What is Your Financial IQ?

All of us understand the industry specific jargon is verbalized on a daily basis among our prospects, customers and colleagues. To those outside our industry it seems like we are speaking Greek. But to those in the know, those buzzwords are well understood. Likewise, there are financial buzzwords that permeate just about every sales organization. It is important that you are familiar with the most common of these and understand their meaning.  This article focuses on just three and is intended to be helpful if you have not been exposed to these concepts before. If you are not familiar them, please read and reread this article, then go find more sources of information. Failure to understand these three basic concepts could expose a very low financial IQ and damage your credibility as a seller.

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Pardon the interruption, but I wanted you to know that my new book, Common Sense Sales, is now available at Amazon.com.  You can click HERE to find it.  There is more information on the right hand side of the screen regarding it and my first book, Click “Send” and Sell.  Be sure to check them out.
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ROI: Return on Investment. You should be able to demonstrate how an investment in your product and/or service will create a financial return for your customer.

Example:  Multiple studies have shown that purchasing our manufacturing software can reduce the number of man-hours required to assemble your product by 20%.

Here is the information needed to determine the ROI:

Cost of software:  $125,000

Current Manufacturing Man Hours Required: 1,000

Cost Per Man Hour: $75

Here’s how to calculate the ROI:

Total Cost of Man Hours: $75,000 (1,000 hours *$75 per hour)

20% reduction in Man Hours: 2,000 hours (20% * 1,000 hours)

Total Man Hour Savings: $150,000 (2,000 Man Hours Saved * $75 per hour)

ROI:  $25,000 (Reduction in cost of $150,000 minus the price of the software, $125,000)

ROI Stated in Percentage: 20% (ROI of $25,000 divided by the cost of the software, $125,000)

Using ROI to demonstrate the value of your product or service is a great way to differentiate you from the competition. It also helps the customer justify the expense of the acquisition since it will ultimately save their company money.

Gross Profit: The difference between the direct cost of your product or and its sales price.

Example: Your product costs $24 to manufacture (Cost of Goods) and you sell it for $50 (Sale Price).  Your Gross Profit is $26. ($50 - $24)  

Gross Profit Margin:  This is your Gross Profit reflected in percentage terms. Stated another way, what is the percentage of my sale that is profit? In the above example the Gross Profit of $26 could be restated as a Gross Profit Margin of 52% ($26/$50).  In other words, 52% of my sale is Gross Profit. To calculate the Gross Profit Margin, divide the Gross Profit by the Sale Price.

Gross profit is an important financial metric for your organization. Your company must maintain a certain gross profit on its sales in order to meet its financial goals. That’s why pricing committees and pricing approvals require signoff from financial management. They need to weigh the advantage of discounting the product against the goal of maintaining strong gross profit margins.

Markup Percent:  This is very different than Gross Profit Margin and sellers often get these two terms confused.  Markup refers to the percent increase in sale price over the Cost of Goods. Continuing with our example from above, we would say that the Markup is 108% ($26/$24).  Markup is calculated by dividing the Gross Profit by the Cost of Goods. Note the stark difference in the two figures - the Gross Profit Margin is 52% while the Markup is over twice that figure.  Knowing the difference between these two calculations is an important indicator of your financial IQ.

You don’t need to be a financial professional to be a great seller, but it does help to know your way around key financial terms and their related calculations.  These are just a few of the basics that every seller should be familiar with.

Manage Your Emotions

We sellers are an excitable bunch.  We love the thrill of winning, are typically extroverts, and often times demonstrable with our emotions. Personally, I fall in to all three categories. That’s why I have to be extra careful when that one customer - that total pain - presses all my buttons. It can be a challenge for me to keep my emotions in check. Sometimes they get the better of me and I should know better.

Two examples come to mind. In one, I was negotiating a very large transaction with a multi-national bank. My boss and I were on the phone with my key contact and his procurement colleague. Closing this opportunity would have completely changed the relationship between our company and the customer.  We would have gone from being a tactical supplier to a strategic partner. And, winning the deal would have made a huge impact in our ability to meet our annual operating budget. Not to mention it would result in a great payday for me.  For the bank it meant a major commitment to our technology moving forward, and transforming the way that they were conducting business. The stakes were large for both organizations.

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Here’s an example of how and email from my book worked yet again.  I was conducting a pipeline call with a rep.  He was frustrated that a prospect had gone dark.  After a few great meetings his contact was not returning calls or emails.  I suggested that the rep send an “Are You?” email right then, during our call.  He did and guess what happened?  The prospect emailed him back while we were still on the phone.  This, after weeks of ignoring repeated calls and emails.  That’s why I wrote the book.  The emails work – all the time!  If you have prospects that have “gone dark” – and who hasn’t – the book is for you.  There is also an email for following up on leads, and another for planning killer sales calls.  What are you waiting for?  Those deals won’t wake up on their own!

The book, Click “Send” and Sell!  Three Unconventional Emails with Extraordinary Sales Success  is available at just about every electronic outlet, including Amazon, Barnes and Noble, Sony, and Kobo. It’s also available for your iPad at the iTunes store.

No eReader? No problem! Click HERE to download and print the book in any format you want.

The call was going well and many of the terms were being agreed-upon without difficulty. Then the call took a turn for the worse. The customer began to completely mischaracterize our prior discussions. He was using this tactic as a way to get better pricing. It was infuriating! His constant lies were making me look stupid. I was getting more and more upset as the call progressed. As I grew more agitated I was pacing the office, flailing my arms, and signaling to my boss (quietly) where and how they were lying to get their way. I almost stormed out of his office in disgust. At that point he muted his phone and said, “Sam, you are getting way to emotional about this. Settle down. We’ll get this done.”  At that point I calmed down and we continued the dialogue to a successful conclusion. My boss knew all along that the customer was simply posturing. He had come to know me and my capabilities and never thought for a moment that the customer was accurately characterizing our prior conversations. And, after another couple of calls, we got the deal done. It was a great transaction for both companies.

That instance made me aware of my tendency to let the customer “get to me”. I have been working on that shortcoming ever since. But just recently it reared its head again. This time the customer called to let me know that he had reneged on our verbal and written agreements and insisted on changing a fundamental pricing arrangement that had been painstakingly negotiated. He was accusing me of backing him in to a corner if I refused to go along with his proposal and threatened to pull all of their business with our company.  This was a very large customer and the likelihood of that was very small, but I had to take the threat seriously. He was being a real piece of work, pushing all of my buttons. I was getting more and more upset, especially at a point when he said, “Sam, my name is Michael, not Mike.” After it was clear that we had reached an impasse, I offered to speak with my boss about the situation. The customer agreed. When I spoke with my boss my voice was still shaking, “I’m very upset about a conversation that I just had with the customer. He’s reneging on our year long agreement and accusing me of backing him in to a corner.”  My boss shrugged it off and said, “You can’t get upset like that. It does no good.”  My mind flashed-back to that conference call with the big bank and I was able to calm down quickly. The boss and I came up with a fair arrangement and I was able to calmly get back on the phone and reach an amicable conclusion with the customer.

I’m sure that you have encountered situations with your prospects and customers that made you very upset. No doubt that they have mischaracterized your conversations and reneged on prior agreements. And, I hope that you were able to keep your emotions in check. In either scenario that I described the discussion would have taken a nosedive if I had allowed my emotions to get the best of me.  In the latter instance I had enough self awareness to end the call with the customer, sensing that my anger was affecting the way that I was representing me and my company. That self awareness led to some quick coaching to keep me in line. And, both instances resulted in a favorable transaction for both me and my customers.

The next time that you feel yourself getting agitated, make a mental note to keep your emotions in check. When you find yourself getting upset remember to put your ego aside and get the deal done. It will feel much better than blowing your top and losing the deal. That I can absolutely guarantee.