Show me the money!The often repeated business mantra is “Cash is King”.
When selling your product or service, do you know which is the best way of doing it?
I worked with a client that had a product that they could build and sell and then provide consumables, servicing, and maintenance. They were unsure what was the best model for them. They looked at two options.
The first option was Build to Sell. For this they would build and sell the equipment and then hope they could sell the consumables and servicing for it (which was likely but not guaranteed).
They would get deposit and progress payments as the kit was built and would be cash positive throughout. They would make a reasonable profit for this one-off sale.
The second option was a Managed Service. The customer would sign up to an initial 5-year contract and the equipment was provided to them with all the consumables and servicing thrown in for a monthly fee.
This option provided a guaranteed monthly income once the equipment was installed and was much more profitable, BUT the cash flow was negative for the first two years and so would need extra investment at the outset.
Which way to go?
There was, of course, a third way, which the client chose to do, doing a combination of the two at the start. Building to Sell to provide the funds for the Managed Service. In later years the Managed Service option would become self-funding and Build to Sell would stop.
Having the details of how different options can pan out, rather than guessing and hoping is very important.
Having the right information at the right time allowed this client to make an informed decision on which way to progress.
19th June 2018