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FINANCIAL JUSTIFICATION
FOR INVESTING IN
THE ECONOMIC VALUE ADDED BY
Mack Hanan's CONSULTATIVE SELLING
e·xpert xystems™
Financial Justification for Investing In the Economic Value
Added by
Mack Hanan's Consultative Selling e•xpert xystem™
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Before
Mack Hanan's
Consultative Selling e•xpert xystem™:
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- There are 100 Account
Managers to be trained in Year One in Mack Hanan's Consultative
Selling™.
- An average before-training
sale yields $1.5 million in revenues with a $600,000 margin at
40%.
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Site
Licensing Investment:
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- A Site License is
obtained at an annual fee of $250,000 for 5 years to train, retrain
and reinforce the training of the 100 Account Managers and their
Sales Managers in Mack Hanan's Consultative Selling e•xpert
xystem™.
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After
Mack Hanan's
Consultative Selling e•xpert xystem™:
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- An average after-training
sale yields $2.0 million in revenues, an increment of $500,000
per sale.
- The average margin
is $800,000 at 40%, an increment of $200,000 per sale.
- A migration sale averaging
$400,000 is built into each original consecutive sale, with an
average margin of $160,000 at 40% that is totally incremental.
- Payback of the 5-year
Site License investment is obtained in 2.5 months, making the
total investment the equivalent of a short-term loan.
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Cost-Benefit
Analysis of Incremental Revenues & Profits [$000]
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Year
0
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Year
1
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Year
2
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Year
3
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Year
4
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Year
5
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CVM
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| Costs
(Investment) |
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Site
License
|
250
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250
|
250
|
250
|
250
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250
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1,250
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Customizing
|
25
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0
|
0
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0
|
0
|
0
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25
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| Benefits
(Return) |
| Revenues |
50,400
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50,400
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50,400
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50,400
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50,400
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50,400
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252,000
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New Sales
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50,000
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50,000
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50,000
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50,000
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50,000
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50,000
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250,000
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Migrations
|
400
|
400
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400
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400
|
400
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400
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2,000
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| Profits |
20,160
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20,160
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20,160
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20,160
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20,160
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20,160
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100,800
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New Sales
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20,000
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20,000
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20,000
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20,000
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20,000
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20,000
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100,000
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Migrations
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160
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160
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160
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160
|
160
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160
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800
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5 Year Cumulative:
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Total
Investment
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$1,275,000
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Total
Return In Incremental Revenues
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$252,000,000
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Total
Return In Incremental Profits
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$100,800,000
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Payback
from Incremental Profits
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2.5
mos/Year 1
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I.R.R.:
Each $1 Invested Returns
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- $20 in Incremental
Revenues
- $8 in Incremental
Profits
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The cost-benefit
analysis is based on a mythical worst-case scenario that each of the 100
Account Managers trained in the Mack Hanan's Consultative Selling
e•xpert xystem™ will close only one consultative sale per
year at $2.0 million per sale in each of the years following training.
Over the 5 year
projected time period, this single sale per Account Manager multipled
to 100 Account Managers will contribute total gross revenues of $252 million
and total gross margins of $100 million in return for a total investment
of slightly more than $1 million.
In incremental
dollars whose realization can be directly attributable to the training,
new revenues will total $50 million per year plus an additional $400 thousand
from migration sales that are built into each original consultative sale,
for total incremental revenues of $50.4 million per year.
These benefits
will accrue each year for the 5 years of the cost-benefit analysis as
long as the original trained sales force continues to be employed or new
recruits who replace them are similiary trained in Mack Hanan's
Consultative Selling e•xpert xystem™ to maintain a cumulative
sales force of 100.
Under the worst
case scenario of only one closed consultative sale per year per each of
the 100 Account Managers in the sales force, the annual $250,000 investment
to train them in Mack Hanan's Consultative Selling e•xpert xystem™
yields $20 in revenues and $8 in profits for each $1 invested.
Mack Hanan's norm
for the average number of consultative sales made by newly-trained Account
Managers in year one is 4 closed sales of $1 million or more. If the worst-case
scenario of only one closed sale per year is doubled to two closed sales
- a half-worst scenario and still 50% below the norm - each $1 invested
would yield $40 in revenue and $16 in profits.
The cost-benefit
analysis calculates only incremental revenues and profits from one consultative
sale per Account Manager per year for 5 years. It does not include three
additional sources of income that are normally produced by sales forces
trained in Mack Hanan's Consultative Selling e•xpert xystem™:
- Incremental revenues and
profits from consultative sales that are opened or closed by technical
support and customer support managers who are simultaneously trained
with Account Managers, plus incremental revenues and profits from consultative
sales closed by trained third-party resellers, dealers and distributors.
- Savings from reduced costs
per sale that result from faster closes and shorter selling cycles.
- Increased revenues and profits
from the additional consultative sales closed by Account Managers who
can make more proposals to more customers as a result of the freed-up
bonus time available to them from shorter selling cycles. This has the
constructive effect of enlarging a 100 Account Manager sales force by
10% at no additional cost.
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a result of the contributions to economic value added from all these
sources, the return on investment in Mack Hanan's Consultative Selling
e•xpert xystem™ is infinity. |
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