Does your sales team regularly get pulled into ROI * bake-offs, only to get bested in the eleventh hour by your competitor’s numerical artifice? “The other vendor’s ROI is more than double your estimate. The buying committee will recommend their proposal.” “But . . . But wait! Don’t you want to know about . . . ?” “Sorry. We had to make a decision, and the numbers speak for themselves.” Wobble, thud! Your shaky ROI pedestal shook, exposing the evanescence of this quarter’s biggest revenue opportunity.
You saw it coming, but continued to plow countless hours into preparing an elaborate ROI spreadsheet. “Next time, we’ll just be less conservative with our estimates.” Onward! Into the abyss.
Running ROI numbers. It’s a tough gig, with uncaring math. And you know how people play the game. Everyone cheats—even if they never call it cheating. 58%. 18%. 15%. Give these percentages a superficial comparison, and it’s easy to recognize which ROI value appears best. Large numbers are better than smaller ones. But will any of these be a close reckoning to reality? Beats me. For decision makers, comparing side-by-side numbers is always a simpler exercise than comparing the reasoning, logic, and assumptions behind their calculation.
Maybe it’s time to compete using different attributes for making the business case. Attributes that are still rabidly value-focused, but harder to topple:
1. Strategy, enabled. Discover your prospect’s near and long-term strategic plans. Rapid revenue growth? Delivering happiness to customers? Low-cost provider? Then ask him or her which capabilities are indispensible for achieving that. Show how you’re the vendor that can best provide those capabilities, and you’ll own the pole position—at least until their strategy changes.
2. Low risk—or maybe lowest risk! “Nobody ever got fired for buying IBM equipment.” The sentence has as much freshness as a worn-out doormat, I admit. But the idea behind it rings as true today as when someone—presumably from IBM—first coined the message. Every day, prospective customers bypass glitzy features, bleeding-edge technology, and “fantastic ROI” in the mundane hope of making a safe decision. “Low risk” doesn’t pack the same punch in every buying situation, but it’s a potent card to have in your hand.
3. Options value. Most companies today face great uncertainties—including markets, regulation, competition, political, technological, and human capital. Those uncertainties increase the value of product flexibility, if you have it to offer. For example, IT vendors that provide products that are multi-purpose, interoperable, and scalable possess a distinct competitive advantage over those that are more rigid or require high switching costs. “. . . options create value by providing [project managers] the chance to alter or terminate a project before each new stage of funding, based on updated information about costs and benefits.” (Fichman, Keil, Tiwana Beyond Valuation: ‘Options Thinking’ in IT Project Management, California Management Review, April, 2004)
Strategic enablement. Low risk. Options value. Sometimes, things that are difficult to measure are the most consequential for predicting customer success. The point: simplistic prove-the-ROI thinking extracts any understanding about the value gained from having these advantages. If your competitors are going to beat you on strategic enablement, they should face a higher hurdle: they must prove themselves superior strategic enablers. Why give them a pass by allowing them to simply pump fluffier numbers through canned spreadsheet algorithms?
Drop ROI justifications from your sales process? Sure. Get wild and crazy! You’ll find that without them, your business cases can stand up perfectly well, and your proposals are harder to topple.
* ROI = Average annual operating cash flow divided by net investment. The equation does include variables for risk, time, or cost of capital.
Note: this blog is the second of a two-part series about ROI calculations. The first, ROI Calculus: More SWAG than Swagger, was published July 19.