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The Key to CFO Approval for Efficiency Equipment Investments

September 25, 2014 By Dave Jaros

Dave Jaros

Selling energy efficient equipment that makes business sense shouldn’t be this hard, right? Where else can CFOs make investments with 2-year paybacks and ROIs that make Wall Street jealous? So, then, why is it that so many projects simply don’t get approved? According to a recent survey we conducted with efficiency equipment companies, 16% said that less than 10% of their projects get approved and another 30% said their approval rates were less than 25%. What’s the trick to getting building owners to make efficiency investments?

We spend a lot of our time helping our partners (efficiency companies who sell equipment to commercial building owners) win more deals. A big part of the solution is financing, but there’s another piece of the solution that so many companies simply get wrong: the selling itself.

Now, to be sure, our partners are expert at selling the “replacement sale” and, in fact, many have built nice businesses installing new equipment when something breaks or is end of life. Where they seem to struggle is the “investment sale.” That is, how to convince a CFO to opportunistically spend thousands of dollars on something that isn’t broken. The replacement sale and the investment sale require two completely different sales strategies. Selling an investment like you would a replacement is a recipe for frustration and failure. So, what’s the difference?

The key to understanding the replacement sale is that your facility contact must buy something. And, if it’s broken, he or she must buy something soon. The scope is clear; it’s time sensitive; it’s (probably) budgeted; and the CFO is in the loop. There will be a transaction. If you have the right product at the right price, it’s your sale to lose. Your facility contact recommends your product to the CFO, the CFO grumbles a bit and eventually signs the PO. In this sale, your facility contact drives the purchase decision. The economics of the purchase (e.g. ROI, payback, etc.) matter, but they’re secondary because not approving a purchase is not an option. The chiller, for example, must be replaced. And, as I mentioned above, many efficiency companies have built their businesses around the replacement sale.

The investment sale is completely different. Nothing is broken. No tenants are complaining. There’s no urgency to do something. That is, the CFO doesn’t have to purchase anything. So, approaching an investment sale by pitching a product like a replacement sale will fail time and time again. Why? In an investment sale, the CFO is not buying your product; he or she is investing in cost savings, which manifest in net incremental cash flows. Replacing the lights is an investment that has a return that’s measured in positive cash flows. Like any investment, there’s risk. LED lights clearly use less energy, for example, but will the reduced maintenance costs and increased rental income really materialize? This is the CFO’s thought process: the balance of risk and reward.

So, how does the investment sale differ from the replacement sale? First, you should lead with the business case and investment analysis, not your product. In an investment sale, the product is the means to the investment return. Think of it this way: you buy a mutual fund for the future returns; the individual stocks are how those returns are generated.

Second, you need to make the pitch to the building owner. In a replacement sale, your facility contact can present your product and your price to the CFO and act on your behalf. In an investment sale, your facility contact doesn’t have the expertise and probably not the confidence to present the investment opportunity. You need to be there, in the room. This is a conversation about dollars, not kilowatts. Shaky delivery undermines the CFO’s confidence in the investment’s return and ultimately the proposal’s chances for approval. If you’re not comfortable doing it, bring someone who can. (This, again, is where Noesis can help.)

Third, include 3rd party financing. Investment sales are opportunistic, unplanned and unbudgeted. Asking a CFO for tens, often hundreds, of thousands of dollars for an unfunded and unanticipated project is nonsensical. The good news is that many of these investments can be funded with standard equipment leases, and most are cash flow positive from day one when financed. Give the CFO the rationale for the investment, and then let him or her know how to fund it. Make it as easy as possible for the CFO to say yes.

Finally, stand by your investment proposal. Offer to provide M&V so you can ensure it is delivering the savings you forecasted. CFOs understand there’s risk, but offering to stick around and be accountable goes a long way. And, if the CFO wants, use performance-based financing, representing to the CFO that you’re willing to stand behind your product and work.

Equipment will always need to be replaced, and billions of dollars is spent annually doing it, but the real growth opportunity for efficiency companies is getting CFOs to make equipment investments, not just replacements. The investment sale is different and, in some ways, harder, but the upside is tremendous. Early on in the sales cycle, determine whether the opportunity is an investment or replacement sale, and make the right adjustments to maximize your chances for success.

David Jaros is VP of Marketing for Noesis.

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