Question

Sample Value Justification Exercise

Current Environment

X-Y-Z Software, Inc., is a 20-year-old company that specializes in project management software applications. The sales staff consists of 106 direct salespeople who are located in nine district offices. Not one of the direct sales offices was within 20 percent of their quarterly forecasts for the last year, and the international distributors did not prepare forecasts. In June 2017, at the semiannual sales meeting, the CEO announced that the direct sales staff and all distributors would be required to produce accurate monthly sales forecasts. During this last six months of the year, sales revenue decreased by 11 percent from the same period of the prior year. According to the district sale managers, sales were declining because the sales staff were spending too much time doing their monthly sales forecasts and were not selling enough project management software.

Four X-Y-Z clerks work full time on compiling the sales data and producing the monthly forecast reports. Because the management team wants the reports issued no later than three working days after the end of the month, the clerks will have to work 75 hours of overtime each month. Additionally, the cost to bring the international distributors into the process will require three additional clerks. The clerks make $10 per hour base pay with overtime pay at $15 per hour. The clerk's benefits costs are calculated by the company at 40 percent of the base pay

rate, with no benefits costs assigned to overtime pay. The clerks work an average of 20 days per month.

The 2017 sales revenue for X-Y-Z Software was $78 million, distributed evenly over the year. The average sale is $31,000, with an average profit margin of 10 percent. The average sales cycle is three months, and sales projections are based on four weeks per month. The sales force converts an average of 10 percent of first calls into sales

Buyer Vision

After extensive research and many meetings with SFA companies, the management of X-Y-Z Software had a vision that during the fourth quarter of 2017, the entire sales force would attend Solution Selling sales training and that the company would install Sales Force Automation (SFA) management software that supports the Solution Selling process. Management believed that by relieving the salespeople of the burden of developing monthly forecasts, each salesperson could make two more first calls per week. Additionally, management believes that the SFA management software will enable managers to do the forecasts without any clerical assistance. Based on the increased sales revenue and the decreased clerical costs, management believes the pipeline management software is justified.

Pricing Agreement

One-time costs:

SFAmanagement software (Compliant with Solution Selling) and

installation (due 50% in Feb and 50% in April)$149,000

Hardware equipment: $4,500 106 sales reps. (due $50,000 in Feb.,

$79,400 in April, $158,800 in May, and $158,800 in June)$447,000

_______

Total one-time costs$596,000

Maintenance costs:

Base Products 20% of original sales price = $2,483 per month

(due to start in April)$ 29,800

_______

Total maintenance costs$ 29,800

Value Justification Elements

1. What will be measured? IE.Increased profits, Displaced costs, Avoided costs...

2.How much is possible? InIncreased profits, Displaced costs, Avoided costs