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3 Ways To Increase Your Average Contract Value

The first quarter of the year is traditionally and seasonally the lowest producing quarter for most B2B sales organizations. We thought this would be a timely subject for many sales teams.

One of the easiest ways to improve revenue production in sales is by increasing the order size for each transaction. Research indicates that it takes less effort to sell more to a committed customer than a new prospect. Over the years, I’ve helped many companies measurably increase their average contract value with some simple steps. Here are three profitable options for increasing your average contract value with examples from companies you may recognize.

1. Upsell/Cross Sell. Although this is a commonly known strategy, most sales people struggle with this skill set. The reason they struggle is capability knowledge saturation. If the demand isn’t naturally there for secondary products or solutions, they won’t spend the time or energy learning a new set of capabilities as a way to optimize their brainpower. Consequently, these additional revenue sources lay untapped.

We’ve found if the seller is focused on the problem set versus the solution capability details, they can be much more effective in cross selling and upselling while minimizing their neuron load. For example, consider the software sales professional that has professional services as an additional revenue source. Rather than push a data sheet describing their professional services capabilities, arm them with three simple problem probing questions that create the need for professional services.

  • Now that you’ve decided on the software solution, I’m curious, does your IT team have the resources to install and configure this solution in the timeframe you need to have it up and running?
  • If they do have the resources, do they have the skills and knowledge required to install or configure this software in such a short timeframe?
  • Should your IT staff be burdened with this installation, or should they be focused on more strategic initiatives?

Dell used this strategy to introduce a much broader solution portfolio including servers, storage and services. They tracked a 26% increase in their attach metric, and ultimately built a new revenue stream measured in billions.

2. Deliver a real proposal with two options. Most proposals are not proposals. They’re more accurately described as a price quote with a gracious cover letter or an overview of the vendor’s capabilities, history and success. I’ve heard this referred to as We- We’ing all over themselves. A vendor centric overview does nothing to help the sponsor sell the initiative more effectively and worse, often drags out the sales process while the decision maker seeks answers the sponsor is not prepared to address.

In lieu of the less effective price quote approach, we recommend delivering a real proposal that includes an executive summary of the business issues facing the customer, the underlying people/process/technology problems impeding the resolution of the business issue(s), and the impact of taking action (or not taking action). We also suggest including the configuration requested by the sponsor as well as an optional configuration recommendation based on the business issues, problems, and/or impact identified. What happens is interesting. This type of proposal can actually sell for the seller when it’s presented to the decision maker. Contrast this to the sponsor that is ill prepared to persuade a decision maker to part with some money using a simple price quote. And moreover, if the business issue identified is actually compelling to the decision maker (meaning they are under scrutiny to address the business issue), they will usually lean toward the configuration that will do a better job of resolving the business issues at hand causing the purchase size to increase.

Cadence Design Systems, a leader in Electronic Design Automation, used this strategy to boost their revenue growth from a yawning 6% to an enticing 30%.

3. Disqualify Opportunities More Often. Although this seems counter intuitive, the science behind this strategy is straightforward. In short, working on prospects that can’t buy robs the seller of time that could have been spent on an opportunity that can buy, and can buy bigger. Alternatively stated, putting some engagements on hold frees up the seller to pursue other opportunities that can produce higher revenue.

One of our clients, Imprivata put this strategy into play and tracked a 19% increase in average contract value AND a 20% increase in the number of transactions closed per rep.

Here’s how it worked. When a lead came to the seller from their marketing automation process, the rep was instructed to ask three simple pre-qualifying questions:

  • Could the contact articulate the problem that could be solved by the vendor?
  • Could the contact articulate the impact of the problem in dollars or time?
  • Would the contact be willing to bring other stakeholders into the conversation?

If they received negative responses to all three of these questions, they were instructed to send some information and put the prospect back into the marketing automation nurturing process.

A negative answer for any of the first two questions could be overridden by a positive answer to the third question. The logic being that other stakeholders might be able to provide the answers to the first two questions, but the process had to be repeated with each additional stakeholder.

From a transactional perspective, the answers to the pre-qualifying questions armed the seller with more powerful information to make the case for a larger purchase. Combining this with the focus on prospects that were in a position to make an effective case for a purchase, the number of transactions increased as well.

As you look to improve your pipeline for Q1, consider implementing one of the strategies. These strategies work. But we advise you to implement only one at a time. Over burdening your team with more than one strategy can backfire.

Kevin Temple is the founder and President of The Enterprise Selling Group. Kevin has consulted for companies like Cisco, Dell, Polycom, Gartner, VMware and many others. His specialty is helping companies achieve a measurable improvement in key selling metrics like average contract value, largest transaction size and others. The Enterprise Selling Group specializes in sales training, sale enablement and sales effectiveness to improve the sales agility of sales teams worldwide. www.enterprise-selling.com