Overcoming budget constraints through extended payments by Drew Wright (Guest Blogger)
As the saying goes, “If all you have is a hammer, everything gets pounded like a nail.” Such can be the case when it comes to discounting and closing deals.
“Ms. Technology Buyer, the price is $500K,” says Joe Software Sales.
“I only have $400K in my budget,” replies Ms. Buyer.
“Sold!” exclaims Joe Sales.How many times have we seen this occur? Certainly not with the upper echelon of your sales team, but most teams have some mix of A, B & possibly C players, and plenty of non-A players have taken this path of least resistance.
What’s the alternative? In the land of give and gets, you can always eliminate product in the solution, especially if it includes product that is more of a nice-to-have. You’ll likely be looking for a new job if you consider deferring the deal until the full budget is available. How about leveraging multiple budgets to get the desired value?
Extending payments
What if Joe Sales instead says, “Great! How about if you pay $400K now and the balance next year?”
To which Ms. Buyer replies, “Interesting. Let me talk to finance to see if that works.”
Now you have changed the conversation and potentially pulled in the broader decision-making team.
Joe Sales can add, “Sounds good. Let’s have a meeting with finance so that we can also show the business case for the proposed solution to provide additional context.”
I talked to my colleague, Greg Turtletaub, who has been running vendor finance programs for nearly two decades. He just helped one of our clients close a couple of deals this way. In both cases, there was a price-to-budget gap in excess of $100K and in both cases he worked with the account team and customer to close the full amount using extended payments—in both cases, a simple deferral of the gap amount to the next budget cycle.
He also helped another client significantly grow a deal, pulling in a phase two solution by deferring payments on the phase two products to the next budget cycle. The deal grew $700K!
In all cases, the client received full revenue recognition and sales was fully compensated.
Key takeaways
Extending payments helps to reduce or hold discount and avoid stripping out solution components. They can also help grow deals. Structuring the deal can also result in a business conversation with the ultimate financial decision maker to review the business case and supporting payment terms. In some cases, finance may not agree to the payment terms, but may find budget based on the business case.
A cautionary note: If you don’t have a vendor finance program, you may be able to do this on your own, but revenue recognition will likely be deferred (along with cash collection). If revenue recognition and cash collection are important, contact us, we can help.
Drew Wright co-founded Technology Finance Partners in 2000 and has driven hundreds of millions of dollars of enterprise technology investment through strategic consultation on deal structuring and collaborative business case analysis support. This ongoing effort gives Drew a unique understanding of the real value of technology, from IT infrastructure to business application as well as a practical perspective regarding pricing and delivery models. Drew has spoken at a number of software conferences on the subjects of ROI, green IT, SaaS pricing strategies and customer analytics.
Prior to TFP, Drew was a vice president of ADAC Capital, ADAC Laboratories’ customer finance program. His professional career started in the medical device industry where he traveled to 48 of 50 states to see orthopedic surgeons implant the custom knee and other joint implants that he designed. Drew earned a BS in mechanical engineering with an English minor from Cal Poly in San Luis Obispo and an MBA from UCLA’s Anderson School.
Drew loves his family, and relishes the journey and travels he continues with his wife, Amy, while taking pride in the creativity of his children as they amaze and challenge him daily. He is an avid reader of sci-fi and fantasy and mostly rigorous with his diet and exercise in an attempt to match his youthful mind. Drew is also a sports fan (Go Niners, go Giants) and jumps at every chance to coach his kids’ teams … and, yes, being a native Californian, he has been known to hug a redwood tree. Check out TFP at www.technologyfinancepartners.com
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