The Cost of Inaction (COI) in Sales
When it comes to sales approach and strategy, sellers are typically focused on their solution and the expected return it could bring to a prospect if the prospect just purchased the seller’s solution. The formula is based on the prospect’s current state - either an ineffective or inefficient way of doing something. This current state is then compared to some ideal future state that the seller’s solution promises to achieve. The difference between the current state and that promised future state is called the return. While this approach has its merits, it isn’t the most effective approach, especially given that the majority of deals are lost to no decision (specifically, 40-60% of deals are lost to no decision according to research conducted by Matthew Dixon and Ted McKenna).
And one of the major reasons why? Because prospects are okay with their current state, also known as the status quo. They may realize they have a problem, but they aren’t convinced it's costly enough to seriously consider alternatives. If a prospect isn’t motivated to seriously seek alternatives, no amount of pushing ROI stats is going to move the needle.
Instead, savvy sellers are turning to a new approach: calculating the cost of inaction. In other words, these sellers are helping prospects truly understand the cost of doing nothing; the cost of the status quo.
The following article will help you, as a seller, understand how to calculate the cost of inaction depending on the type of product you offer. (If you’d first like a detailed overview of the cost of inaction, you can find it here).
Raincoats
Let’s start with a simple example first before we get into more relevant examples. In this case, let’s pretend you’re a raincoat salesperson. If you were to adopt the traditional selling approach we mentioned above, you might tell your potential customers that with our raincoat, you are 10x less likely to get wet on your commute to work. This is called an inverted ROI.
But this inverted ROI calculation might mean very little to the potential customer if they don’t believe their rainy day problems are severe enough. From their perspective, they might already own an umbrella and think this is good enough (status quo). Why pay money for a costly raincoat when I already have an umbrella? But the problem might be more costly without them even knowing. Let’s look at how.
Research shows only 5% of consumers bring an umbrella with them to work. If we use a city like Chicago, where it rains 100 days a year, that means that the vast majority of the time, your potential customer likely won’t have their umbrella. And what do we typically do when we don’t have an umbrella when it’s rainy? That’s right, we call an Uber. And with surge pricing, your potential customer might be spending upwards of $40 on an Uber - every single time it rains. That adds up quickly! Even if this only happened to your potential customer 50% of the time (well below the average of 95%) that still equates to $2,000 spent on Uber!
Establishing the true cost of inaction allows your prospect to truly size up their problem and determine if it is worth making a switch or trying something new. In this example, it might be investing in your $100 raincoat that easily folds up in your work bag that you bring with you every day so you’re ready for the rain. By investing in your raincoat, your potential customer is saving hundreds if not thousands of dollars on Uber! That’s the power of the cost of inaction.
COI Example 1: Sales Tech
If we apply this same framework we looked at above to selling sales technology, we might first find that sellers typically focus on the value of their sales technology. This would lead to value propositions about increasing win rates, shortening sales cycles, or improving ACVs.
But what if we instead focused on the cost of inaction? How would this change our focus? While each sells technology is focused on different areas of the sales process, here are a few cost of inaction examples:
- Cost of inefficiencies: In sales, there is a huge cost to activities like entering data, finding contact information, and taking notes after a sales call. These activities can add up over time and are costly. In this example, it is the job of the seller to help their prospect calculate the cost of these activities to help them understand that they can’t continue on in their current state without incurring huge costs due to process inefficiencies.
- Cost of lost revenue: Cost of inaction may also result in missed revenue. As a seller of sales technology, you could help your prospect calculate how many deals they might be missing out on per month, quarter or year. How much is this in missed revenue?
COI Example 2: Cybersecurity
Calculating the cost of inaction in cybersecurity is actually straightforward. If an organization is unable to prevent an attack, what are the costs associated with the data breach? This may be costs associated with lost data, system downtime, and recovery efforts. But it could go deeper. How about the costs due to loss of customer trust and a damaged reputation? This may result in missed revenue opportunities in the future if the breach leads to a damaged reputation. Additionally, there may be regulatory fines or penalties associated with a breach. The cost of inaction can add up quickly in the world of cybersecurity.
COI Example 3: Cloud Providers and Data Storage
If you’re selling cloud storage solutions, your prospect’s status quo is likely an on-premise server that stores all of their data. There are plenty of costs associated with these on-premise servers like maintenance costs, IT staff, and system downtime. Furthermore, if revenues are tied to increased data, there may be limitations to scaling data if the servers are on-premise. This could lead to lost revenue.
COI Example 4: Healthtech
The cost of inaction for hospitals and hospital systems is wide-ranging - from the costs associated with manual data entry to inefficient patient communication to medical errors to patient readmissions.
We’ve covered costs associated with manual data entry and inefficient operations in earlier examples so let’s unpack the costs associated with patient readmission. Hospital readmissions within 30 days of discharge are a major concern, costing the U.S. healthcare system billions annually. If you’re a seller who sells healthcare technology that can reduce readmissions, the savings could be significant.
You may also be selling your healthcare technology directly to an organization. In this case, some of the costs associated with inaction could be employees missing work due to medical issues.
COI Example 5: EdTech
Like we saw in previous examples, there are a number of costs associated with inaction in education. If you’re selling a technology to high ed institutions, they are probably wasting dollars on manual entry or inefficient operations.
You may also be selling to corporations who have seen a major jump in employee turnover the past few years. Employee turnover is extremely costly for organizations. And while turnover might not be an issue, lack of innovation may be. If employees aren’t upskilling or reskilling, they may be falling behind which may result in missed revenue opportunities.
Conclusion
The cost of inaction is a hidden expense that can significantly impact your prospect’s bottom line. By understanding and quantifying this cost, you can empower your sales team to have more impactful conversations with prospects, drive urgency, and ultimately close more deals.
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