October 1, 2015

The Most Important (Usually Neglected) Part of Your ROI

A while ago, my colleague Drew Wright wrote a compelling article about avoiding round number discounting (you should read it if you missed it).   To illustrate his cogent points he used an example from the worst rock ‘n roll band in world. Today I want to prove that you can provide helpful sales advice using an example of one of the best bands in the world. Here it goes:

The process of building an ROI in a sales opportunity is pretty straightforward: gather current state data, project improvements in the future state, quantify the differences in both costs and benefits, and document the cash flows in a manner that convincingly tells a story of positive financial impact. Building the benefits is often pretty easy—your employees currently build fifty widgets a day, and if you buy a certain product, they will be able to build sixty widgets a day.   What’s the value of ten more widgets?

More about that in a moment. But first let’s talk about Michael Anthony.

When people think about the band Van Halen, Michael Anthony might be the last guy that comes to mind. Eddie and Alex Van Halen are lauded for their musicianship. David Lee Roth may have been rock’s greatest showman (plus he could sing).   Even Sammy Hagar, who could broker a lasting Middle East peace and still not make up for inflicting “I Can’t Drive 55” on an innocent world, has his fans.

No one ever talks about Michael Anthony. Let me tell you: Michael Anthony was the most important member of Van Halen in all of its incarnations. It was not only because his playing was so effective: think of the rumbling pulse that organizes and propels “Runnin’ with the Devil”.  And it was not only because he played a custom Jack Daniels bass (though it was quite awesome indeed).

Michael Anthony was the most important member of Van Halen because his magnificent background vocals held so many songs together—songs that would have otherwise drowned in Eddie’s trippy guitar neck mayhem and David’s lunatic whooping. Think of the sweet, harmonized chorus of “Best of Both Worlds” which almost rescues the song from Sammy’s whiny yelps.

Michael Anthony gets no credit for his critical, foundational role in Van Halen, and it’s a damn shame.

Now back to ROIs. The most neglected part of the ROI process is the post-implementation follow up. And that, too, is a shame. Too often a company gets the win, books the revenue, and starts planning the next deal. Rarely do companies take the time and expense to see how their product actually performs in the field. And that lapse becomes evident when they try to sell the next time. If you want to argue in your ROI that your product will help your customers build ten more widgets per day, you need to have documented evidence that a 20% improvement in production efficiency actually happens in the real world to real companies who buy your product, and not only in your theoretical spreadsheet.

The companies that excel here send professional services teams in to measure performance in the months after implementation. Or they hire third party analysts to survey their customers and to aggregate their results. So when their value engineers forecast a productivity gain to prospects, they can defend that projection with credibility and good conscience. That defensible projection is the engine that holds the ROI together and makes it work.

Others make unsubstantiated guesses about future state improvements and can’t respond effectively when challenged. Or they aggregate unvalidated projections into zones of estimated results.   The result is like Van Halen without Michael Anthony—a lot of talented people making noise.

Post-implementation best practice
Effective use of post-implementation results in an ROI

Effective ROIs can help you sell more product at a higher value and consuming fewer sales cycles than otherwise. If you aren’t doing post-implementation follow-up and using the results to validate your ROIs, you might as well hire Gary Cherone as a sales director.

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