ROI, TCO, ROA… these financial terms provide power to wield for marketing executives of complex and expensive products or services. Sales organizations of companies that embrace ROI based selling, understand every nuance of the economic argument for decision-makers from the top down. Optimizing ROI tools and sales processes sets the bar high for your competitors.
Though most businesses with high-cost products provide a Return on Investment (ROI) sales tool for prospects to make a factual, mathematical, or financial argument for making a purchase decision, few integrate ROI into their sales management culture. Success begins with a commitment from sales and marketing management to build, promote and develop an ROI product, and train the organization.
Allowing for differences among businesses, industries, and offerings, what defines a well thought out financial argument for purchases? ROI selling uses a model of economic justification — just as often referred to as Total Cost of Ownership (TCO) and Return on Assets (ROA), there are some subtle differences. Each approach has its proper role depending on a variety of circumstances:
ROI is typically used earlier in a product’s lifecycle, when the prospect is trying to justify spending any money on a product of this type. The question prospects are attempting to answer is “what returns will I get for an investment of this type?”
TCO is generally used at a more mature point in a product’s lifecycle, when the prospect is trying to justify investing in one vendor’s solution over another. The question in this case is “what will it really cost us to use product X vs. product Y?”
ROA is often used when the solution offered by the vendor enhances the value of technologies currently in place. Both the return and the assets being measured are a combination of the additional investment and the investment already in place. The question here is “How will this additional investment increase the return on the investments I have already made?”
Given how much effort and cost goes into in these tools’ development and how hard sales organizations drive to increase revenue, why do these efforts fail? Here are several reasons:
- The companies have a “develop and ignore” philosophy with respect to sales tools. The tools are not developed, tested, and modified to ensure successful use by the sales force. Most companies will state “we have tools, or approaches, or models for economic justification”. Rarely, however, will you find an internal owner of these tools who treats them like a product. If the tool is not treated like a product, then there is rarely an ongoing analysis of users’ (the sales force’s) needs. The tools either get a poor reputation, or they atrophy from lack of visibility and support.
- The tools are too difficult to use, and explain to partners, prospects. The concept of economic justification can be challenging to begin with. The vast majority of existing tools are burdened with a user interface that only adds to the perception of complexity.
- The tools (and/or their output) have no credibility with prospects. It’s difficult enough to overcome the suspicion of a tool presented by a vendor (whether developed by a third party or not); if the presentation of the tool isn’t made with a high level of confidence and with believable data, it loses even more credibility. A high level of confidence comes when the sales team has a clear understanding of the tool itself. The “believability” factor comes from helping the prospect understand the value of the approach, and through the application of their data to the tool.
- The tools are treated as just another piece of sales and marketing collateral (like yet another data sheet), and not as a completely different approach to selling. Not only are salespeople not trained in using the tools, they are not trained in how to sell based on economic justification. Addressing the requirement of buyers to make their own economic justification requires a serious investment in a new sales approach.
Making ROI Work for You
A truly useful ROI tool provides an interactive approach to constructing a customized business case. In the interactive process the playing field for the evaluation defines itself. The right tool, presented in the right way, gives the sales rep the power to help the prospect make his or her economic justification as to the value of the solution.
Prospective buyers need help in articulating their own ROI, and in constructing a business case. Many come from functional and technical areas, rather than finance, and are not familiar with business case preparation. Although prospective buyers from finance possess this expertise, they lack the technical depth to connect product specifications to the operational paybacks that fuel a thorough and valid ROI analysis.
The prospect needs help from the vendor to make a decision and justify a purchase. Here are the steps we recommend to ensure you have the tools and processes that will help the prospect buy from you.
- Assign an owner to the tools and the process
The tools and processes discussed below are not one-time events. They take on a life of their own and if managed well, will grow and improve with the needs of the organization. The optimal way to approach this is to treat all elements of an economic justification process as a “product”. If the product is owned by a product manager, then it will be managed throughout its lifecycle to ensure the company receives maximum benefit. Without an owner, it will wither and die.
SPECIFIC TACTICS FOR SALES SUPPORT
- Internally publish success stories based on use of ROI model. Describe support resources used to enable the win. Track and compare deals closed that used the ROI model with others and identify success factors related to the tool and the approach.
- Conduct a one-day course (3-6 hours) on use of model; minimize war stories, go for role-playing and hands-on calculation exercises.
- Provide a one-page synopsis setting customer expectations around ROI and providing a context for your ROI model’s output. “What is ROI, and how does it relate to NPV, IRR, EVA, and other decision support metrics?”
- Constantly clarify the difference between a payback (a line item return) and an ROI (a full project’s scenario-specific net return).
- Archive and circulate, push, or publish an ROI topics list and locations (URLs).
- Ask about ROI sales experiences at weekly sales meeting.
- Set up a secure discussion board area for ROI advice, searchable by keywords.
- Evaluate what’s working now, and conduct an unbiased gap analysis
Identify which reps are having even moderate success with your current tools. Learn from them, and document why they are successful. The reasons can vary widely — an individual rep’s style or personality, the products or industries on which they focus, or something else entirely.
Actual field observations can be invaluable. Go on sales calls with the current experts in economic justification (key sales reps, field specialists, product marketing representatives, and so forth) and examine what is working (and not). Distill the observations into a realistic assessment and gap analysis, and use them to derive a plan for improvement. A detailed list of questions to assist in this step is available here.
QUESTIONS REGARDING YOUR CURRENT SALES APPROACH
- Is your selling method consultative? How can this approach enhance the consultative nature of your approach?
- How important is economic justification to your prospects?
- What percentage of your sales force uses an ROI approach?
- Of those that use it, why do they believe it works?
- Of those that don’t, why don’t they use it? We recommend probing heavily to determine if the real reason is discomfort with this approach — the most common reason it does not get applied.
- What are the valid complaints about the current ROI approach?
- Who in marketing understands the ROI model and can leverage its output for existing marketing initiatives?
- Is there any process in place for capturing the output of ROI analyses for deployed solutions?
- Who, if anyone, supports the ROI model on behalf of field deployment?
- Are new employees (both sales and company-wide) introduced to the ROI process and supporting materials?
- What kind of auxiliary supporting materials go with your ROI Model? In other words, what makes up the “whole product” of the ROI approach?
- If the ROI model, supporting materials, and professional expertise with ROI are dispersed throughout your organization, who would you say “owns” it?
- Build the right model
Your tool must contain the right business value drivers and metrics and the model should be comprehensive and accurate. The more thorough the model, the more likely it is that you’ll be able to document an economic justification. Design it to incorporate as many of the prospect’s own numbers and variables as possible. Where that is not possible, it must incorporate credible and documented industry averages.
The tool should be designed to stand up to the most rigorous evaluation by a prospect. In fact, if designed well, this will create the credibility that is lacking in most tools today. A detailed list of questions to assist in this step is available here.
QUESTIONS IF YOU ARE GETTNG READY TO BUILD A MODEL
- What is your inventory of current tools related to economic justification: ROI model? White paper? Quantitative case study? Web calculator? 3rd-party analyst paper? Press release(s)? Market research covering your segment?
- Have you unified existing collateral and mined it for payback metrics representative of your product benefits?
- Working from the other side, have you quantified each feature and benefit listed on your collateral?
- What 3rd-party analyst(s) cover your market segment, and have they produced segment benchmark data?
- Could you run a one-time ROI analysis today, on a live customer, if you had enough performance data from that customer? Who in your company would you need to engage?
- Who can best identify the business value drivers and metrics associated with your solution?
- What type of approach will you be developing: ROI, TCO, or ROA?
- Who will be the owner of the process and the model?
- Make it easy to deploy
The complexity and thoroughness of the model must be presented in an easy-to-understand fashion. The engine (sometimes referred to as the “spreadsheet view”) should have very limited direct accessibility. It contains valuable assumptions, and costing, competitive, and modeling data. More qualified prospects can look “under the hood” with the help of your experts at their side.
- Build an elegant-looking result
The end result must be a document over which the prospect feels ownership. While prospects are unlikely to present any document created by you (or any third-party paid by you) to their management, they will use what you have created for them in developing their own economic justifications.
In some situations, the prospect may not be able to capture the right information to feed into your tool. Depending on the frequency of this occurrence, marketing will want to develop information to help move the prospect through the sales process. By capturing the economic value represented by the product, marketing will have developed deeper value propositions regarding their product. With these improved value propositions, marketing can create content and present it in a variety of ways to support sales. Some effective ways of presenting this information include:
- A simplified tool on the website
- Web content
- A white paper
- Sales presentation materials
- Documents describing the economic benefits found in common uses of the product (sometimes referred to as application scenarios)
- Spend time with the prospect
Your prospects are unlikely to be experts in developing economic justifications. They are under pressure to do so, but typically have not been trained in how to do it well. This is your opportunity to educate them in an approach that shows your product in its best light.
- Most prospective buyers have many, many duties other than product evaluation and business case construction. The faster they can do this work, the better. Fortified with a credible, useable, ROI model, the sales professional can provide the buyer with much needed assistance, while gaining an opportunity for discovery, discussion, face time, and trust building.
- Although the best ROI models are fully inclusive, their output is not really intended to stand alone. Sales needs to understand that the buyer will probably select specific line items for use in his own procurement documents. This is expected and appropriate, because the metrics provided by the vendor’s ROI will still influence the choice of variables to be evaluated in the procurement process. This is an excellent opportunity for drawing focus to the vendor’s competitive strengths. When offered even earlier in the sales cycle, a credible ROI model can guide the prospect on construction of the RFP. This puts the sales professional in the enviable position of coaching the prospect as they work together on constructing the playing field for the evaluation process.
- The data requirements of ROI analysis, while high, present continuing opportunities for prospect communication. Most buyers do not have all the necessary operational figures at their ready disposal. Some vendor ROI models provide rich, third-party resources for estimation, and others supply unique calculation methods to extrapolate missing data from an available data set. Both approaches work well even though they are laborious. The ability to re-contact the prospect throughout the relationship, to offer continuing assistance with this work, or to offer newly discovered reference points, enables sales to re-open a dormant dialogue. Sometimes it can even be used to learn specifics of the buyer’s progress with a competing vendor. By providing this pivotal business-case-construction assistance, the sales professional is positioned for greater visibility into the deal, providing him with key information that can move the dialogue forward and accelerate the time to close.
- Train, test, modify, train … (this is not just about the tool, it’s about the process)
As stated earlier, this is not about the tool, it’s about a different way of selling. The sales organization needs skills to assist prospects in developing their own approach to whatever economic justification process is best for the prospect and your solution. Developing these skills may not come easily to your sales team.
Furthermore, adoption of a new approach is a process, not an event. We have found that a continuous program delivers the best results: train the sales team, and/or the specialists who will work with the sales team. Then, test the tool and approach and modify both to make improvements. Finally, circle back and continue training by going back to step 2 and evaluating what’s working and what’s not working.
An ROI program designed to build trust and face-time opportunities will accelerate the sales cycle only if it is enthusiastically adopted, and proper support mechanisms are in place.
Companies making purchases undergo steps to ensure their purchases meet certain economic hurdles. Smart vendors work with the decision-makers to help step them through the process. Vendors committed to providing their sales organizations with the tools and processes that help them succeed, arm their sales people with ROI tools. Furthermore, savvy marketing executives will incorporate the benefits documented through the economic justification process into product/solution positioning. The companies working to adopt the steps we recommend above are much more likely to succeed in winning the battle of economic justification for their solutions.
About the Author
Glenn Gow founded Crimson in 1991. He has consulted on strategic marketing issues for some of the most successful companies in the world (including Adobe, BEA, Cisco, HP, IBM, Intel, Microsoft, Oracle, Seagate, Sprint, Sun and Symantec), as well as dozens of emerging companies. Under his leadership, Crimson achieved “Inc. 500” status when Crimson became one of the U.S.’s fastest growing companies.
Crimson Consulting Group (http://www.crimson-consulting.com) provides marketing strategy and implementation consulting services to some of the most successful companies in the world. Our clients include Adobe, BEA, Cisco, HP, IBM, Intel, Microsoft, Oracle, SAP, Seagate and Symantec. We are experts in the marketing of technology solutions.
Author: Glenn Gow
Source: Crimson Consulting Group
Subjects: Finance, Marketing / Sales