When building an ROI business case, there's a temptation to include as many benefits as possible. DON'T DO THAT!
We point out in The Value Sale that there are 1 or 2 benefits that drive a deal, while you should never exceed 5 benefits in a business case. More than 5 benefits and you’re likely to reduce your success rate, not increase it. Those outlier benefits are typically too weak to improve your ROI but they are likely to increase the skepticism felt by the buyer. An ROI business case is only as strong as the weakest benefit, making it better to discard a weak benefit than include it and risk questions from the decision maker.
Think about selling through your champion to the final decision maker
You want your champion to feel confident they’re making the best decision for the organization. To a greater or lesser extent, they’re putting their reputation behind the decision, and in tough economic times, that confidence will be harder to obtain from your champion while also more critical to the decision. Keeping the business case to a few benefits simplifies the ROI analysis while giving your champion an easy elevator pitch when advocating for your solution.
Don't lose sight of the end goal: CLOSE THE DEAL
Less is (a lot) more. An analysis of the ROI case studies Nucleus Research published from 2017 through 2022 found 97.6% of the cases would have generated a positive enough ROI to make a goforward decision with only 1 benefit. Including the second benefit in the business case only increases the ROI by an average of 10% (that’s 10% greater, meaning 200% becomes 220%, not 10% added to the ROI). This goes against what most consulting and value engineering teams believe. These teams often undertake extensive analysis and research to generate a detailed ROI business case on a project. That detailed business case may look convincing with graphs and charts but you’re selling a product, not a business case. The case study data shows one benefit may have been enough to drive the deal to a close, and closing the deal is what you’re trying to do.
Early in the discussions with a prospect, you’re likely to uncover the few benefits that are driving the project. Why are they considering the solution and why are they talking with you are the questions you need answered. It’s likely the first benefit they mention will be the driver but pay attention. What benefit do they believe they will achieve, and do you have your own case studies and references that can justify the benefit? For example, a company considering a customer relationship management solution would likely start with increased sales productivity as their primary benefit and then add others to the list such as sale coaching, marketing automation, contract management, and others.
The key is the first benefit. Increased sales productivity is the driver of the deal and is likely to provide enough quantifiable value to justify the purchase of the CRM solution. Yes, the other benefits have value but if you can show your champion the return they can achieve with just the top benefit, you make them far more comfortable knowing that the actual ROI they’ll realize is far greater than the business case built on one benefit.
Of even greater value for you managing the deal, think of the elevator pitch. With just one benefit, the champion justifies the purchase and there are plenty of other benefits they haven’t included. It’s a far more powerful case to have a lower ROI with one benefit than a slightly higher ROI with a long list of benefits. No need to justify a list when you can focus on the key benefit. So how do we find and calculate that one big benefit? Here are the steps:
Identify the most important benefit your prospect expects to achieve from the solution.
Be sure you have references, case studies, and data that can justify the benefit.
Early in the discussion, frame the calculation by asking how they plan to realize that benefit (e.g.: # people x fully loaded cost or # aircraft x % utilization)
Crystallize the calculation for the prospect by stating it back to them (e.g.: “So you want to increase your aircraft utilization by at least 5%.”).
Talk about how the features of your solution will help them achieve that benefit.
Walk them through an estimate of the benefit.
Now that we have the most important benefit let’s calculate the ROI your prospect will achieve. It only takes a few easy steps:
Estimated annual benefit from the steps above: (a)
Initial cost to purchase and deploy your solution: (b)
Annual ongoing cost for your solution: (c)
Annual net benefit: (a) - (c) = (d)
Calculate ROI: (d) / (b) = ROI
Now in a competitive situation you want to be careful. Don’t undermine your position with a low ROI but consider your competitors are using similar benefits in their business case. A decision between competitive solutions isn’t likely to hinge on ROI as much as features, integration, or your prospect’s institutional knowledge.
Although we talk about ROI, we highlight in The Value Sale that payback period, or time to value is a more valuable metric. In fact, payback period can be the secret weapon to closing a deal. Your champion may intuitively know a 400%, for example, is a good ROI but they’ll “feel” a 3-month payback period. That skeptical decision maker will rest easier when your champion points out the project will cover its costs in a few months. That reduces the risk and makes the decision a lot easier to make. You can calculate payback period from the numbers you generated above:
Payback Period: (b) / (d) x 12 = Payback in months
Now that we have the most important benefit let’s calculate the ROI your prospect will achieve. It only takes a few easy steps:
Estimated annual benefit from the steps above: (a)
Initial cost to purchase and deploy your solution: (b)
Annual ongoing cost for your solution: (c)
Annual net benefit: (a) - (c) = (d)
Calculate ROI: (d) / (b) = ROI
Now in a competitive situation you want to be careful. Don’t undermine your position with a low ROI but consider your competitors are using similar benefits in their business case. A decision between competitive solutions isn’t likely to hinge on ROI as much as features, integration, or your prospect’s institutional knowledge.
Although we talk about ROI, we highlight in The Value Sale that payback period, or time to value is a more valuable metric. In fact, payback period can be the secret weapon to closing a deal. Your champion may intuitively know a 400%, for example is a good ROI but they’ll “feel” a 3-month payback period. That skeptical decision maker will rest easier when your champion points out the project will cover its costs in a few months. That reduces the risk and makes the decision a lot easier to make. You can calculate payback period from the numbers you generated above:
Payback Period: (b) / (d) x 12 = Payback in months
A single benefit ROI business case is not going to work in all situations but in almost every deal it’s a good starting point. If you can get to a rough calculation during the initial meetings, you’ll help the deal along by showing the prospect they will achieve a return on their investment in your product. If a prospect sees value, they’re more likely to drive the deal through the funnel with you guiding, rather than pushing through the stages.
Example: Your prospect is considering marketing automation software to increase the number of campaigns they run per year. With 5 people in marketing, they can run 50 campaigns per year but with your solution, they believe they can increase that number by 50% to 75 campaigns per year. The average salary of a marketing person is 80,000 per year.
The benefit calculation: Your solution will help the prospect achieve the expected 50% growth without hiring additional employees (always look at the driver to the benefit, not the value of the outcome). Without your solution, they’d need 2.5 more marketing employees (50% more than the 5 they have now) so the annual benefit to the prospect is 2.5 x 80,000 or 200,000 per year.
There are plenty of other benefits from marketing automation software, but that single benefit may be enough to close the deal.
Example: Your prospect is considering replacing their 2 delivery trucks with new vehicles from your company. The trucks you sell have many great features including a better interior and stronger rear liftgate but they’re also 40% more fuel efficient. You ask and find your prospect spends 80,000 per year on fuel.
The benefit calculation: Your trucks will save the prospect 32,000 per year or 2,666 per month on fuel costs. A quick calculation might show the monthly savings will cover the auto loan needed to purchase the new trucks, making the decision to purchase a lot easier for the prospect.