Necessity of Investment (NOI) trumps Return on Investment (ROI) – only every time!
“Nothing motivates like necessity” is an old saw I have seen proven over and over.
It’s also true in B2B sales as companies today, for the most part, only buy what they think they really need.
That nice to have economy is gone, maybe forever!
While all the chatter about value is great, what really makes the sale happen is when the customer is convinced they really need it.
For salespeople, understanding the Necessity-of-Investment (NOI) should be paramount in their sales process. Instead, many are focused on corporate playbooks that emphasize demonstrating Return-on-Investment (ROI) in every presentation and proposal. Companies like IBM have developed advanced web-accessible calculators that “prove” the ROI of their solutions.
Despite this, almost all salespeople can relate a story where “there was tremendous ROI in our proposal, but they just didn’t buy!”
Why didn’t they?
ROI isn’t enough. It is not trusted by finance people (and many others). Corporate Executive Board (CEB) reported in Bloomberg Businessweek back in 2009 that ROI “guesstimates” are mostly “broken” and don’t accurately account for long-term costs. Plus promises of products “paying for themselves” through “increased efficiencies” has become pretty transparent sizzle on the steak of cost.
Some companies are even backing off the label ROI because it is pejorative. IBM’s ROI calculations now being called “value estimations” is a perfect example.
So if ROI is out, what about NOI? Specifically, what are the “needs” that drive corporate purchases?
The good news is there are only a handful of real customer needs that drive sales. Sometimes they are clear, stated and obvious. Other times not. Sometimes they are in concert with each other. Regardless, almost every deal a sales person makes will be tied to one (or more) of these perceived needs.
- The purchase will make us money.
- The purchase will save us money.
- The purchase is required in our competitive space.
- The purchase is mandated by government, department or other affiliation.
- The purchase replaces something broken.
- The investment is politically motivated
- No purchase is the best thing for the business now.
The purchase will make us money. Whip out your ROI calculators! Every company wants to make money. These sales can be driven by euphoria or desperation more likely sound business sense. According to Harvard Business Review (HBR), Three Rules for Making a Company Great (2013) rule number is 2 is “revenue before cost.”
The purchase will save us money. Almost every company also wants to cut costs. Forget that in most cases it’s bad business (see HBR above article – Rule 1 – Better before cheaper). Even “challenger” salespeople can sense when a company is going down the one-way money-saving road helping them get there faster. ROI calculations will focus more on “hard” than “soft” savings.
The purchase is required in our competitive space. Put away that calculator! There was little ROI for all those retailers who frantically raced to the web spending millions on websites that no one used and if they still exist no longer render on a mobile device. They perceived they had to invest because it was what everyone was doing. Competitive parity is a powerful selling agent. Use it!
The purchase is mandated. This is the definition of “need to have.” When the government says, everyone must comply the business has no choice. For years too when IT spoke it was similarly mandated. I would hate to see ROI stats for Y2K precautions (remember those!)? What is the ROI for avoiding the apocalypse? ROI doesn’t matter when you literally have to do it. What is important is how soon you can have it delivered!
The purchase replaces something that is broken. There might be a mention of ROI, but again if what is broken is critical to operations it’s mostly when not what or who when making the buying decision.
The purchase is political. CEO or purchasing authority wants something really badly? Generally, the company will find a way to need it. A start-up they are invested in. A close friend’s company, their sister-in-law, is the rep. Whatever the reason it doesn’t matter. Changing their mind is like trying to talk someone out of a bad relationship when they are in love. Not gonna happen. Sales gurus often suggest looking at the why of the buy – what’s personally in it for the decision maker. Honestly, not sure how you can ever know this for sure as this is often undisclosed during the process. Good news is this type of need is atypical for most B2B buys.
“No purchase” is the best thing for the business now. Easily the most frustrating for sales professionals is the increasingly common “no buy” decision. You can do everything right yet the company decides for whatever reason to pass on the solution you are providing. Once this consensus is reached, generally it is final. No money or time are valid no buy reasons. So too is not seeing enough value. And here’s a shocker, there may not be sufficient value in your particular solution to buy or replace what they already have. And as for a reason for the “no buy” – you may never know. Purchases are complex decisions, and it may be in their interest not to let you know.
SOAP BOX MOMENT: The business may also have never had any real intention of making an actual buy. They might be using you to better negotiate an agreement with an incumbent. Worse, they might be looking to get educated on the marketplace on your dime. In today’s business environment sales companies are eager to present and relentlessly follow-up wherever there is a pulse. The thanks and appreciation extended for all your efforts is hardly a consolation to a sales rep whose opportunity was in the funnel visible to all in management. Here ROI and NOI are both useless.
Sales are complicated. Making sales is challenging. Admittedly, these types of articles oversimplify what a dynamic process it is.
ROI surely still has its place, but the thesis here is that salespeople with an eye for what is driving the need for investment can sell more. NOI trumps ROI.
IBM ROI Calculators retrieved from http://www-01.ibm.com/software/rational/info/roicalculators/
Three Rules for Making a Company Great (2013). Raynor, M & Ahmed, M. Harvard Business Review. Retrieved from http://hbr.org/2013/04/three-rules-for-making-a-company-truly-great/
Why ROI is Broken (2009). The staff of the Corporate Executive Board. Bloomberg Businessweek. Retrieved from: http://www.businessweek.com/managing/content/apr2009/ca20090424_489653.htm
Why ROI is Often Wrong for Measuring Marketing Impacts (2013). Kehrner, Daniel. Forbes Insights. Retrieved from: http://www.forbes.com/sites/forbesinsights/2013/07/09/why-roi-is-often-wrong-for-measuring-marketing-impact/