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Benefits Growth Strategies
Why don't they want/use my solutions?
The high cost of doing nothing
By Kevin Trokey
I hear various broker conversations that include a similar complaint: that prospects just don't seem to truly appreciate the worth of the value-added services being offered and, even when they do recognize their potential benefit, they don't use them once they become a client. There are many reasons for this, but I'm going to focus here on several within the broker's control.
I am certain that many of the value-added solutions you take to your clients and prospects are intended to help improve their internal communications. You set up Web sites, you provide brochure/newsletter content, you discuss year-round communication strategy, you provide communication resources to improve performance management, and perhaps you even suggest ways to improve communication with their clients.
I would also hazard a guess that you can empathize with these conversations, that you have prospects to whom you present your solutions, prospects who would clearly benefit from having them, but who are never compelled to hire you to get the job done. I am just as certain that at least some of the prospects who do become clients never utilize the solution as either of you intended.
That lack of use will almost always happen for two reasons.
• First, prospect/client never finds the motivation to do the hard work of implementing the new solution/process/procedure that you are offering. This is largely because too many sales processes lead with the solution rather than a conversation about why the prospect may need the solution.
• Second, it's because we, as brokers, leave them to consider only the price of our solution (or worse, leave them thinking it is "free" and, by reasoning, has no inherent value) rather than putting them in position to weigh that price against the cost of their current action (or inaction as it were).
Discussing how to lead with the client-focused conversation is a topic for another article, but we will discuss some ways to start quantifying their high "cost of doing nothing."
Determining the cost of doing nothing for corporate communication
For demonstration purposes, we will evaluate the costs for our hypothetical "ABC Co." using the following information. Then, if your prospects can identify with this information for their own company, you can help them quantify their own financial impact of poor communication.
• 50 employees
• Average salary = $41,674 (average annual U.S. wage according to ssa.gov Web site)
• Revenue/ee = $100,000 (average revenue for small business)
• Profit margin = 10% (according to smallbiztrends.com)
We're going to evaluate the organizational impact of poor communication in four key areas:
1. Organizational vision (goals/objectives/performance)
2. Individual performance
3. Customers
4. Benefit program
1. Organizational vision. Employers need to communicate with their employees about where they are now as a company, where they are going, the steps they need to take to move from the former to the latter, and how they are performing as an organization at any point in time. Those who don't are disconnecting themselves from their employees and exposing themselves to the high cost of employee disengagement.
According to a recent Gallup study, the cost of disengagement is represented by something they call the "Payroll Efficiency Factor." In an average company, this runs 63% (leaving an inefficiency factor of 37%). That means for every $100,000 spent on payroll, there is only $63,000 worth of work being performed. Let's calculate for ABC Co.
• Annual payroll = $2,083,700 (average salary x number of employees)
• Engagement inefficiencies = $770,969 (payroll x inefficiency factor)
Let's assume that only 1/3 of that inefficiency could be attributed to this area, we still have a negative financial impact of $256,989.
2. Individual performance. Be honest. Almost no one enjoys performance reviews. This is mostly due to the fact that few managers have been properly trained on how to do them effectively. While there are many elements that go into effective performance management, ongoing communication between managers and direct reports is the key.
A study done by the Hackett Group shows that companies that excel in this area show a 22% improvement in net profit margin. Let's see what that translates to for ABC Co.
• Annual revenue = $5,000,000 ($100,000 rev/ee x 50 ees)
• Profit margin = 10%
• Net profit = $500,000
• Increased profit due to improved communication in this area = $110,000 ($500,000 x 22%)
3. Customer communication. We talk often about the importance of employee engagement, but almost as important is customer engagement. The key to customer engagement is twofold. First, engaged employees will result in engaged customers. Second, we have to ensure that we are communicating the right message in the right way to customers. When we do so (according to Harvard Business Review), the results are also twofold: Engaged customers will spend 23% more with us, and the dollars that they spend also will be 23% more profitable.
Again, let's see what that translates to for ABC Co.
• Current annual revenue = $5,000,000
• Engaged annual revenue = $6,150,000 ($5,000,000 x 23% increase)
• Engaged profit margin = 12.3% (10% x 23% increase)
• Engaged net profit = $756,450 ($6,150,000 x 12.3%)
• Improvement in net profit = $256,450 ($756,450 - previous profit of $500,000)
4. Benefit Program. We all know that employers want their employees to place the highest value possible on the benefits program provided. What we also know is that effectively communicating what is already in place is the key to maximizing that value. What we may not all know is the quantified cost of that value. According to a study by The McKinsey Quarterly, effectively communicating a benefits program can reduce costs by as much as 20%.
For ABC Co., that translates to:
• Annual benefit spend = $729,295 ($2,083,700 payroll x 35%)
• Potential benefit program Savings = $145,859 ($729,295 benefit spend x 20%)
These are significant numbers! In fact, they are so significant that you may struggle buying into them. Let's recognize that there is likely to be some overlap in these calculations and assume for a moment that they are overstated a bit. Actually, let's assume they are overstated by a lot. Let's say the potential cost impact is only 20% of that total. That still leaves the "cost of doing nothing" for ABC Co. at $153,859.
I don't know about you, but I still think $153,859 is a significant amount, especially in a company with $500,000 of net operating profit. When it comes to financials, you can either impact the bottom line (what we have identified here), or you can impact top line revenue. For ABC Co., whose profit margin is 10%, the other alternative would be to produce $1,538,590 in top-line revenue. I think it's pretty safe to say that would make you the best salesperson in the company.
So, there are four areas where we all know that communication is critical and likely four areas where you have been offering solutions that don't pique the interest of prospects or get used by clients. Perhaps if you helped prospects see the high cost of their current practices, they would find the urgency to work with you, and perhaps your clients would find the continued motivation to use what you have put in place.
As I said at the beginning, understanding this high cost is the first step. The second is your putting together the implementation plan (and taking the responsibility for its execution) that will ensure that your solution is used and used as intended.
If your solutions aren't causing prospects to buy and aren't being used by your clients that do buy, don't blame the solution. The likely problem is that the known "cost of doing nothing" and "plan for implementation" are missing from the picture.
It's up to you to complete the picture.
The author
Kevin Trokey is president of Benefits Growth Network, a membership-based consulting firm for employee benefits agencies and departments and their producers. He can be reached at kevin@benefitsgrowthnetwork.com.
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