Good news! The U.S. Department of Labor has reported that the job market has finally recovered to pre-economic crisis levels. Still there are some lessons that should not be forgotten. With this recession, enterprises around the globe adjusted their policies on how they make buying decisions. Across the board, enterprises implemented a strict set of requirements to justify purchases of new products and services. They require that each purchase needs to show a clear definition of the expected total cost of ownership (TCO) and anticipated return on investment (ROI). This has created new challenges for sales teams.
In order to enable sales teams to achieve their goals, they need to adjust their sales process. They need to be able to demonstrate they clearly understand the business of their customers and articulate how the product or service they offer will enhance their business. With tighter controls on spending by the enterprise, the burden of proof is in the sales teams court. To accomplish this, they need to team up with their product managers and product marketers to define effective ROI/TCO modeling tools to show the benefits of their product or service.
Beware of Snake Oil
I have seen a variety of ROI/TCO modeling tools being used in the technology sector. Some of them definitely fall into the category of “snake oil” or “cure-all” elixirs. These are the models that typically require only a few inputs, such as “Quantity of licenses to purchase”, and result in an amazing too-good-to-be-true ROI. Often, these models don’t take into consideration all of the critical factors to estimate a realistic total cost of ownership and return on investment.
Effective ROI Tools
An effective ROI modeling tool to support the sales effort is going to take into consideration the viewpoint of the customer CFO. It should allow as input all the expected cost factors experienced by their operations and particularly those factors impacted by a purchase of the product. Some of the factors would include:
- Manpower costs
- Facilities costs
- IT and data center costs
- Administration and maintenance costs
- Infrastructure costs such as new servers to support a software purchase
- Costs of the product and/or service being sold
The output of the ROI modeling tool should also be able to show the expected benefits that would result from the purchase of the product or service. These benefits may include reduction in operational and fixed costs such as:
- Reduction of infrastructure
- Redeployment/re-purpose of manpower
Benefits may also include new efficiencies such as:
- Increases in speed to revenue
- Efficiencies in transaction processing and volume management
- Improvements in customer service
A good ROI modeling tool will also be able to clearly define “tipping points” such as whether or not it makes sense to utilize cloud-based services or purchase premise-based equipment. This is a topic for a future post.
Corner Office Wisdom:
Sales teams, product managers and product marketers need to have the ability to show the ROI/TCO benefits of their products or service in order to be successful. This will require a comprehensive set of tools and training in order to empower the sales teams to have such a discussion. If they cannot support such a discussion and the competition can, they will lose the opportunity.