Equity Letters: Proving and Demonstrating Why You’re Needed
September 1, 2006

Have you ever received an invoice in the mail, and avoided opening it? Or, have you been unpleasantly surprised by an excessive charge that made your blood boil, or at least cause a slight stomach growl?

I recently received such an invoice from my accounting firm. They had been doing some work for my company, which I perceived to be worth ~$1000.00. The invoice was almost $7000.00. After I picked myself up off the floor, I asked myself, "Why did this happen? What did the firm provide that merited this kind of "expense?"

It is going to take a bit of explanation from the accounting firm to justify the "value" they provided, in order for me to feel that the amount they charged is not an "expense," rather an investment in advancing my firm's success. It should be an interesting conversation.

Why does this disconnect occur? What can the supplier, whether an accounting firm, distributor of wholesale goods, attorney, coffee house, etc., do to make sure their clients feel that the services they receive match up with what they are paying?

One practical answer is "Equity Letters."

What are "Equity Letters?"

Unlike the above example, which requires tap dancing and reconciliation after an invoice is rendered, "Equity Letters" enable a provider to document the value they have provided their clients over a past period of time. "Equity Letters" enable you, as a sales person, the ability to provide in hard copy the value of the products and services you have provided, and logically continue to provide and expand into even more business.

How do "Equity Letters" work?

Let's keep it very simple. In my previous company, we provided "Equity Letters" to every customer who was considered a "Top 50" client; in other words, those customers who comprised our were projected to be our top revenue clients.

Salespersons were provide an "Equity Letter' template, which they utilized in electronic or hard copy formats. The assigned salesperson recapped key events and activities that the company and the rep provided over the previous quarter.

The letter also recapped key events and activities vary, according to the customer, and of course, according to the products and services the supplier provides. In the case of our company, documented activities that translated to real dollar value included:

• Savings provided resulting from a product change/implementation
• Savings provided through innovative warehousing/JIT programs
• Savings provided through transaction streamlining through electronic ordering, optimization of order size, etc.
• Savings provided through 24/7 equipment and repair program, (such as keeping the customer from shutting down a production line)
• Savings provided through reduction of vendors, etc.

The "Equity Letters" were easy to accomplish once a simple template was provided for the rep to use. Further, the rep used the completed "Equity Letter" as the basis for his/her quarterly sales call, and typically enabled the meeting to occur with higher level customer material management and financial management contacts. This was very helpful in keeping our company positioned in people's minds, beyond the more remedial "buyer" level contacts.

Over a period of time, a file of "Equity Letters" that documented savings enabled our company, and the customer, to recognize an ongoing level of value added that distinguished us from our "commodity" competitors. And, it kept the rep and company managers and employees focused on continuous and constant value and innovation ideas for our top customers and prospects.

What are the downsides?

Frankly, if your firm has important clients for whom you can't document savings through the "Equity Letter" concept, then I think you may be on the verge of losing the client. Or, the potential for being "cherry picked" by competition on price cutting/cost tactics is much greater.

If reps are too "price" focused, the downside is that "Equity Letters" will expose their weakness at creating, demonstrating and documenting value. If your company is a commodity/price driven firm, than "Equity Letters" may not have as great a value for you.

Going Forward:

Equity Letters are great tools to demonstrate the value you and your company provide your customers, and why you are needed. Like any idea, however, they have to be done consistently and habitually.

If you are interested in seeing examples of "Equity Letters," feel free to contact me.

Right now, I have to negotiate my accounting firm's pricing, as they don't have any "Equity Letters" to fall back on!