www.mercuri.net

For more information contact: Richard Higham

Tel: +44 1932 844855 or Richard-higham@mercuri.co.uk

Using business

cases to defend

price

A Mercuri International White Paper

The business case and buying decision

It’s a great feeling! You can see that the client really gets

it. They are doing sums in their head and there’s a small

smile on their lips and a light in their eyes. It’s not just

that they like your solution. That’s important, but it’s not

enough. It is that they have worked out what it can do for

them and they’ve seen how they can get approval. In

short they’ve seen the business case!

Yet all too often we leave the business case to chance or

expect the customer themselves to do the work.

Why does the business case matter?

Building a business case matters to the customer. It

matters to you. It matters to the individual decision

maker. This matters to you because you need to

differentiate. Many of us are having to work in an

increasingly commoditised marketplace. Indeed many

procurement systems seem designed to remove

differentiators and make your offering seem bland and

homogenous. Your business case can make it clear to

your customer what makes you stand out. This matters

to your customer because it demonstrates that you are on

their agenda; that their business will benefit; that the risk

of working with you will be offset by the ensuing rewards.

This matters to your individual decision maker because

now they can see how they are going to be able to steer

your offer (that they really want) through the complexities

of budget, procurement and legal processes. In short the

business case you build is important to everyone. It’s the

key that unlocks the decision making process and the

keyhole through which people can see the benefits that

your offer could bring.

Why does the business case matter?

A business case is based on a set of assumptions. These

assumptions need to be both credible and coherent. The

customer needs to accept the underlying assumptions on

which your case is built so they need to be well founded

on the facts; and on the facts as the customer perceives

them. business case based on the assumption that there

was a 20% problem and that the firm must want to

address that would be deeply flawed.

The business case also needs to be based on a number

of components. These could include typical transaction

value; frequency of orders; average annual customer

spend; normal profitability; productivity per individual;

time-lag from offer to order; waste per unit; road ton mile –

the list is endless but you need to be clear which

components you should be using in your business case.

Winning growing and keeping clients Page 2 (4)

www.mercuri.net

For more information contact: Richard Higham

Tel: +44 1932 844855 richard-higham@mercuri.co.uk

The one component you always need is a timescale over

which you are going to express ROI.

The third element of your business case is the broken-

down costs of your offer. These could be expressed as

lifetime cost or as purchase cost.

The final aspect is the anticipated benefit. Here you will

demonstrate the impact of your offer on their business in

terms of the components of the case. You will need to

be able to prove these likely benefits by referring either to

actual cases or to hypothetical situations. These impacts

need to be strong enough to impress but conservative

enough to be credible.

How to build a business case

The starting point is information gathering. You need to

have a deep and broad understanding of the customer’s

situation; their mindset; their aspirations and concerns.

Your questioning and listening skills need to be in peak

state. You will probably need to ask different questions

and to cover different ground. You may need to be

intrusive in your questioning and your customer may be

surprised by what you are asking. So you need to be

sure to motivate their openness by explaining your

purpose and process and engaging your customer in the

shared process of building a business case.

Once the data has been gathered. The case needs to be

built. The key here is to use conservative figures that will

allow the customer to accept your premise without

difficulty. So, if you have discovered that the average

transaction is $7,300 but that a third of orders are under

$2000 you might like to build a case based on a “typical;”

order value of $3000. If the customer objects “oh no –

our order value is much higher than that” then you are

able to counter with “yes but let’s be conservative.” This

will reassure your talking partner but will also ensure

other parties not in the room are also satisfied.

You now work through a range of further figures such as

current conversion ratios, number of transactions per

employee and gross profit etc. From this you might

calculate the cost of each successful transaction – let us

say it is $1,000.

Let us imagine that your solution has the capability to

reduce this cost of sale to $700. You know there are

currently 100 transactions a month and these are growing

at a rate of 5% a year but even so you propose basing

your calculations on 1,000 orders a year “to be on the

safe side”.. You are therefore looking at a saving of

$300,000 in the first year.

Your offer involves a figure of $100,000 so the client can

expect a 3:1 payback. But a few further steps are

required to build the business case.

What is their current required internal rate of return to

justify investment in a project? Find this out and you can

strengthen your position.

How is profit calculated?

What is the personal/corporate impact of improved

profitability e.g. the subsidiary retains all EBIT above 11%

which has to be paid to Group or profit above x%

activates a ratchet increasing the equity share of the

management team.

Timescale: At 100 orders a month showing a saving of

$300 each our solution will generate a saving of $30,000

a month. It will therefore take just over 3 months to fund

the project from savings. With 6 months left in the

financial year your client can be very confident of not only

covering the cost of the project but of generating $80,000

ROI.

Now the question needs to move to proof. This could be

from a named client with hard figures. It could be an

endorsement from a client. It could be an anecdotal case

study. It could be a number of case studies all showing

similar or greater savings.

Throughout these discussion you need to come across as

confident but not arrogant, transparent and not

manipulative, co-operative and not confrontational.

Winning growing and keeping clients Page 3 (4)

www.mercuri.net

For more information contact: Richard Higham

Tel: +44 1932 844855 richard-higham@mercuri.co.uk

Top tips for business case

1. Make sure the customer engages with you co-operatively in building the case

2. Ask good questions to get at the detail you need

3. Get help from your own experts where appropriate

4. Always be conservative with your figures

5. Constantly check your assumptions about figures, timescales and perceptions

6. Understand how profitability works in your client

7. Use the business case to help your decision makers make the case for your solution

8. Be calm, confident and co-operative throughout

9. Back up your claims with proofs

10. Be willing to offer risk/reward sharing where appropriate

Conclusions

Building a business case is an essential weapon in the

professional seller’s armoury. At worst it will make the

sale easier as you help the decision makers’ job easier.

At best it will enable you win innovative business for

which no budget exists or permit you to differentiate

yourself clearly from your competitors.

A robust business case moves you from being seen as a

product-pushing supplier to a valued contributor to the

client’s success.

Richard Higham

Global Practice Leader

Financial & Professional Services

Mercuri International