Why CEOs Hate ROI's and How to Effectively Use Them
The ROI is Dead. Long Live the ROI.
HOLD UP ONE SECOND! Don’t turn away before you miss the sarcasm. Many will have you believe the Return On Investment (ROI) is dead and it’s no longer useful. Some CEOs and decision makers will flat out tell you they don’t care about the ROI you are about to present. You might even be losing deals by using your ROI. Earlier this year, Gong published an article reporting that use of ROI’s correlated with a 27% drop in close rates. WAIT! Before you go down the path of destruction and rip apart your process, maybe you should consider what is really wrong with the ROI.
It’s Not The ROI, It’s You
Okay. Okay. The ROI has some responsibility here as well. The truth is, the ROI died, but in great phoenix fashion, was reborn as the Cost-Benefit Analysis. The name isn’t the only thing that changed, however. The process and key steps changed as well. You see, traditional ROI’s are a lot like a suit or dress off the rack. They fit some people perfectly, but they are off in some area for many customers. Traditional ROI’s are static and do little to account for the unique nature of specific people and customers. Yes. The traditional ROI is dead.
Decision makers are now trained to heavily criticize ROI’s—not just because they are trying to negotiate better pricing, but also because they’ve been burned too many times. ROI’s are not inherently causing you to lose business. A static process and “off-the-rack suit” is!
ROI : Static :: CBA : Dynamic
The evolution from ROI to CBA is quite simple. Throw away those canned ROIs that are the same for every customer and show a 5,000% return on investment. If your analysis is showing a ludicrous return, more often than not, a decision maker is going to call bullshit. If it’s true, it better be defendable—most archaic ROI’s are not.
Enter the Cost-Benefit Analysis (CBA). Not only is it something you should be doing with every customer to help you close the sale, it’s something the customer should be excited to do! Furthermore, by using a CBA appropriately, you’ll help (1) build value or, (2) disqualify leads. The CBA is a fact-finding mission, driven by customer data. Every aspect of the CBA is tied to specific measurable impacts that are dynamic—unique to every customer and provided by them!
How To Use a CBA
Using a Cost-Benefit Analysis is quite simple and is actually very natural within a typical sales process and discovery. If you are one of the great salespeople—and I know you are—then you are probably spending a lot of time on discovery, asking very pointed questions on impacts, costs, and current situations. Those are the types of questions that drive a CBA. With every series of questions, you should be trying to qualify (emotion) and quantify (logic) the challenges of your customer. Here’s an example:
Salesperson: Can you explain to me how your process of XYZ works?
Customer: Well, this might take a while but we do ABC….Sigh
Salesperson: That sounds like it’s frustrating. How long does it take you from start to finish to complete that task?
Customer: Well, it depends, but probably 2 hours on average.
In the example above, the customer is clearly frustrated by having to do the process this way. You now know that if you can tell a story demonstrating a better path, you’ll have emotional support. However, by going one step further and quantifying, you have a data point that helps build your CBA!
To use a CBA, you will still need to rely on the data of other customers, successful or not. You will need to build a collection of data on the variables your solution impacts, before and after implementation. This is critical and you should always be updating your modeling based on data you receive from your customers. In many cases, it might even make sense to establish lower, mean, and upper bounds for the Cost Benefit Analysis.
Emotional Pain Gets You Through the Door, a CBA Closes the Sale
Most CEO’s don’t make decisions on emotions. They are certainly affected by them, but they are trained to be fiscally responsible. The pain of Stella having to work 40 hours a week is not a pain to Diane the CEO. That’s why she pays Stella. However, Diane cares about having to pay overtime when it’s not necessary. She cares about increasing revenue and cutting operational costs. This is why anyone telling you an “ROI” is dead is fooling themselves…and you. ROI’s aren’t dead. Decision Makers just expect you to know their business and they want a fitted suit.
What do you think? Are ROI’s or CBA’s dead? What do you find makes using them successful or unsuccessful to your process? Please like, share, comment if you found this article intriguing!!
Need Help Building An ROI?
Establishing the key value drivers of your business is critical. Helping your prospect and customer understanding the value you deliver is an even tougher bridge to cross.
Black Bubble has extensive experience building Return On Investment, Sunk Cost, and Cost-Benefit Analysis tools for some of the largest companies in the world. Let us help you today!
