Paul's Death or Real Truths of Indirect Loss Costs

I can tell you for certain, that very large organizations have a very good handle on what their indirect loss costs are inside their firms. These more sophisticated business entities have gone so far as to price these “real” costs inside of their expense loads. But, just because you may be dealing with a much smaller firm, does that make the costs any less real?

Some of you, who have a little grey hair, will remember the very first Urban Legend: the rumored death of Paul McCartney.  Those of you who have not heard about this should ask your Baby Booming Parents!

Simply put, there was a rumor that started in college campuses and spread around the world in the days before the internet (1969 to be exact). The rumor claimed Paul McCartney had died and that the Beatles were playing a hoax on the rest of us.  So, many of us who were college students at the time, spent literally dozens or in some cases hundreds of hours investigating this disturbing report concerning Paul. We played records (yeah records) backwards listening for the clues, we interpreted truths from album covers (yeah albums) and read everything we could find on the subject.  Frankly, if we had spent that time studying, a whole generation might have become the doctors our parents always wanted!

We believed Paul was dead.  Many of us spent significant amount of time and energy in order to prove this “truth.”  No one had to convince us, we all knew it to be a truth.

You probably know how that one ended (think, Sir Paul).

Why is it then, that in today’s business world, we have so much trouble in believing and communicating to clients the “truth” of Indirect Loss Costs?  Why do so many brokers resist this conversation or have no confidence in the discussion? 

Any of you who represent clients from the Baby Boomer generation are probably speaking with someone who believed in the death of Paul (or know someone who did). If they believed in the death of Paul, chances are they are capable of grasping a “Factual Truth” regarding the impact of indirect loss costs and their quantifiable expenses.

I can tell you for certain, that very large organizations have a very good handle on what their indirect loss costs are inside their firms.  These more sophisticated business entities have gone so far as to price these “real” costs inside of their expense loads.  But, just because you may be dealing with a much smaller firm, does that make the costs any less real?

When speaking about indirect loss costs, many brokers exclaim, “Yes I do believe that indirect loss costs are real!”  Then in the next sentence they state their real problem.  “Where do I go to find out what that exact number is?”  Or, “What source do I use to prove this to my client or prospect?”  At that point the indirect loss cost discussion loses steam because they move off into the deep weeds.

Let’s get to the heart of the matter.

  1. In order to actually demonstrate a value proposition, it is critical that clients acknowledge the impact of Indirect Loss Costs.  Much of your value is the reduction of these costs through application of resources.
  2. The source material on indirect loss costs is obsolete.  Yeah, that’s right.  The original material that many use was developed in 1926 by a fellow named Heinrich. All other studies are simply variations of the same material.  By the way, the OSHA statistics many use are derived from a study done at Stanford by college students in 1981.

So, if demonstrating the impact of indirect loss costs are critical and the data is obsolete; how does a Consultative Broker™ prove the FACTS?

  1. They do not try and sell the client/prospect on the concept of Indirect Loss Costs.  They simply walk them through the absorbed expenses or lost revenue of a recent loss or losses, having the client or prospect re-experience the facts of these costs.  That is a fact to them.
  2. They understand that the client perception is the client reality.  Just as some believed that Paul was dead, others believe their own experiences. That is real to them!

Now here is the very important piece that Consultative Brokers™ know and practice.  Costs by themselves have no meaning.  They must be attached to an outcome either pro or con.  The outcome that Indirect Loss Costs and TCOR are attached to is the concept of Business Risk.  When you have that discussion with a prospect or client, remember what they want.  They focus on profits, productivity, competitiveness and human capital expense.

So the next time you determine to discuss the reality of indirect loss costs, ask yourself this:  if an entire generation could believe a foolish rumor about Paul McCartney’s death, shouldn't today’s generation of business people accept the “real” facts of indirect loss costs?  (You don’t even have to play an album backwards to get to the truth!).

P.S. The rumor of Paul’s demise was finally put to rest by a cover story in Life Magazine in November of 1969.

- Rob Ekern

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