One of the best attributes of fixed price products and services is the customer knows exactly what their expected investment will be. The customer can compare that investment against the expected benefits they'll receive to determine whether the investment is worthwhile.
You already know how to help the customer know what the investment will be. Tools, teams, and processes are in place to deliver a price based on the quantity, spec, timeline, etc. Virtually every business is skilled at pricing (otherwise you're out of business).
But do you know how to help the customer calculate the expected benefits of the investment?
If you're not helping your customers with this assessment, then you're just hoping the customer has considered and accurately quantified every value factor your offering provides.
Customer return on investment (ROI) models are increasingly used as a means to work collaboratively with customers on the assessment. Below are best practices and considerations I've found for deploying such a model.
1. Tailor the model to the customer’s industry
A well-tailored model demonstrates to the customer you’ve made a genuine attempt to help them evaluate the ROI to their business, while ensuring all the key value drivers provided by your offering are on full display. It forces your team to put themselves in the customer’s shoes, really understand how the customer would benefit from the offering, and collaborate more effectively with the customer towards making the purchase.
By comparison, a mega-sized software company recently blasted out an ROI model with a single generic line for the customer to enter its expected benefits from adopting the software (and even had the customer enter the investment). This type of model doesn’t actually influence or persuade- a prospect will just fill out the model to reinforce the type of decision they are already planning to make.
2. Don’t make the customer do all the work
Use conservative, pre-populated assumptions and ask the customer a few simple questions that will allow you to draft the initial ROI estimate. Share these initial results with the customer and have a collaborative discussion around it. Doing this first on your end not only ensures the modeling is actually completed, but is completed fairly and accurately in terms of reflecting the true value of your offering.
Delivering the result to the customer as an initial estimate to refine collaboratively with the customer yields a consultative no-pressure conversations that further leads the prospect towards feeling like you are helping them make the best decision for their business.
3. Use ranged estimates
Significant investment decisions always involve uncertainty around exactly how much return / benefit is expected. Thus, a model that provides a single return value against the investment puts the customer in a binary yes/no position of telling you whether they agree with the estimate or not. It will be far easier for them to disagree, because a single uncertain assumption in the model, or a value that intuitively feels off, puts the credibility of the ROI calculation into question.
Avoid this binary yes/no situation by using ranged estimates, either at the final calculation or (preferably) throughout the value drivers. Ranged estimates lead to discussions around what’s logical instead of what’s “correct”, gives the customer both conservative and aggressive business cases for the investment, and again creates a collaborative atmosphere for your conversations.
4. Dollars aren’t the only numbers that matter
Quantifying ROI in monetary terms, especially for larger investments, is of course critically important.
However, also look for opportunities to incorporate non-monetary, quantifiable improvements into your model as well. Examples include:
Timeline improvements (reduced number of days to perform a process, approve a project, etc.)
Performance improvements (reduced system downtime, reduced process exceptions, etc.)
Happiness improvements (employee satisfaction, customer satisfaction, etc.)
These benefits are value drivers, often as much as and sometimes more valuable to a customer than what’s quantified in monetary terms.
5. Ask your customers for feedback
Finally, ask current customers and prospects for feedback on what you perceive to be the value drivers and assumptions appropriate for an ROI based assessment of the value your product or service offers. This feedback allows you to continually improve your ROI template, demonstrates to future prospects your knowledge of their business through the quality of your initial assumptions, and often generates valuable feedback about other aspects of your offering and the competitive environment.
And you never know- those providing feedback just might want to do more business with you!
Comments