Return on Investment (ROI)

To follow up on my previous post around how financial acumen can be the missing ingredient from a salesperson’s game…

Depending on your situation- business school may have been a long time ago and concepts have since been forgotten, or perhaps you haven’t yet had the opportunity to learn the basics of Finance.

For those of you that fit in either category, let’s start with the quintessential metric in trying to get a project approved, “Return on Investment” (ROI).

In layman’s terms, ROI measures the amount you can expect to profit in return from spending money on a new investment. 

Here are a few examples based on industry that you might relate to:

  • Marketing Tech:  How much will your investment increase conversion rate, and ultimately boost sales?
  • Sales Tech:  How much additional pipeline / closed won opps will result from your project?
  • Tech Infrastructure:  What costs can be cut from consolidating technologies?

The good news is that calculating ROI is simple elementary school math, only requiring subtraction, multiplication and division.  Here’s the calc:

ROI % = (Net return from investment – Cost of investment) / Cost of Investment X 100

The output of the calculation is an ROI percentage.  In other words- if you investment $1M and you can expect a return of $5M..  this would equate to a 4X or 400% ROI.  You would get 4 times the amount of your investment return, which is pretty good.  Here’s the example showing my work:

400% ROI = ($4M / $1M) X 100

Hopefully I didn’t confuse you, and I would strongly encourage you to think about bringing the ROI concept into your sales cycle.  I’ve found that by focusing on what client’s will get in return from signing the contract and making the investment, my deal flow moves quicker and customers are ultimately happier.  At the end of the day, this allows your CMO, CIO or CFO to deliver value back to the business, which is the whole point.

If you have any feedback or success stories using ROI, please share…

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