What exactly is the “80/20 Rule” and how does it apply to corporate America and to your sales efforts?
The 80/20 rule, also known as the Pareto Principle, is attributed to the Italian economist, Vilfredo Pareto. It can be applied to a wide variety of phenomena: law and order, healthcare, even to language.
Applying it to the business world, the 80/20 rule suggests that 80% of your company sales come from 20% of your customers. We could also apply the idea more narrowly to vendor sales motions: 20% of your sales organization may be directly responsible for 80% of company revenue. And on a micro level, one can say that if a salesperson is tasked with ten sales activities, two of them are most likely to contribute to sales goals. These are what are often considered high value activities.
As a business case analyst for technology investments, I’m mindful of how people use and misuse key financial metrics. Metrics like net present value (NPV), internal rate of return (IRR), return on investment (ROI), and payback period provide insight into the potential value of investments and how they compare to other options. Yet, it’s important to understand how these metrics work and when they can be misleading, particularly when it comes to NPV vs IRR. (more…)
A return on investment (ROI) analysis is a useful tool for evaluating a variety of business opportunities. Technology investments, business process projects, and marketing campaigns are just a few examples. When fighting for budget or preparing a cost-justification, knowing how to do an ROI analysis allows you to compare a potential investment to other initiatives or make a go-no-go decision.
While the ROI calculation is simple (ROI = (Total Benefits – Total Costs) / Total Costs), creating a comprehensive ROI analysis (also known as a business case analysis, cost-benefit analysis, or business value assessment) can be complex. But after performing thousands of ROI analyses for clients, we’ve found that you can break down the process into 4 steps:
I will review each step, so please read on and use this as a guide. (more…)
Financial metrics, like total cost of ownership (TCO) and return on investment (ROI), are fundamental to making asset and technology investment decisions. When you propose an investment, you’re fighting for budget. You need an objective way to demonstrate the value of the proposed purchase. But what can you learn from TCO vs ROI and which metric will help the most?
When deciding to buy a new technology or business asset, companies typically evaluate if that investment will “pay for itself” using financial metrics like return on investment (ROI) and net present value (NPV). ROI and NPV matter to both the buyer and seller because they are the foundation of building a business case for the investment. These metrics make it easier to compare investment options that are competing for the given operating and/or capital budgets. So, ROI vs NPV, what exactly are they and what do they tell us? (more…)
In my eight plus years at TFP, I’ve engaged in more value conversations than I care to count. Most have gone reasonably well; at the end of the process, our value selling team—usually my client, their customer, and me—can usually produce an effective financial analysis that helps the customer understand the potential value of my client’s technology in their environment.
The occasional engagement has gone sideways. Periodically, I look back at those conversations and wonder what I could have done differently. In some cases it wasn’t going to end well no matter what I had tried. It might have been a “hail Mary” ROI to rescue a floundering deal. Or the customer wasn’t really engaged in the first place, and wasn’t willing or able to devote the time to make the process useful for anyone.
Are Cloud Options Lengthening Enterprise Sales Cycles?
With a public cloud provider popping up in many technology sales, enterprises are faced with an even more complex variety of acquisition options regarding how to license, support, host and pay for the solution. How these options line up can have a significant impact on budget, short- and long-term cost, and receipt of business value. And getting your prospect to choose can have a huge impact on the sales cycle!
For the enterprise account manager, communicating the business value nuances of selling with and against the public cloud can be a key to streamlining the buyer decision making process. (more…)
Not too long ago I bristled when I overheard a colleague tell a salesperson that it’s never a good sign when a company buys back their own stock. Upon reflection, I was more likely stuck on the use of the word “never” (a trigger word that “always” gets to me) than the negative ramifications of buybacks. In addition, after several months of doing business alignment reviews, I’ve observed company after company report in their 10-Ks that they are taking a substantive portion of the US corporate tax gain as fuel for share repurchases. Needless to say, I’ve come around to my colleague’s point of view.
Have these corporations lost their collective vision for strategic growth initiatives and innovation? Or are we, the enterprise sales community, failing to develop compelling business cases that point to technology ROI and long-term shareholder value that justifies such investments? (more…)
We’ve all heard or even say in jest “Have I got a deal for you” with a wink and a smirk. In today’s commoditized and competitive environment, most of us are conditioned to compare raw product prices instantaneously on the internet, from high-end technology products, to designer clothing and shoes, to toothpaste and tissue paper.
We often default to focusing on discounts right off the bat when we talk to our clients about our product and services because it seems to be the key priority for the customer and a short cut to a quick close.
How many times have you thought you had nabbed the deal of the day, complete with the lowest price and 5-star ratings, only to find that what you got when you open the box does not resemble anything you saw in the little picture, the pieces don’t fit together, or the product does not work as advertised.
Ultimately, as intelligent buyers, we should be looking for “value,” of which price is only one of the components. (more…)
In the course of our performing ROI work on behalf of our clients, we often run across financial models produced by other analysts. Sometimes they are done by our competitors who previously delivered value selling support for our clients. Sometimes they are done by internal value analysts employed by our clients or by reps who produce cost justifications on their own.
The quality of these ROI deliverables can really vary—occasionally they are pretty good: clear, clean and persuasive. And often they are less successful—they lack credibility or are visually distressing. Yes, we are triggered by ugly financial models.
We can spend hours talking about best practices in producing and delivering effective ROI analyses to support sales opportunities (and sometimes we do!). But today I want to focus on one ROI best practice that value selling deliverables like “black box” online calculators lack: transparency.