Why Worry about ROIs?

ROI, as most people know, means Return on Investment. ROIs are often used in the technology world as part of the sales (or buying) process.

I recently had a high profile, venture-backed, company’s CEO tell me he’d just assume not need a ROI or ROI-based discussion with prospective clients. To him the need for a ROI is indicative of a weak value proposition. He contends that what one should strive to build and sell, should be viewed as so compelling that the buyer essentially has no choice. The “nuance” of payback and ROI become moot. Your marketing and sales should be forcing, simply, a binary view. Not, “is the payback enough?” but “can I afford not to?”

The argument kind of hit me like a hard shot to the stomach. I’m religious about selling from a value based perspective. And I’ve always seen the ROI as a lynch pin of value based selling. But his binary argument resonated with me – frankly who wouldn’t want to sell something so compelling and emotionally charged that customers feel they have no choice but to buy? So, I needed to reconcile.

Because I’m a fan of occasionally being provocative and for highlighting the less than obvious, let me get out of the way some widely held beliefs about ROIs that I think are either misinformed or just plain wrong. I promise to get back to the binary question, too.

Why is that? What is a ROI good for? How much credibility does it really have? Is it just another sales and marketing gimmick in the vendor’s quiver? Is the data used to calculate, and the final conclusion, really very reliable? In the context of selling technology solutions for a start-up, that’s what I plan to try to answer here.

A value driven, ROI based, approach to buying or selling a technology solution will make deals more strategic, more likely, and close more quickly

ROIs are accurate.

No, they’re not. Somehow I graduated with a highly regarded engineering degree. How in the world that ever happened is another story. I recall virtually nothing of what I learned, but do recall the notion of significant figures. Almost every number in an ROI is an estimate. Multiplying two estimated numbers does not all of sudden mean you have an answer accurate to 6 decimal places. An ROI is an estimate. Period. But that’s usually good enough. Whether the savings in one area is 16% or 17% is far less important than have you addressed the key, major, cost and benefit areas. And of course is the case compelling or not.

ROI’s have to be really detailed.

No they don’t. Too much detail starts to impact the credibility. It makes everything complicated. It’s more work for less return. Although it may make a vendor feel like they’ve “proven” differentiation with a super customized and complicated ROI, it’s simply not necessary, and usually counterproductive.

It’s all about the vendor

No it’s not. In my experience, the ROI is as, if not more, important to the buyer of technology, who is usually interested in building one for internal justification. Ask any mid level manager if they’ve ever been asked “why?” regarding a proposed new spend, even after they thought they explained why. Ask any senior executive if they’ve ever had a manager explain why in terms of features and functions, and how often that’s enough. Folks on the buying side need help explaining value too.

There is 100% alignment between why the “champion” wants to buy, what the ROI says, and the reasons management is told to buy.

Nope. Sometimes, sure, that's true. But more often than not, what the buying “champion” tells his boss/board/management about why he’s buying and the reason he’s really buying are not the same. Many times the story the internal “champion” uses to sell a particular solution or product is very different from the reason he would tell his buddy over a beer. What may be driving the champion is talent retention (my team needs this so they can stop working on uninspiring drudgery – which helps me retain and attract talent), but he shows his boss an ROI built on operational and capital cost reductions.

ROIs mainly appeal to financially minded folks within a company, like a CFO.

Not exactly. Yes, someone who responds to the language of numbers is going to appreciate the effort, and output, of a well thought out ROI. But more importantly a ROI is going to be the most effective way to demonstrate value to the strategic thinker. In other words, let’s say your customer has a strategic initiative – say delivering IT as a service (from the “cloud” maybe) – and you use the ROI to demonstrate your value in helping achieve that objective. Well, now you’ve appealed to the CIO who probably wasn’t focused on the specific area your solution addresses, but now you’ve aligned your value to something that is top of mind. In this case the actual numbers on the spreadsheet, while still relevant, are secondary.

So, let me absolutely acknowledge that if you and your marketing team are able to paint your solution as something that prospects really have no choice but to adopt because . . . well . . . otherwise they’ll be squashed by their competition and be out of business soon, then I tip my hat to you. But for the vast majority of vendors where this kind of do-it-or-die tomorrow message won’t fly, then a tool that helps customers see the value of using your solution, in a way that is something a little less than black and white but still effective, is essential. Ironically, a value driven ROI based discussion can be a key driver for taking a buyer from apathetic to motivated. And, even when an actual ROI isn’t necessary, the discussion of value almost always is. Therefore tools that easily drive that discussion help regardless. And really, how often is life (or a technology decision) that black and white? Outside of death and taxes, almost never.

A value based selling approach, leveraging tools like an ROI, allows a seller to:
  1. Frame the conversation, potentially very early in the process, around problems, objectives, and initiatives rather than features and benefits
  2. Have a strategic conversation. Most executive buyers want to know how you’re impacting their key initiatives, not how fast the bits move in your product.
  3. Qualify. If the answer is going to be no anyway; if the right problem/opportunity simply doesn’t exist at this prospect, the sooner you hear it the better.
  4. Learn. Really learn what matters to this prospect. I promise that will come in handy down the road
  5. Demonstrate specific proof points from similar customers. “I’m not sure, but I think I have specific examples of how we can help you.”
  6. Differentiate. The very nature of talking about the issues instead of the product differentiates you.
  7. Demonstrate Credibility. Asking questions, and having discussions, based on expertise and experience gleaned from many other similar conversations is adding value to the prospect by itself.
  8. Avoid discount based selling. When shopping for a college for your kids, is price the first thing on your mind? No. An important consideration, yes. Start of the conversation, no.
  9. Move from nice-to-have to need-to-have.
  10. Focus on the prospect’s situation rather than the product
Most importantly, close more deals, make those deals bigger, and ensure the deals happen faster!