How To Make Your ROI More Buyer-Friendly
As with building skyscrapers, the temptation for sellers in building a business case (or any metrics for the buyer) is to add another floor of benefits in a bid to achieve the highest possible ROI for the buyer.
However, it is important to remember that the higher the ROI, the greater the danger of the buyer simply toppling your figures. With this in mind, you need to help the buyer create a more credible business case on three levels – that is, the business case for:
- Buying/taking action
- Buying/taking action now
- Buying from you (as opposed to from somebody else, or doing so internally)
The Business Case On Three Levels
These three levels are important, and so too is addressing each one of them individually; if you try to wrap them all into one, then something is likely to get lost. So let’s now examine each of these levels of the buying rationale in turn:
- The business rationale for buying: This is not the only project/purchase competing for the organization’s resources, so the sponsor must demonstrate that this is the right horse for the organization to back at this particular time. The project/purchase must therefore not only demonstrate a high relative payback, but also a clear strategic fit, as well as a clear assessment of the risk/reward equation. This is the essential foundation in terms of the business case, or buying rationale; indeed, it is so fundamental that the vendor cannot and should not prepare it alone. The vendor’s role is to facilitate and coach the buyer in developing the business case at this level.
- The business rationale for buying now: The buyer can choose to either do something, do nothing, or else delay his/her decision. Increasingly, the latter seems to be the easiest choice to make. There may be more immediate priorities that require the buying organization’s attention at this time, so even if a decision is made to back this horse (project), just what exactly is the timeline going to be like?
The capacity for projects and purchases to stall clearly demonstrates the shifting nature of organizational priorities, as competing projects jockey for the green light. So why do it now? What potential impact would delaying a decision have in terms of the business case equation of (Benefits – Costs) X Risk X Strategic Fit? Again, the seller’s role in respect of the ‘buy now Vs. buy later’ decision is to coach and influence the buyer.
- The business rationale for buying from you: Yours is not the only solution available to the buyer. There will always be competing solutions/technologies that the buyer might choose to employ; naturally enough, there will be different suppliers for each of these alternatives; and, of course, there’s always the option of doing it in-house. So presenting the buyer with a clear rationale for buying from you – as opposed to from any of the others – is vitally important. This, too, should be centered around the key business case ingredients of (Benefits – Costs) X Risk X Strategic Fit. The seller tends to adopt a more direct or persuasive role in relation to this ‘buy from us, not from them’ argument.
Which Level Will Win The Sale?
Many sellers focus on level 3 of the buying rationale – that is, the classic ‘buy from us, not from them’ argument – a reality that is reflected in the traditional emphasis on such aspects as competitive advantage, or unique selling-point.
This is where competing vendors ‘slug it out’ over benefits, features and reputation, while the buyer waits, poised and ready to buy the winner in the ring.
“Purchases don’t normally become stalled because buyers can’t choose between competing suppliers…”
The only problem here is that choosing between competing vendors is usually the least of the challenges facing buyers. Purchases and projects don’t normally become stalled because buyers can’t choose between competing suppliers (level 3); where today’s buying organizations are concerned, the real battle is not between competing vendors, but between competing projects, priorities and strategies.
This makes levels 1 & 2 of the buying logic or business case the real battleground for vendors. Thus, to resurrect our skyscraper analogy, the first two floors must be in place before a third can be built.
A Hypothesis or A Business Case?
Regardless of which of the three levels the seller is working on, it is important to distinguish between a real business case and a mere hypothesis of value. Now, there is nothing intrinsically wrong with a hypothesis – as long as it is not attempting to masquerade as anything more, that is. This particularly applies in the following cases:
- Until ownership of the business case transfers from seller to buyer, any metrics presented are no more than scenarios, or hypotheses. Vendors cannot therefore simply present a spreadsheet model as a fait accompli business case.
- On at least some level, every manager/buyer views his/her business and its situation as being different; this means that industry benchmarks and case studies will tend to be more interesting than compelling. However, what others have or have not achieved is simply another example of a hypothesis.
A WARNING! Label for ROI Metrics
It is always important to bear in mind that the highest vendor ROI does not necessarily secure the sale. This is largely because, as buyers are quick to point out, “justifying the purchase is a lot more demanding than justifying the sale”.
Meanwhile, vendor ROI metrics tend to come with a WARNING! label. This is especially true when we consider the following rules of thumb:
- The bigger the claim, the more easily it can be discredited
- The more variables involved in an ROI model, the greater the likelihood of one of them being disputed
- The less somebody is involved in preparing an ROI model, the more quickly he/she will distance him/herself from it
Why Buyers Prefer More Modest ROI Claims
Many buyers express a preference for more modest vendor ROI claims. The following two comments from buyers help to explain this reality:
1. “A vendor coming in and saying that he/she can cut costs by 10% and increase turnover by 20% is going to elicit one or both of the following reactions from the prospective buyer:
- ‘That is simply not credible (i.e. If it was really that simple, we would have done it ourselves long ago)’
- ‘What you are basically saying is that I have not been doing my job properly – that, in respect of key measures (costs and turnover), I am somewhere between 10% and 20% below par.’”
2. “Be careful what you take credit for in terms of what you are claiming your solution will do for the buyer. Vendors have a tendency to succumb to the temptation of quantifying every possible benefit – including those that should not ordinarily be quantified, or those that are only indirectly attributable to the vendor’s solution.”