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Hello Ladies and Gentleman. Welcome to the first ever episode
of Light Bites, which will feed your brain in 15 minutes or less.
My name is Nathan Isidora and on behalf of Philips University
I would like to thank you for attending. Our presenter today is Paul Hafner.
Paul has been working for almost 30 years, trying to help people understand the what,
the how and the why of lighting and energy conservation.
He learned about light and lighting by doing lighting.
Paul developed, implemented and commissioned projects in both the private and public sector.
Today he provides training education for Philips
and other clients focused on the end user.
He uses engagement as the cornerstone as his training approach,
so please do expect to be asked to participate today.
So now, without any further word, Paul Hafner.
Welcome to the money of light.
So when you propose
an energy conservation solution to your customer externally as
a sales rep an engineer or a designer or internally as
a colleague 9 out of 10 times you are going to use the generic financial language of
pay back and ROI.
it is expected
but is it connected to what matters to your customer?
Suppose you did the unexpected
suppose you surprised your customer and used
the financial language that connected to
how they create their income stream or
their profits making that connection
engages your customer and changes what the investment
and the savings mean to them and to their business.
During the balance of this 15 minutes webinar
you are going to learn how to use 2 techniques
designed to engage your customer emotionally
and accelerate the time to a decision.
Let’s begin.
Lighting and other energy conservation proposals
focus on these 2 financial metrics
Payback which is
the incremental cost or investment divided by the first year’s savings
and ROI which is
the first year’s savings (sorry it is not flipped upside down here)
divided by the incremental cost times 100 %.
Payback and ROI typically we treat our customers
if they were in the energy saving business when in fact
only ESCOs energy service companies
and utility make their profits saving energy.
Everyone else earned a profit
by selling something servicing something serving
someone or some combination of the three.
The challenges I see yet from my work experience
is what would happen to our conversation if we translated energy saving
into a financial metric that was more meaningful
to our customer. Your challenge is much like
making electrical connection in another country.
We need to adapt a plug so that our power supply
for our computer or a shaver will work
in that local pocket. In the same way
we have to adapt our discussion of money
to a language that connects with the customer at an emotional
and motivational level. How could we do this?
Well let’s start with a simple example of pay back and ROI.
Please get your calculators ready.
So we have an investment of $25 000
and a first years savings of $10 000 pretty simple calculation.
Divide 25 by 10 how many years will it take to get back our investment?
25 divided by 10 2.5 years.
Now the ROI investment we are just looking
at the calculation over
and we are gonna take the first year’s savings $10 000
put it over $25 000 multiple it times a 100 percent
what’s our percentage of ROI? 10 over 25
is 0.4 times a 100 percent
40 % ROI and payback and ROI calculations are quite simple.
But very early in my carrier as a trainer
in the Philips Lighting center
in Summerset New Jersey I used this technique.
And I don’t say it’s backfire because I really learnt a lot from it
and what I learnt changed forever how I thought about communicating
financial ideas to my customers.
A supermarket chain was visiting the lighting center
and trying to build in the store planning and operations.
Arrived with his architects and 4 companies BPs and so we discussed
light and lighting for their 325 stores.
Each store had a project of about $ 25 000
and a savings of $10 000 just like
the discussion we just had
a payback of 2.5 years and ROI of 40 %.
Well Frank and his team immediately bought the 2.5 years
payback and the 40 % ROI saying that their store manager
would lose out on their bonus for at least 6 months and more likely 9 months
and they would never ever go along with that.
They could not sell this idea internally.
Well I thought about that for a moment
and I gave Frank a calculator so I am gonna ask you to open
your calculator and let’s just do a quick
calculation here. Net net for a supermarket chain
about 1 % so here is what I asked Frank to do
and here is what I’m going
to ask you to do.
Enter $10 000 dollars into the register of your calculator.
Divided by a penny
or 1 percent
what’s the answer?
Good… and that’s exactly right, yes. 1 million dollars.
million dollars that would be an actor
That was the answer that appears in the register.
Frank, if I could show you how to put the equivalent of a million dollars through the register
of each and every one your stores, could we have a more serious
conversation about
those and immediately clicked to Frank he knew
what putting a million dollars through the register
cost their supermarket chain. And he knew that his store managers knew
what that was. This changed the context and
stopped them in this… Did they change the payback? No.
Did they change the ROI? No. What they changed was
the context of the discussion.
And so we spoke this language of the customers and wound up back in their
offices the very next day.
We moved the project forward. Let’s use another example.
This time property management.
3 million square feet trying to get a property manager
with a potential of 45 small projects within this
3 million square feet of property management.
Couldn’t get an appointment with the property manager which was the first step
to getting to the owner.
Again, payback and ROI
was a two and half years and 25 thousand dollars cost,
10 thousand were the savings and
we knew though that by taking all the numbers we had about a 15% ,
uh I’m sorry 15 cent per square foot increase in net operating income
or a 15 cent per square foot decrease in net operating expense.
So even although level of interest
was very low, our payback and ROI side
a phone call to the property manager had the following consequences;
I asked the property manager to plug in 3 million dollars
into the register. So if you do that please on your calculator
we are going to get ready to do call
in question number 3.
And then multiply that times 15 cent of square foot
which is the increase in net operating income or decrease in net
operating expenses.
What is the answer? How many dollars
worth of saving will this property manager be able to deliver
to the owners of the property?
And the results of the poll are yes,
450 thousand is the correct answer.
450 thousand dollar is what the property manager could deliver.
Now, to get the property manager’s attention it turns out
that they would pay the incentive, an increase in the net operating income
and decreases the net operating expenses.
This is a total about 3% over a budget number.
Now go ahead and do another calculation.
Multiply 450 thousand dollars times 3%.
What you get in this answer?
It turns out while you are working
on this that the payback and ROI
was really a non-starter in both instances.
Both in the supermarket instance and in the instance of the property manager.
But finding something that matter to the customer
that spoke a language that they understood and worked
in property management its cost per square foot
made a difference in the selling process
in the communication of the value proposition
through this particular customer.
So there you have it 13 500 in fact,
that’s what the incentive was
for the property manager.
Now, think about this.
This is a 1 125 000 dollars project and investment.
That sounds like a very big number
but when we look
at what this can be translated into
speaking a language of a customer let’s just choose one of the many ways
we can value a building.
Let’s use the capitalization rate. 450 thousand dollars
worth of saving at a 10% capitalization rate
means that we have added 4.5 million dollar
in additional value to the building.
Now how big does a 1.1 million dollar investment seem?
So the key to all of this,
the point of this webinar is to just watch your appetite.
So the notion of looking at the financial aspects of
engaging the customer. With the supermarket,
translate that that payback and ROI into through the register.
With property management translate it to the increase in net operating income and
net operating expense.
But any business had some type of financial matters.
Take a look at what it is and how you can make
that click with your customer. How you can make the connection.
Thank you very much. Hope this has been helpful to you.
Back to you Nathan.
Thank you Paul for that very interesting and very interactive presentation.
Ladies and gentlemen if you have any questions now is the time to ask them.
Paul will read them out and answer them the as best as he can.
And if you don’t have any questions I hope you enjoyed the presentation and we will go
to the next light bites.
There’s a question about
the incremental cost and the formula. There are two ways of doing that;
the incremental cost is the typical way
in energy conservation that we use because there is an alternative
investment, something else that we would be spending money on.
But sometimes the customer requires that it’d be done
as a total investment.
In this instance I should have been clear on that but total investment was 25 thousand dollars
and that was
what was actually going on in that first thing.
Good question, nice capture, thank you.
OK, there’s also a question here; can you please give me a quick resume
about the supermarket case please, how did you stay engaged your client in the audio set up?
Basically, the client was in the Lighting Centre
for a presentation on light and lighting
and how to improve the look and feel of the supermarket,
which is my primary concern but what I wanted to do was to get the customer
to get emotionally involved in it and by using the 1% net
net in other words their net profit
going through the register with about 1% of sales
and so, by dividing
the 10 thousand dollars saving by the 1% net net profit
it’s the equivalent of having sold a million dollar worth of groceries
through the register. And so that’s what we did this particular customer.
Thank you for that question. And there is a one last one here.
We put this in a document that we can use as a pool
when we meet with different customers.
We certainly can, in fact,
but you have to get the customer
to talk with you
and help you to understand how they talk about money.
So, one is you understand what it is that important to them, what they value
in this conversation. You certainly want to use that
in your proposal because very often, I think
you all agree, we’re very often not in the room
when the final presentation is made.
Ok.
Another question is:
Can we include depreciation costs? Ok.
This is just as simple tool for a 15 minute webinar there are
many many many
financial tools that can be used in a presentation.
The key is what matters to your customer.
If they want to understand it
in terms of net present value or internal rate of return
or they wanna see what
the depreciation is for tax,
affect situations, certainly,
that would be a valuable thing and actually Nathan that might be
an interesting webinar one day.
Let’s see… Ok…
It is interesting to know
but I get different kinds of customers in what should we do.
There are examples that you could use for help further, examples that you
could use for manufacturing,
it depends on what it is that
you are focused on and working with the manufacturer
sometimes we’ll talk about
the cost of safety, what is, one the last time accident,
what is that cost of that to the company and translate it
into those things but you got to give the costumers what is called
self documented proof statements in other words
if you try to tell them the…. you are going to operate more safely
in the environment
that does not get you anywhere because then you get to prove that.
But if the costumer that you put in a demonstration
says the work force has indicated that they
are working more productively or that they feel like they are going
to operate your contract now you have the customer self-documented proof
and that can work.
There are many other examples of working with hospitals
and health care after the cost of replacing an RN has
something to do with safety and parking deck next to the hospital.
And there is a lot of different ways
that you can take these ideas translate them
and I think we are pretty much out of time for today
but ok let me just see here
supermarkets so they would have to sell an extra one million dollar ….
So yes, that is correct. The question is: so they would have to sell an
extra one million dollars
of product to make the same amount as this project would save if that is what you are saying.
yes, that is exactly what I am saying and that is why
Frank got so excited once we put it in that term.
This is not referring to other questions this is referring to LED lighting
no this was… I do not know how many years ago this was,
this was 12 years ago when this happened there is no way we were doing
LED at that time.
Would it be possible to put together … the financial
… outline of all these methods.
Yeah I am not prepared to do that
at this point but
we could certainly look at that,
I’ll talk to the University about that.
Nathan, I think that’s all of the questions.
There was a request for the PDF copy of the webinar, I do not know if you do that.
Yes, Paul. We usually do not send a PDF or a PPT version
of the webinar out,
we do provide the recording to the webinar that everybody can
view at their own leisure it will be online on YouTube and the link will be sent out.
So Paul, thank you
for giving this presentation and answering all of these questions,
I assume people enjoyed it very very much.
Well, thank you very much, I appreciate the opportunity
to be here and to share these ideas
and thanks very much,
everybody have a great day!
Ok thank you Paul, and thank you everybody for attending.