Return on Investment (ROI) Selling – hype or best practice?

ROI is a much hyped and misleading term, in my opinion. It’s certainly not the best measurement for evaluating IT purchases and there is considerable difference in methodology in calculation to believe many people do not calculate it correctly or that there is enough consistency in approach to compare apples with apples. However, like it or not it is here to stay.

In these economically challenged times, customers have been feeling increasing pressures to justify potential investments – it makes you wonder what they were doing beforehand but let’s just leave it at that for now. As a result, the number of companies requiring an ROI analysis to justify IT purchases has risen to over 85% according to Ernst & Young research. Canny Vendors have retaliated by concocting ROI tools, white papers and case studies to address the customer concerns and arm salespeople. However, as little as 8% of Hi Tech companies consider ROI a valuable tool in improving sales, it is alleged. The fact is that most Hi Tech companies are missing the opportunity as they at best consider it as a selling tool rather than a key method of understanding the customer’s needs and decision criteria. It also means that most Hi Tech salespeople have little idea what ROI really is all about from a customer’s perspective and tend to use legacy tools learnt from different career moves as a basic template.

Why is ROI Important?

The ability to demonstrate that your service or product can generate positive returns to customers is very necessary, but the real benefit to the Vendor is in devising a process or methodology which stacks up to their own assessment and those of the customer as well for understanding any customers’ needs and how they may change in time.

From long experience I have learnt the only way to measure sales is look at the number of customers and the average deal size. Many ROI initiatives try to increase the number of deals by driving up the number of deals won as a fraction of prospects touched – known as the hit-rate. Another good method is to try to decrease the sales cycle time so that more deals can be compressed into the same period of time. This all really comes down repeatable success. While some may argue spouting a better ROI percentage is what counts, ultimately repeatable success comes from demonstrating understanding customers’ perception of value. This enables trust to be built quickly which in terms helps strong customer relationships. The ability for a salesman to prove their solution’s value is the primary reason for avoiding discounting or allows them to justify higher price.

So a well thought-out ROI model provides the platform to create value-based pricing which in turn allows the flexibility to adjust pricing models, which also gives the ability to improve prices, which allows control and management of discounts which in turn controls sales margins. It actually gives a great tool for qualifying leads to make efficient use of the salesforce which in turn drives the hit-rate by giving them more closable opportunities.

Naturally, these benefits can be very rewarding in terms of driving sales and profitability, but they do not account for the benefits of getting and utilising the customer’s input in any ROI analysis – it should be the prime source of market information. With the help of input from real customer meetings or calls, positioning messages can be changed on the fly and benefits they thought would chime the bells but in reality do not, can be stripped out. The marketers can use customer input to determine optimum market segmentations and tailor the messaging, pricing, and product features to optimise profitability. But more importantly, it provides feedback link between the field and headquarters to get a harmonised story across the entire salesforce and get real data about customers’ perception on the value proposition.

Some Tips on ROI Models

1) Continuous Improvement

Gaining customer feedback and real information is not a one-off project. Clearly it needs to be done on an ongoing basis. It requires continuous improvement and fresh data in order to stay current and keep apace of market trends. The salesforce need to have this continuous support in customer situations which change almost daily.

Many firms choose to engage external Contractors to help build a model and then use internal resources to support the model. However, it has been found that over 95% companies relying entirely on internal support fail to have a model in use 6 months later. This is usually because they a) fail to create ownership, b) develop sufficient in-house expertise in creating and maintaining models and c) the wealth of information customers are sharing is being wasted.

2) Get Sales Buy-in

Once you have developed your excellent ROI model, there is little point just printing it up in a laminated sheet and handing it out. In order for it to be valuable to customers, it needs to be seen by them. There is zero point in marketing holding the 'Secret Sauce' for themselves and so become the champions and not involving the salesforce. The salesforce, bless them, need to be educated and trained in how to use the model, know what inputs are required to work it and then how to communicate the results with confidence to customers. The biggest danger is that your best weapon could misfire or worse still hardly get fired at all. It should be natural to every salesperson in the team.

3) Make Sure It Holds Water

As a salesperson about the worst thing that could happen to me is that I think using an ROI tool would make the sale more difficult or even kill it. I can tell when someone has dreamed up a pithy ROI case without consulting customers because the first time you use it, someone remarks ‘That’s not actually how we work things here,’ or ‘That’s interesting but you haven’t included such and such’, it's a sinking feeling. The mantra must be – build the ROI model or value proposition and validate it with real customers before deploying widely. The most daft crime is to assume you know everything about a customer’s business – so by glibly saying ‘I can shave 60% off your OpEx’ or ‘I can improve the margin on your beverage sales by reducing your IT spend’, don’t be surprised if people say, ‘But my OpEx includes logistical costs which are 50% of the total and you’re saying by buying this IT service/product you can save 60% of those costs too?’ or ‘The margin on my beverage sales is the difference between sales and cost prices of the products and does not include IT costs.’ There are umpteen variations which may need to be incorporated so it is best to get a handle on them and build in leeway in the model to accommodate them – beforehand. Otherwise it means either the model has to be rebuilt for each customer which is very time-consuming and costly or, worse still, salespeople will quickly ditch it.

4) Don’t Blind People with Mathematics

Okay, I’m a simple sales-type yet I can crunch a spreadsheet with the best of them. But I know, in order to get my point across, if I can handily reel off 10 key benefit statements, each having substantial impact on cost or bottom line, then it is far more impactful than sending an Excel spreadsheet via email. Again, spreadsheeting assumes that you understand exactly how your customer plans their business and budgets – and you should know from personal experience that business planning varies markedly from company to company and often department to department. A really good ROI analysis can be used by a customer to champion the project internally, but most customers still develop their own ROI. This occurs because Vendors focus on showing Excel calculations instead of using ROI calculations to reinforce sales messages. A list of 10 benefits prevents the customer from remembering any one specific benefit. You have to remember, very often there are multiple decision-makers, each with their own agenda, by using 10 powerful statements, it is likely they will resonate strongly with more of the decision-makers.

How to Tackle ROI Properly

Like any good story, it starts at the beginning. Any ROI project is doomed without the long-term buy-in of sales and marketing. The first thing to remember is that building an ROI is itself a project that costs money so you need to budget it and plan for the maintenance in advance, rather like a customer might actually do in order to justify buying your product or service. You need to think about design, materials, training and ongoing support. As I pointed out, many companies fall into the trap of focusing on one key fact, laminating the story and sending out to the salesforce. Validation of the proposition is vital before doing this and only real customers can provide the valuable input required to do this. This step will save time, money and frustration later as well as the credibility of the champion. Keep the model flexible which allows customers to make changes to create the ROI they want so they don’t have to re-create it separately. And most importantly, use the ROI as a process for facilitating conversations with both customers and internally between sales, marketing, and engineering.

The fact of the matter is that many see ROI as just another piece of terminology from some sales-guru whereas it is at the heart of the value that your product and solution will bring to your customers. It is the value proposition that will set customers salivating. It is the template for repeatable success. It is the platform for all professional salespeople to build their credibility and trust with their customers that will help them differentiate themselves over their competition. It is the way to pre-qualify in-bound leads to ensure only the ones that fit the ROI model are sent to the salesforce. Ultimately, it is the single most productive tool to help drive hit-rates up and sales cycles down – it is also the most compelling story to tell any new salesperson.

It is your ‘Secret Sauce’ to pour on every sale to make your solution more appetising than any other. Design it well and use it liberally – and enjoy greater success.