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Understanding Total Cost of Ownership

Mary Grothe November 16 2022

Meet Host, Mary Grothe

Mary Grothe is a former #1 MidMarket B2B Sales Rep who after selling millions and breaking multiple records, formed House of Revenue™, a Denver-based firm of fractional Revenue Leaders who currently lead the marketing, sales, customer success, and RevOps departments for 10 companies nationwide. In the past year, they've helped multiple 2nd stage growth companies between $5M - $20M, on average, double their MRR within 10 months, resulting in an average ROI of 1,454% and an average annual revenue growth eclipsing $3.2 million.

 

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Hey, Revenue Radio®. I'm Mary Grothe. Today, I'm going to tell you a funny story from about 15, maybe 16 years ago. How did this story come about? Well, first, I got to record a podcast earlier today. I had a phenomenal interviewer, a very successful, accomplished CEO, and an entrepreneur. We got into some good questions and answers and story time. One of the questions he asked me was about understanding when you're selling to a CEO or engaged in that sales conversation with an executive and how you help them understand their decision-making. Maybe evaluating a couple of options related to velocity, opportunity cost, and efficiency, and if that's something I embody in all my conversations. So, without directly just saying yes, I told a story. While he was telling the story, I thought, “You know, this is probably good for Revenue Radio®. I want to create the experience here for all of you.”

Picture a very young Mary, 23 years old. Many of you know my story. I started at the Payroll & HR company when I was 22 as a District Sales Assistant, a complete entry-level admin position with no experience. Six months into the journey, I knew I wanted to be on the sales team. Fast forward a few months later, I was 23, and we had a sales kickoff. In that sales kickoff, my sales manager divided the team into two smaller teams and created a competition. During that competition, he decided to assign me to one of the two teams. He knew how hard I had been working. One, I had gone back to school. I was getting my college degree. Additionally, had been taking Dale Carnegie classes and listening to the Brian Tracy cassette tape series of the psychology of selling. I was immersing myself in the sales profession's educational components and getting my degree. During that time, I happened to be enrolled in a business class.

They were immediately let down when he assigned me to one of the two teams. They were not thrilled that they were going to have a 23-year-old assigned to their team who knew nothing and had never sold anything. Immediately, I felt a little wedge between me and the rest of the team I was assigned to. I also felt them just deeply questioning my manager, “Why are you putting our 23-year-old Sales Assistant on one of these two teams? She's not in sales and isn't like the rest of us.” The sales team was very mature, seasoned sales reps, so talented and far into their careers. As a reminder, for those of you that know the story, we were also the number one sales team in the country. Great talent, and they're very competitive.

Here we are split into two teams. I got assigned to one of the teams there was very much feeling at that moment that that was a significant disadvantage. My manager made it clear that everybody on each team needed to take a speaking part in this situational role-play competition. We were each handed two very specific, well, I'm sorry, they were the same scenarios. We had to role-play, and he was going to rate and choose a winner.

In our scenario, we were selling directly to a CEO, evaluating why he should move his payroll processing from an in-house to an outsourced model. While reviewing the situational analysis, I told this brilliant team of salespeople that I had just learned something called TCO - Total Cost of Ownership in my college course. As part of TCO and understanding the total cost of ownership, there are things like opportunity cost, efficiency, velocity, and productivity that should be brought into the calculation to understand how you can drive the total cost of ownership down and get better results.

Fresh out of class, I had just learned this, and I was very excited because I felt like I could contribute. I opened my mouth, and we were in the little brainstorming huddles. We had, however, much time to prepare before we got put in the hot seat on the role play. I was sharing my ideas around TCO. I think just because of my age and lack of credibility. They just shot down every idea that came out of my mouth, pushed me aside, and said, “You're the rookie. Sit there. Don't say anything. Just learn from the rest of us. We got this.”

The first team goes up to role-play and did a very good job. One of the team members was on the whiteboard doing this entire cost analysis. It was so brilliant. Her name was Katie, and I just looked up at her at that moment, and I thought, “Man, that is a boss lady. I want to be like that someday.” Then, it came our turn. I knew that we had some steep competition. At that moment, I did what my team told me to sit there, not saying anything. I was watching them think they were not doing a good job. The argument was not compelling. I wanted to save our team because it was a bad role-play. I grew up in the performing arts. I'm not afraid to be on stage, but I was so scared of what people would think of me at that moment. I just started sweating, my heart was racing, and I thought, “Am I going to speak up? Am I not? Am I going to speak up? Am I not? What am I going to do?”

At the moment, I had that bravery, the courage. I spoke up, and I interrupted the role play professionally. I interjected myself to the CEO, my sales manager, sitting in that seat in the role play. I started talking about the total cost of ownership. I addressed that I felt the reasoning or rationale for the decision to outsource was falling flat. I said, “Let's do a simple calculation and understand this.”
I started walking through the total cost of ownership, diving into opportunity cost, velocity, efficiency, and productivity. I led that conversation. I think everybody in the room had no idea that I had that inside of me or that I was capable of that being transparent. I didn't even know I could do that under pressure in front of all those people. I remember my voice was shaky when I first started talking. We've all been in that seat where your heart is beating so fast. It's like taking oxygen. You go to open your mouth, and it's like you don't have enough air in your lungs. You can hear that nervousness when you're speaking.

At that moment, I got to prove the total cost of ownership and how it would change between in-house and outsourced payroll. Of course, we won the competition. My sales manager was so impressed. The team was impressed. I earned a couple of stripes that day. It was really exciting to have them start to look at me in more of a more serious light. At that moment, I learned that a CEO cares about those things. A business owner cares about the bottom line. They care about their total cost of ownership. They want to understand how you can impact that, so I carried that with me. It was a common theme throughout all my years of selling in understanding how to communicate with them.

At House of Revenue®, I get to do business development, talk to CEOs every week, and they're evaluating. “Do we hire a CEO full-time? Do we work with you? Do we hire fractional? Do we get a consultant? Do we not need a CRO? Do we need a Head of Sales? What do we do here? A lot of the conversation I get to bring forward is that evaluation. I ask some key questions, so I can understand the lay of the land, understand some of the financials at a basic level so that we can break them apart, understand what the business has done to get through startup scale, what they've done so far in their journey of second stage scale, which we define would post startup scale. They've already achieved a few million in revenue. Often, they plateau, whether a long plateau of a few years or months. They're starting to panic because they don't have that same growth trajectory. It's helping those CEOs understand, well, your total cost of ownership has shifted.

When you get out of the startup scale, your predominant focus is product-message fit and getting to product-market fit. When you go into the second stage scale, you're looking at go-to-market fit. Then, that way, you can go into your scaling journey. That's where we're having the conversation. Well, the cost of ownership is very different in the ways that you can bring in opportunity, velocity, efficiency, and productivity. It's different. I love that opportunity to talk to business owners and figure out, “Where are you stuck, and what is the best option for you?”

Yesterday, I had a fantastic conversation with the CEO because they are on the high end of people, we serve on revenue point. It was such an awesome conversation, just laying everything out on the table. It wasn't a sales pitch. It wasn't a sales conversation. It was CEO to CEO just sitting there trying to figure out the best path forward. That is how I have approached sales since day one, and it has worked well for me, so I wanted to share this story with you. I thought it was such a fun story to share. Just about 23-year-old Mary understands for the first-time total cost of ownership.

I also share this because we are entering a tough time. A lot of people fear this recession. I can tell you, as a business owner, I already feel pinched. Q3 was so hard for us and everyone I know around me. Even Pavilion put out a study that had a very high number, a percentage. Forgive me. I don't know. It’s on top of my head of companies that did not achieve quota in Q3. Then, as they went into Q4, the number of respondents talked about the percentage of people that were going to change the forecast for Q4, just their annual sales goal, and the number was very high, over 70%. I know we're in an interesting time right now. A lot of focus is going to get put on sales. How do we keep the pipeline full, and how do we maintain high conversion rates?

I want to wrap this episode up to give you some encouragement that we're all going to be in the hot seat. We're all going to be feeling the pressure from inflation if we're not already. People are tightening their wallets, taking longer to make decisions, and involving more people. Pipelines are smaller, the decision timeline is longer, and people are getting more aggressive in their negotiations and discounts and expecting more from their vendors.

I encourage you to drop the sales pitch, drop the agenda, sit there, and have a real conversation. Be willing to admit it's okay if that person's not the right fit for you. I think it's time for us to quit focusing as much on our real bank account and more on the karma account if we're doing right by people. Sean Jacob's at Pavilion just wrote a post. He always leaves money on the table and never splits the difference. I was relieved when I saw that post that there's someone out there with his influence, in his stature, that's willing to say in front of thousands of people that it's okay to be a good person, to let things go, to meet in the middle, or even give the shirt off your back.

It gave me a lot of comfort at that moment to say, “You know, this is a tough season for a lot of business owners. But if we can get to the real raw relationship component we're having in our sales conversations, honoring people at that level, and getting to the bottom line, can we help each other or not? Are we a good fit or not? Is this the right fit or not?”

I recommend that if you're sitting in a sales seat, whether you're an executive owner or a salesperson, start changing the conversation in leveling with people. I'm guessing everyone's dealing with a lot of cruds right now. If you're a sales team leader, I encourage you to pull your sales team together and have honest conversations. Go back and listen to their calls if they're being recorded. Start to identify the trends in the conversation. Use a conversation intelligence tool. Figure out where those salespeople can drop their passion, guard a little bit, level with people, and have a real conversation. My gut is telling me it's going to result in a lot more sales. Good luck with this rocky season that we're all in.

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