The challenge with Return On Investment or ROI calculations and calculators is that they are only truly effective with a small segment of buyers. Part of the challenge is that many of these calculations are based on the most idyllic circumstances, leading many to doubt the projected returns. Even for those who accept the projected benefits, they don’t always see how those will apply to them.
I remember in the late 1990’s, during the dot.com boom, my employer seized on a stat that showed that about 30% of white collar workers’ work time was spent searching for information they need to do their work. Based on this data, which completely lacked context, the number crunchers in marketing came up with a calculator where you can put in the number of white collar workers at your company, their average salary, and presto, instant profits and returns. If you had 100 employees making an average $60,000 per year, that’s $1,800,000 in savings right there. Wouldn’t you want to spend $250,000, just once so you can lock in that annuity? Even if the numbers were half accurate, still a great ROI; yet there were no lines around the block looking to buy the product.
Having an overly aggressive ROI calculation is more likely to be ignored and lead to a credibility issue than accelerate the sale in a way realistic calculation will. Remember most business people will take a reasonable say 5% uptick, while big numbers will seem unattainable or carry hidden and unnecessary risk.
The challenge is that most ROI calculations fail to drive action on the part of the buyer. One reason is they do not always align to buyers objectives, thereby failing to address the real issue, “what will I do with the ROI?” I remember watching a rep present the above ROI with great gusto. When he was done, one of the buyers asked “how can you ensure that the recaptured time would be put to company use and benefit, and not for an extra smoke or more time surfing the web?” Had the rep been able to demonstrate how the product would address that next step, there could have been a sale. But like many ROI calculations, they usually demonstrate a false affordability for the product, but not the return for, or impactful outcome for the business.
Without the alignment to objectives, and how the return is not in the form of dollar savings but objectives achieved, and the impact or return on those objectives, the ROI measure will continue to be a decorative piece. The sad part is that it would not take much to modify the calculation to reflect the above, and deliver actionable insight that drives positive results for buyer and seller.
Another overlook factor with traditional ROI’s is risk, most people are more likely to take action to avoid risk, than take action for a questionable return. Studies suggest that 70% of the population are ‘away’ people, meaning they will move away from risk. The remaining 30%, will move toward realistic risk for a measurable return on the risk.
Given this, it is probably better for sales people to spend time developing and presenting Loss On Inaction, or LOI calculations. Left to their own devices, people will usually opt “keeping on as is”. It is always easier to rationalise not doing anything, than doing even the slightest thing. Leaving you with one choice, raising the risk factor of where they are. You need that ‘away’ hormone to kick in, where level of risk crosses and rises above the line of inaction. Until then, the alternatives we offer are interesting but not compelling enough to drive action.
An LOI calculation can quantify and graphically demonstrate the risk and cost of inaction. That allows you to then initiate and facilitate the cycle, and as a bonus, when that gets started, you can still go back to your ROI, with much more impactful effect.