What has changed with B2B buyer behavior that now makes ROI (Return On Investment) a key part of the buying journey?
- New software solutions, in particular advanced web technology like Html5 has made it easier to show and visualize the true value a product has for the individual customer, also for more complex, high ticket B2B products and services.
- The current trend is that customers to a bigger degree investigate different purchase alternatives on their own before contacting suppliers.
- Where possible to show an ROI on a purchase, that is the natural way to show the customer value.
Why is ROI important, what does it show?
The term ROI or Return on Investment is a buzz phrase in certain business circles. ROI though has a connotation that you are putting something in (Investment) and you expect something out (Return). Indeed, if you don’t know what the return is, then the investment part isn’t an investment at all, it’s a cost! And costs are expenses or necessary expenditures that people want to keep as low as possible.
The sales cycle time is likely to be greatly reduced when you can show a reasonable ROI because it is showing the customer the cost of delay. The longer they wait the more money they are wasting. Here you can create some tension for the customer. Help them see that it’s crazy to put off the decision. Remember that over half of sales decisions are delayed and that most of those never result into a sale. Work on convincing the customer that waiting to make a decision is making them out of pocket.
Take time to work out the value of the key benefits as they are likely to be translated into dollars for most of your customers.
How do you calculate ROI?
ROI is normally presented as a percentage over the period viewed:
Return on investment (in %) = Net income / Investment * 100
Net income = Gross profit – Expenses, and
Gross profit is either an increase in income generated by the investment or a cost saving made possible by the investment.
Another metric is Payback period, that says how long it will take to get your money back:
Payback Period = Invested amount/Estimated Annual Net Cash Flow
Logical (ROI) vs emotional purchase decisions
Most people buy for emotional reasons – a connection or belief in the story behind the product. It is hard to compete with that, especially if emotionally your offering does not stack up, such as against a long relationship with an incumbent. Providing a convincing ROI argument creates a logical purchasing position for the customer. Logical positions are stronger and longer lasting than emotional ones because you cannot argue with facts. Get away from opinions and stick with the facts. Make them black and white and show the customer that the right choice is the one you have illustrated will give them the greatest benefit. Be ready with case studies or references to back up your claims. Have a trial period or guarantee available if it is possible. Give them every reason to go ahead and no reason to say no.
What is value selling?
How will your product or service take away some of the pain, move from a ‘nice to have’ to a necessity? Most of it is in the framing of the offering.
Features are first level views of reasons to go ahead. They may or may not be a benefit to the customer yet. A true benefit is something you get as a result of using a feature. One way to understand if a feature is really a true benefit is to take things a little further and ask the ‘So what?’ question.
We could analyze each product benefit for its inherent value and try to sell on each of them. What we have learned however, is that if a benefit is not required by a customer then it is not a benefit it’s just a feature.
So, we have created our list of benefits for the product. You can start working on the benefit-to-customer for each of them. As they stand, they are just features. You turn them into benefits by relating them to the needs of the customers you have.
So what? it’s meant to ensure that we have thought things through. Have we taken things to the next level and understood the real value because if we haven’t, someone will be asking the ‘So What?’ question. It means we have asked the question of ourselves before someone else does.
The points of difference that your offering may have over the competition – let’s call these ‘key benefits’ or benefits that may set you apart from others.
- To get the ROI value, the key benefits in monetary terms, the value metrics needs to be calculated.
Calculate the Return: Features (“So what”) 🡪 Benefits 🡪 Monetary terms
(increased revenue or savings)
- Depending on product type and complexity, the work to calculate the key benefits into monetary value, can be easy or require considerable development of calculations. (a “value consultant” may be of help…)
- For more technical products it’s often some kind of performance that translates into savings or increased revenue. For example, energy savings from installation of a heat pump or electric power produced from solar panels.
How do you use ROI in a value selling process?
As a sales person talking about ROI and working with figures, you need to keep it as simple as possible. If people don’t understand it, they won’t be convinced by it. If they find it too difficult, they’ll defer a decision or say no. If they are made to look incompetent, they’ll back away. Bear in mind that one of the key aspects of your role is to help the buyer look good. Help them to save money or make money. Help them to do their job which is to ‘Buy’ from you. Nobody likes being sold to – they want to buy. Make it easy for them by keeping it simple as well as showing them that it all adds up.
In some cases, your customer will be tempted to stay with the ‘safe bet’ because they know there won’t be any issues if something goes wrong. However, if they buy from your organization (if it’s not the safe bet) and something goes wrong, they have to answer for their buying decision. Your argument needs to be pretty watertight for them to feel safe. Can you offer them a guarantee or some sort of agreement that states you will ensure they get what they are promised, or you will work for free until they do? Help them to feel safe in buying what you’re selling. It is likely they will feel secure when you have shown them the financial benefits through your ROI calculations.
Add an emotional element to the logical purchase decision.
How would you use ROI in the sales process?
Using ROI as an approach will also reduce the number of discount requests customers raise. By showing the ROI model, you remove the need to discuss discounts because you are already showing the customer the return they will be getting for your product or service. If you are showing a return in a reasonable timeframe, they are probably not even thinking about a discount because they can see the financial benefits in front of them. If they are thinking about a discount, they are unlikely to bring it up because it will just seem greedy. In essence ROI methodology helps your customers see that your price has little to do with costs and a lot more to do with the value you deliver. In fact, ROI based selling can reduce the sales cycle time drastically because people won’t want to wait to start reaping the benefits. How long would you want to wait if your grocery bill could be cut in half the minute you started shopping somewhere else. Or would it take you long to sign up to a new supplier if it meant that your electricity bill would be 40% cheaper?
When you show a valid ROI argument to a customer you are helping them see that the longer, they delay, the more money they are losing. When store owners are engaged in building their stores, they know that every week of delay in opening they lose out on potential sales. Likewise, if you have shown in your ROI the amount of cost savings or new sales, they can receive from using your product or service, then the longer they delay, the less they will see of those benefits.
This is not something you have to push too hard as they can see it for themselves. If someone said to you, we will start covering all of your fuel bills the minute you tell us to, how long would it take you to go ahead? Try and get used to showing the ROI benefits in that way to help create a sense of urgency without pushing.
Link to business objectives – you want to make it easy for your customer to make a decision and buy your product or service. One sure way to help them and the rest of the company get on board is to link the benefits of choosing your offering to their business objectives or drivers. This may sound simple but make sure you point all these things out.
A lot of the time, there will already be a current supplier in place, so get used to having it come up as an objection. Help them see that although they have a good relationship with their current supplier it makes good business sense to take advantage of what you have to offer. Work on logic rather than emotion in these cases.
An incumbent is the existing supplier to the customer and often has a strong relationship built on emotional reasons. This can be very daunting to a salesperson wishing to convert the customer to them. Having a robust ROI discussion can help to reduce the value of the emotional ties to the incumbent and provide analytical information such as insight into financial gains and returns which will assist the customer in logical decision making. Making a strong ROI argument for the customer that he will be able to reduce his own resources or upfront investment can sway them your way.
Incumbents are even trickier to negotiate if they are friends with the customer or even worse – related. Sometimes, no matter what you do, people won’t change. You could offer stuff for free and that wouldn’t be enough. However, sometimes people are just comfortable or think it will be too hard to change. These are great candidates to use this approach on. Remember, you are showing them good reason to change. Help them see the logical argument for your product or service. It’s true that people make emotional purchases but people also make logical purchases – remember the ‘no brainer’? Buying a product or service as a ‘no brainer’ has long lasting effect. Emotional purchases often lead to buyer’s remorse. Admit it, we’ve all made purchases on an emotional impulse and even when we’re handing over the money we can start to feel the doubts kick in!
Some people will not want to go ahead without some proof. What you will need here is either a guarantee of some sort to take away the risk for the customer or some references or case studies to show how it’s worked elsewhere.
Be armed with a few case studies, figures to back up what you claim. It also helps as part of your presentation to talk about a few of the successes you have had and name the clients. You can draw comparisons to the current customer to show an even closer fit to the product or service you are offering.
Should all industries use ROI to show value in their products and services?
If you really can’t provide discernible benefits compared to the other competitors in the market from a product perspective, you may choose to offer company benefits.
For some products it may be more suitable to compare value with other competing products or technologies rather than using ROI.