If you are selling or marketing your company and its products or services to business, obviously its best to do so as ‘high’ in an organization as possible. If you are working small business to small business, working directly with the owner is ideal because it short-circuits communications and decision making efforts at your prospect.
If you are fortunate enough to work directly with the owner at a small business, you have to understand how they think and make decision. Owners (and executives at most companies) tend to think 1) big picture and 2) financial. Yes they might care about how your product or service will improve their company’s operations or day-to-day ability to function. But what they really want to know is “How Will Help My Bottom Line.”
For this reason, a great deal of success in sales and marketing can be achieved by showing specific financial benefit associated with your product an service. This is also something that doesn’t require an MBA or deep experience in finance. In fact, if you know your way around a spreadsheet, you can easily build a simple Return On Investment Analysis for your prospective customer. This post will discuss how.
What do we mean by an Return On Investment (ROI) Analysis? We simply mean some financial numbers that consider the total costs and total savings for what you are selling over a given time. It then generally means calculating a few standard ROI metrics (let MS Excel do the work) that ‘score’ the value of the proposed investment.
Begin by starting up MS Excel (or comparable spreadsheet) application. You are going to itemize a list of 2 things in this spreadsheet: 1) all the savings associated with your product or service, and 2) all the investments (costs) associated with your solution. Another important element to this is time. You need to list these figures over a period of time – I recommend 5 years which is standard for ROI financial analysis practices (but use your judgement).
Note: see this attached spreadsheet templateto help you with the instructions in this article.
How do I itemize savings and costs? Many small business owners or sales people pitching an offering usually can easily list all the costs associated with their project. They simply look at the proposal or price list and there they are. However remember to list intangible costs that the customer will incur possibly not associated with your company (for example, do they have to dedicate new employee hours to your product or service they didn’t before?).
However when it comes to savings, the task is often new. Here you really need to brainstorm and think hard about how your offering drives value. You also will have to take a leap of faith in estimating the hard dollar savings you believe it will save your customer?
How many hours of work will it save them (and what are those hours worth)? What costs do they incur that will go away? What additional revenue will it drive (you can enter new revenue as a ‘savings’)? This is not an exact science, so don’t be afraid to put out numbers you think are conservative but realistic.
Once you’ve totaled the savings and costs over 5 years for your offering, let excel calculate some basic ROI metrics. There are many of these, but again we aren’t trying to pass MBA school, so stick with a few simple ones:
‘Project ROI’ – represents the simplest measure of financial performance. It is the (Net Gain – Investments) / Investment expressed as a percentage.
‘Internal Rate of Return (IRR)’ – is the promised rate of return for a project. Think of it as the ‘interest rate’ for your offering considering all the costs and all the savings over 5 years.
Final words of encouragement: don’t be intimidated by numbers and spreadsheets if finance is not your thing. Going through this process and really thinking about how offering drives value will be valuable for you even if you don’t present it to your customer.
If you are comfortable with numbers, feel free to take this further and create a more sophisticated spreadsheet or model, using this as a foundation.
Regardless, most business owners will appreciate you taking the time to help them look at your offering from their point of view – dollars and cents.