FIGURE: Stages to a profitable, sales-enabling Business Value Advisory practice.
Software is an intangible product whose primary benefits are productivity gains for the users, groups, and companies that implement it. This great strength of technology is also a weakness, as it's tricky to define just where and when gains will occur.
For salespeople, it's challenging to build the business case for a software purchase that will impact several areas throughout the client's company, has many stakeholders with disparate agendas, and aims to facilitate a complex mix of visionary goals and operational returns.
To tackle this problem, many software companies develop strategic consulting practices that work with salespeople and clients to analyze strategy, assess operations, align technology, and measure the value of deploying software. This is a difficult endeavor that most companies never fully accomplish. For those that do, however, rewards include revenue growth, expanded total contract values, increased repeat sales, and expedited sales cycles.
STAGE 1: Develop Competency. Form a cohesive group of consultants that assist salespeople in closing deals.
Begin by bringing together a mix of technical, business, and industry experts. Some companies choose to augment their existing technical services group, others start from a clean slate.
In either case, look for existing employees whose advanced academic degrees, professional achievements, and records of positive client interaction make them standouts.
In this stage, consultants work with salespeople on the largest sales pursuits, helping in any way necessary, which might include:
- Authoring industry, competitive, and financial research on clients and markets
- Developing value propositions and entry strategies
- Running client assessment interviews
- Writing case studies and marketing material
- Suggesting order-of-deployment roadmaps
- Building business cases and implementing success metrics
As the new consultants work on accounts in different industries, at various levels of the supply chain, and across functional areas, they will invent ways of enabling sales, test them out, and keep what works until they form a collection of tools, methods, and collateral.
Accounting Model: The team is accounted for as straight overhead and billed to Selling, General, and Administrative expense (SG&A) on the company's income statement.
Goals: Develop industry-specific sales expertise, build a substantial database of tools & methods, and support more than half of all sales engagements.
STAGE 2: Align Organizations. Monetize the relationship with Sales and formalize the hand-off to Implementation Services.
Realize that you are attempting to expand your company's value chain by inserting Strategy Consulting between Sales and Services (a.k.a. Technical Consulting) where previously there was a more direct connection. You are bound to step on some toes as you carve out your new, not-immediately-profitable niche. You'll need to redefine relationships, as below:
Relationship with Sales. Consultants will start charging salespeople for their services, a procedure known as internal transfer pricing, as their efforts become accounted for as Cost of Sales (see Accounting Model below). This will decrease the perceived profitability of the sale but in actuality provides a more accurate portrayal of sales costs. For many organizations, this is a change that will necessitate a reinterpretation of sales quota and margin targets.
Relationship with Implementation Services. Inevitably, some of the tasks taken on by Strategy Consulting will drift into the realm of Implementation Services, who are already billing clients for their work. It's critical not to move backwards by turning profitable business into Cost of Sales. Work with your counterparts in Services to share your valuable findings, keep from duplicating work, and avoid confusing clients. Formalize your hand-off points, milestones, and deliverables sooner rather than later.
This stage is the dress rehearsal for selling to clients. In order for Sales to accept- and even welcome- being charged for your assistance, they'll want to know what they're buying. Similarly, Services will expect significant results from Consulting that make their work easier and more profitable. This is your value-adding acid test.
Develop the Consulting value proposition and publicize your successes through brochures, cases studies, tools & techniques, and word-of-mouth references. You might also build an internal web portal where sales and services people can access this material and learn about your offerings.
Accounting Model: The team is accounted for as Cost of Sales (COS) on the company's income statement (also referred to as Cost of Goods Sold, or COGS). Track this expense down to the granularity of specific sales pursuits to understand the true profitability of the sale.
Charge the full burden cost of the consulting resources (a discipline known as Activity-Based Costing, or simply ABC) but don't add a profit margin yet. This allows you to identify the accounts where consulting is working well and select which methods, tools, and collateral to build upon.
Goals: Document the process for engaging salespeople, formalize the procedure to share work with Implementation Services, produce internal marketing collateral & templates for Sales, and enact a transfer pricing model between Sales and Consulting.
STAGE 3: Launch Practice. Reach profitability by selling consulting services while continuing to enable software sales.
When you progress to this stage, you've worked out the organizational kinks, know what you are good at, and understand what it costs to run a consulting practice. You are ready to sell your services to clients. Here's how you'll proceed with each group of stakeholders:
Sales. Add your services to the sales price book. Understand the current sales commission structure for products vs. services (such as the Implementation Services that salespeople already sell).
Publish commission percentages and payment schedules to incentivize the sales force to sell for you. If your company is truly committed to growing consulting business, your services might even be added to sales quotas.
If this isn't the case, there are several reasons why it's in a salesperson's self-interest to sell consulting services:
- Clients have some "skin in the game." You find out right up front just how committed they are to the sales process. You can better prioritize your efforts.
- Clients assign a higher value to the results. Services that are free tend to have less impact and are assigned lower merit. People believe that you get what you pay for.
- Clients will include their best people. For decision makers to get involved in the sale, it has to be worth their while. Money has a way of getting people's attention.
- Clients get accustomed to paying you. When it's time to cut a purchase order, you are the easy choice: you are in the billing system, you have a business relationship, and you can even discount a large software sale by the price of the consulting, if necessary.
- You are covered if clients don't select your software. Your results may apply to your competitors' products as well as yours. Charging a fee covers your costs if the engagement goes no further.
Tailor your deliverables to the specific client situation. Help salespeople choose an appropriate pricing strategy.
Marketing. Enlist the aid of Marketing to brand the strategy consulting practice, promote services, and generate external marketing collateral. Ideally, you'll want to develop a corporate web presence and be included in extended product and service promotions.
Clients. As in all dealings with clients, clarity is your friend. Be clear about what you will deliver, when you will deliver it, and in what form it will be delivered. Use examples, but don't give away the farm. Close the loop to confirm that clients were pleased with your work. Build reference accounts of satisfied clients (most likely working with Sales and Services) that you can use to help sell your next engagement.
Competitors. You have grown the practice in the relative vacuum of your company's sales process, but those halcyon days are over; you've got competition now. Understand your consulting competitors: system integrators (IBM, DXC, Accenture, etc.), management consultants (McKinsey, Kearney, BCG, etc.), industry-specific boutique consultants, and your fellow software vendors. Identify your demonstrable strengths and their weaknesses. Make that a central part of your marketing message.
Consultants still work with salespeople to increase software sales, as in Stage 2, but now most engagements are profitably billed to the client instead of back to the sales force as Cost of Sales (see Accounting Model below).
Accounting Model: The team is accounted for as a self-supporting business, or profit (and loss) center (P&L). Its revenues and expenses are reported as services revenue and expense on the company's income statement. You may occasionally account for the team as Cost of Sales (COS), such as when a software sale is discounted by the price of consulting services.
Goals: The team profitably supports itself. Continue to develop business in this stage or move some resources onto Stage 4.
STAGE 4: Develop New Business. Capitalize on the valuable skills, deep knowledge, and diverse experience of your consultants.
By virtue of their development, consultants are able to add tremendous value to the company's business. Directing their expertise at areas outside their immediate responsibilities might afford them a practical career growth path inside the company. Take advantage of consultants to:
- Optimize Organizational Links
- Launch New Products
- Develop New Markets
- Lead Overseas Expansion
- Design Sales Training Programs
- Lead Internal Change Initiatives
Growing a software consulting practice is a complex enterprise but the rewards make it a worthy cause for companies committed to expanding software sales, extending services revenue, and developing new business.
Do you ever wish that your technical pre-sales colleagues brought more business knowledge and experience to the sales effort? How would your top campaigns benefit if pre-sales were the "elite management consultants" in your software/industry niche?