchy will ensue. Save yourself the trouble and use the knowledge to redirect efforts and target better customers.

Understand Your Customers' Profit Centers

The first step in defining the characteristics of your target market is to model how your product/service impacts various profit centers. It is important to remember that a profit center is treated like its own company within the company, so we have to look carefully to define the parameters of multiple profit centers. We also need to remember that a profit center is separate and distinct from a buying center.

For example, let’s assume you are selling a product/service that fits into a corporate contact center environment and your offer makes it easier for contact center agents to cross-sell products once they are communicating with a customer.

One of your targets is likely to be the retail financial services sector because companies in that sector tend to operate large contact centers and rely on them for sales. While the department ultimately approving your purchase order is very likely to be IT, the contact center environment has the capacity to affect sales of credit cards, home mortgages, insurance products, etc. IT is not a profit center, but the managers responsible for each of those products being sold in the contact center is leading a profit center for the parent company.

So, in the process of defining the characteristics of your target market and most receptive customers, we would look closely at how each of those departments is measured (ex. Does a credit card department measure profits based on number of new accounts, or projected interest income from those new accounts?) Once that data is compiled and understood, we can begin to position your offer in the language of the profit center department heads.

To paraphrase the idea:

Your message prior to this exercise was directed at IT managers and was built on information about your product (software capabilities to measure hold times, ability to interact with customers via multiple media types, etc.)

Your message after this exercise is directed at individual profit center leaders and is built around the metrics they use to evaluate their businesses (new accounts per day, average APR per account, etc.)

To make it even better, a good marketing strategist will do this data aggregation and profiling in advance so that your sales force starts by targeting customers whose profit centers are most impacted by your offer and communicating in the customer’s native language rather than in the language of the underlying technology.