Jun 28, 2016

INVESTMENT RETURN ANALYSIS

INVESTMENT RETURN ANALYSIS

Constructing investment return analysis to your customers is one of the most powerful and compelling sales tools possible. Each customer service value file should contain as many IRA’s as possible.

Whereas many of the items included in a customer value service file are cost saved, the IRA reflex the dollar return customers get from purchasing your product.

Customers buy your product for a reason. Your technology eliminates maintenance cost or down time cost and reduces warranty claims. Your products speed assembly and reduce production cost. They cure quickly to save energy. They improve the customer’s end product, improve your customer’s satisfaction, and help sell more end products, improve part design to lower cost and maintenance, and various other reasons.

Each customer benefit can be calculated in terms of dollars saved and return on investment.

The customer is an automotive producer. The problem was a leaking seal resulting in significant leaks and warranty claims. Your product stopped the leaks and reduced inventory.

IRA Calculations

Internal leak repairs per year: $24,000.

Repair cost per leak: $20,000.

Annual repair cost: $480,000.

Warranty claims: $2,330.

Cost per claim: $100.

Annual warranty cost: $233,000.

Value of reduced inventory: $28,500.

Carrying cost of inventory: 30%.

Inventory savings: $8,550.

Total value of solution: $721,550.

Cost per day to go without your product: $2000 per day.

Like most good applications, the customer’s return is so extraordinary it is hard to believe. However, the numbers come from the customer, and the arithmetic is correct. You will know you have done a good job when a customer says, “That can’t be right!” At that point remind him they are his numbers, not yours. Offer to go over them again, or to re figure the arithmetic. Finally, suggest to the customer to divide the number in half, divide it by 100 or 1000. It is still an immense value to the customer.

An important dynamic in selling is to educate the customer to what it is costing him to go without your solution or product. An IRA is an especially good tool to do this. In the leaking sale example, it is costing the customer at least $700,000 a year to go without your solution. And you can legitimately argue it is truly costing the customer millions in costs and lost sales over the life of the application.

You say to the customer, ‘This is a big cost savings opportunity for you, at least $700,000 per year. Let’s see, that costing you almost $60,000 a month. Really it’s costing you $2,000 a day. How can we help you.....? Starting today?

This technique is also useful in shortening the sales cycle. The customer will always remember ‘$2,000 a day’ and will move faster.

You can easily prepare your IRA worksheet and calculate your IRA with customer. But before doing this activity you will have to sit with customer with proper sales planning. Here, the reason I am giving importance for planning is, IRA is combined with sales call. You are conducting sales call and at the same time you are also doing IRA surveys right? You have many opportunities to carry out IRA calculations in different method. One of the most important activities is conducting plant survey, or sitting with maintenance (OEM/MRO) supervisor discussing on all applications and finding out where exactly the customer is in need of solution of his problem. Here one more opportunity available is, you can collect more and thorough information about application by the supervisor. Even you can collect actual amount incurred on the existing method, assembly design and also history of the application. This information would be very helpful to prepare IRA WORKSHEET and to discuss with decision maker for further course of action. Remember that you are calculating each customer benefit in terms of dollars saved and return on investment. You are also showing No. of labors saved, No. of parts saved, downtime cost, assembly hours, material cost, scrap cost etc. Investment Return Analysis work sheet is an easy tool to boost your business on long term. Apart from the above, the selling cycle should also be maintained regularly so as to keep your customer in your grip. S o I suggest you to plan IRA work sheet calculations combining with your sales call. Easy method is to get appointment for IRA worksheet; you need to collect data from the customer you targeted and prepare the entire required information chart/tools before meeting the client. It is observed that 80 percent of salespeople have furnished their IRA worksheet during sales call and submitted to the management. So is it not an easy tool? Read more on IRA.