In today’s world of competing projects, there are usually many proposals an executive considers implementing throughout the year…a marketing campaign to increase sales, a new software program to reduce costs, etc. Creating a compelling ROI is a well-established critical sales tool used to make your proposal stand out from the others. The problem is that your prospect doesn’t believe they will get the ROI from your project— and you don’t either.
Let’s start with the simple definition of ROI: Return On Investment
In this scenario, a company or prospect makes a $1M dollar investment in your solution. If they achieve a 1-year ROI, it means that at the end of year one they will have either saved $1M or increased revenue by $1M. In other words, the system will have returned their entire investment while they still own and operate your system. In this way, they’re setting themselves up for returns of an additional $1M every year thereafter.
If you could invest $1M in the stock market and be guaranteed a $1M return in year one, followed by $1M every year, that’s a 100% ROI. If the risks were minimal, everyone would make that investment. Realistically, most people of working age need to take moderate risks to obtain just a 10% return in the stock market or real estate investments. Many people are even willing to take sizable risks with their savings to obtain a 20-30% return.
What’s the Difference Between Buying Stock and Achieving ROI in a Company?
In the stock market, the return is generally quick and easy to see—you buy the stock, track it daily, and the ROI is easy to calculate. You can also sell at any time to limit your downside if the risks become too great. Your sales process must encourage your prospects to consider your proposal in the same way. The savings achieved from an ROI project are just like gains from buying a stock. In fact, cost savings drop straight to a company’s bottom line. Companies with a 10% operating margin would have to sell $10M in product to get a $1M equivalent savings. However, an ROI project offers the unique ability for you and your customer to control returns to some degree.
Years ago, FedEx was approached to build an in-line scale that measured the weight of each package as it traversed the conveyer system in Memphis. It measured the actual weight of each package without slowing it down and automatically updated the Bill of Lading (BOL) to charge the customer for the package’s actual weight. Previously, FedEx billed the customer by using manually written weights on the outside of the package. To determine the ROI of the proposed inline scale system, FedEx selected 1,000 random packages and compared the manually written weight with the actual weight, then analyzed the revenue increase if FedEx billed accurately. The resulting comparison showed an average revenue increase of $2/package if the scale system was used to calculate the charges. While the inline system cost $100M, FedEx shipped nearly 1M packages per week through their Memphis hub. That’s a 50-day ROI! It’s easy to see and understand why that system was implemented. Who wouldn’t make that investment? It’s a $100M dollar deal! In fact, savings like this are so compelling that not making the investment would be riskier for an executive than making it.
Tools to Develop & Communicate Value
As a result, the goal for any ROI project is to understand your business proposition and make your solution just as much of a “no brainer”.
To do so, ask yourself these questions:
- Is the return clear and easy to calculate?
- Will it take a lot of work to achieve the ROI, and by whom will the work be done?
- Are there actual tangible savings or revenue increases that will be easy to demonstrate to others in the organization?
- When will the savings start?
- What are the risks to achieving the ROI, or what can change that can prevent the ROI from materializing?
- Are the dollars significant to the person or company?
- Is the prospect buying specifically to achieve an ROI or is there another more intangible reason?
Ultimately, you need to believe in the ROI as much as, if not more than, your customer or prospect. You need to make it very clear, easy to track, and easy to demonstrate—ideally with little or no work from the prospect. Can the savings be automated and accrued without significant effort or analysis?
If the answers to these questions are favorable, then discuss the stock market comparison with prospects that need it. A one-year ROI means 100% return every year!
Imagine buying a stock that doubled every year—but unlike the stock market, you and your customer as a team can actually affect the returns. These projects are not like buying a stock whose price you can’t influence. A good ROI project should be one where you obtain a 25% return with no effort, then up to 100-200% returns with a realistic amount of effort.
Bottom line: If it were your money, you would obviously do it. You need to make that decision just as obvious to your customer. And if you don’t believe it’s realistic for the solution you are selling, either get there by looking at others who are achieving an ROI with your system or start selling something else!
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