Why selling outcomes – not products – is the only way forward.
This article can be summarized in five points:
(1) More than ever before, businesses must see the tangible value their vendors provide.
(2) Vendors will be strictly chosen based on their ability to deliver quantifiable outcomes.
(3) Selling value that can not be measured is no longer viable (ie. selling efficiency).
(4) Vendors must prove delivery of quantifiable outcomes (being a system of business intelligence will be critical).
(5) Customers will pay more for delivery of quantifiable outcomes (return on investment is easy to justify).
It is good to understand the context of how we got here and why I believe selling outcomes is more important now than ever before. At my company, InstaSupply, we (and anyone else in business technology for that matter) must move to deliver quantifiable outcomes to acquire, retain, and add value for customers.
Version 1: Pay Upfront
Remember the days of buying disks to install software on your computer? I sure do!
From the 80s to the early 2000s businesses paid millions up front for the installation of on-premise software. Finance and accounting departments categorized this software as a capital expenditure or CapEx. Software was an asset; depreciated against income (like machinery). The assumption was the software purchased was going to be used forever or “in perpetuity.”
After 10 years or so, companies realized that software regularly changed, needed to be updated, and was not always compatible with new hardware investments. On top of this, dut to the complexity of the product, many businesses were using a mere fraction of the software features despite having paid for an entire suite.
The customer was responsible for obtaining value from the software after installation, and the provider was off the hook after the sale. As businesses became more acutely aware of these problems, a revolutionary model emerged to address these challenges.
Version 2: Pay as You Go
In the late 90s, innovative software suppliers and new entrants began capitalizing on the rise of the Internet to provide software in the “cloud.”
Software transitioned away from being categorized as an asset and became a service. This change meant a shift from CapEx to OpEx, moving the cost from the balance sheet to the income statement. “Software-as-a-Service” or SaaS was born.
Pioneers in SaaS, such as Salesforce, were able to take advantage and offer value over the competition with methods such as lower prices (pay in instalments) and free upgrades for life.
In this world, vendors had more skin in the game; they now had to make sure their customers were happy if they wanted that recurring revenue stream.
Almost 20 years on and there is now a plethora of niche SaaS business applications flooding the market. Software-as-a-service is now pervasive, and this pervasiveness is eroding more economic value than it is creating. We are entering a period of value erosion.
Take the highly competitive airline industry. The service provided by different brands is now virtually indistinguishable. Aggregators, such as Kayak and Skyscanner, have further fueled the commoditization of air travel.
Passengers just choose the cheapest ticket as they see very little differentiation in the service provided. Music has experienced the same. Even now Amazon is giving away their music streaming service with a prime membership! It seems to be a zero sum game.
The same is happening in SaaS. If your product is not better than your competitors’, you have to set your prices as low as you can go.
As an example, at InstaSupply, we just migrated from one sales CRM to another because it is just as good and free! If you don’t lower prices, customers will expect you to continuously customize your product to their exact specifications and needs so they can justify value of their investment. Get the most bang for their buck. We have been caught in this trap before.
Version 3: Paying for Outcomes
SaaS solved the lack of usage problems and upfront investment, but has it solved the problem of realizing a set of quantifiable outcomes?
Examples of quantifiable outcomes: Instead of Rolls Royce selling a jet engine, an airline pays them per hour of engine uptime. A mining company pays per drilled meter, not per drill bit. This concept works well because it transfers risk from the buyer to the seller. If the outcome is not delivered, the customer doesn’t pay.
This model provides the maximum amount of value for the buyer and the supplier; as delivering a set of quantifiable outcomes allows the supplier to justify making more money.
If I could provide $100k a month of tangible value (real money) to you in the form of either savings or new business would you pay me $40k that month? $50K that month? Of course you would – that’s a fantastic return! I believe we are entering a period where technology vendors will be awarded business on the basis of delivering against a set of quantifiable outcomes.
To succeed you need to be more than just an improved interface (or even an interface at all) with a few extra features; we must sell measureable outcomes, not products or features.
At InstaSupply, we are now starting to ask customers how they define and measure success, and how will they know we have added real value to their business? We are often crafting this together.
What has changed is that we are starting conversations around delivering quantifiable outcomes that provide value. We are transitioning to be a company that leads with tangible value creation, and we just happen to deliver and sustain this value with intelligent technology.
What are your thoughts on selling outcomes vs products? Let me know in comments below.
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