“Show a positive ROI, and your prospect might drive themselves through the sales funnel.” – Ian Campbell in today’s Tip 1620
How do you calculate ROI?
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Scott Ingram: You’re listening to the Daily Sales Tips podcast and I’m your host, Scott Ingram. Today’s tip comes from Ian Campbell. Ian is the CEO of Nucleus Research and author of the Wall Street Journal bestselling book “The Value Sale.” He’s trained 1000’s of sales professionals on ROI analysis and teaches at Babson College and Florida International University. In his spare time Ian races Ferrari’s in the Ferrari Challenge series. Here he is:
Ian Campbell: Hi, everyone. I’m Ian Campbell. It’s a tight market, and more organizations require a financial justification to get budget approval. Closing a deal is likely to mean generating a business case that shows the prospect the return on investment they’ll receive. On the bright side, it’s hard to delay a decision when you’re getting a positive ROI. Show a positive ROI, and your prospect might drive themselves through the sales funnel.
Now, that might be a bit optimistic, but there’s no question, every decision-maker wants to know the decision they’re making is worth it for the organization. But how do you calculate ROI? There’s a lot on this topic, but it’s not as hard as it seems. You just need to break it down into a few very easy steps.
First, ROI is a calculation you already know. If you’ve ever put money in a bank, you know what ROI is. It’s the rate you’re receiving on your deposit. Put $100 in, and if you get $5 back a year, you know intuitively you’re getting a 5% ROI on that $100 investment. It’s not more complicated than that.
So, to calculate ROI, you need to know how much your prospect is spending. That’s the cost of your solution and how much return your prospect will receive. That’s their annual benefits less their annual costs. The cost side is relatively straightforward. You probably know how much you’re charging the customer and can write those numbers down. The benefits are the tough part.
How do you get the customer to understand the benefits they’re going to receive from your product? Well, it’s easy. Just ask. Hold on, you say. That seems a little too simple to work. Well, not if we create a framework that makes it easier for us to understand and quantify their answers. Customers are going to give you a range of answers for why they are considering your solution. It could seem like a big list, and probably is. But it’s not a big list if you put each of these answers into one of three buckets.
These three buckets are increased productivity, reduce cost, or, as a byproduct of that, increase profit. That’s it. Those are the three quantifiable benefits you can deliver. The customer may list a lot of reasons why they’re looking at your product, but ultimately, you can only do three things for them increase productivity, reduce cost, or, as a byproduct of those two, increase profits. That’s all.
When your prospect says, for example, they want to help their sales reps track customer contacts, you point out that your CRM solution will increase their productivity by allowing them to keep a contact list. Increase productivity? When you point out your solution is delivered through the cloud, you also point out how it will reduce their technology costs, take the benefits they mention and link them to the quantifiable framework of increased productivity, reduced cost, or as a last resort, increase profits.
Now, we’ve made the ROI effort a lot easier. We’ve taken a broad set of benefits and put them into categories we can tackle. There’s no magic to that process, but it’s a lot easier to make a rational estimate around increased productivity and reduced costs than a broad customer contact list.
Now, there are still a few more steps you’ll need to take to calculate ROI, but you’ve come a long way to generating a business case that includes a believable ROI number by putting your prospect ideas into quantifiable buckets. Thanks for listening.
Scott Ingram: For links to connect with Ian and check his book “The Value Sale:”, just click over to DailySales.Tips/1620. Once you’ve been over there, be sure to come right back here for another great sales tip. Thanks for listening!