ROI – For Pete’s Sake, Know What It Means!

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This is the fourth post in a series about selling with Finance, the Universal Language of Business.

Critical question: Would a CEO, CFO or C-Whatever-O rather talk to you about features, benefits, price and discounts or an ROI of 78% and $486 grand of positive net cash flow?

Hey! Don’t wimp out on me!

Read this post and the rest of the financial series! Learn the universal language! It could easily become your single most powerful personal differentiator. It will for sure open doors to you that will remain firmly and forever closed and locked to your financially illiterate competition.

ROI is one of the most mis-used and abused financial terms among sales reps. Hearing something like “…an ROI of $500K,” or “…an ROI of 2 years,” is like hearing fingernails shrieking across a chalkboard. Makes me wanna’ scream! By saying, “ROI” when you actually mean, “Net Cash Flow,” “Cumulative Cash Flow,” “Payback Period” or “Break-Even Point,” you label yourself as one who doesn’t really know what he or she is talking about. (Read and learn parts 2 & 3.)

Sorry if that felt like a slap upside the head… But isn’t it better to get whacked while reading a blog post than to prove yourself less than savvy in a discussion with a customer CFO?

Simple ROI (Return-On-Investment) is the ratio of the money I gain vs. the amount I invest. More strictly speaking, it’s the cumulative net cash flow divided by the cumulative investment over a given time period. In the example below:

  • $233 +$268 +$229 = $730 is the amount of cash that will come in as a result of my proposal over the first three years
  • $339 + $301 + $229 = $755 is the amount of cash that will be invested over the first three years
  • $730 – $755 = ($25) is the net cash flow for the first three years (So far, I’m still in the hole)
  • ($25) / $755 = -3.3%

Ta-da! The simple ROI over the first three years is -3.3%

As the example shows, the identical logic is used to calculate ROI over four and five years.

Let this sink in! Consider again the question I posed earlier: Would a CEO, CFO or C-Whatever-O rather talk to you about features, benefits, price and discounts or an ROI of 78% and $486 grand of positive net cash flow?

More questions: Do you want to be a traditional, smile-slap-on-back sales rep fending off the rest of competitive hoards and working with customer middle management? Or talking about making money in the cushy comfort of the C-Suite with the other grand muckety-mucks?

Republished with author's permission from original post.

Todd Youngblood
Todd Youngblood is passionate about sales productivity. His 3+ year career in Executive Management, Sales, Marketing and Consulting has focused on selling more, better, cheaper and faster. He established The YPS Group, Inc. in 1999 based on his years of experience in Sales Process Engineering – that is, combining creativity and discipline in the design, implementation and use of work processes for highly effective sales teams.

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