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When Is It Time to Sell?
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By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success – Live Cold Call Training Workshops®
It happened again in my most recent live cold calling sales training workshop. A rep reached a decision-maker and the first words out of their mouths was about their company and its value proposition. Never mind that the decision-maker was busy or that the rep didn’t even know if there was a need to sell anything.
The urge to sell took over. It happens to most of us. We’re trained to sell that way.
The mind begins to churn with one thought and that’s “I’ve got the decision maker on the phone and I’d better say something to make them listen to me because I may never reach them ever again”. Nothing could be further from the truth.
The fact is you want to get them talking about themselves and what they do as quickly as possible and keep the conversation focused upon them as long as possible. Wait Ron, we’re salespeople and our job is to sell when we get the opportunity, right? Well the answer is “no” and then “yes”.
The first part of the answer is no because you can’t sell anything unless you first understand if there is a need to sell. Leading with your company and its solutions will immediately peg you as just another sales rep who’s only looking out for themselves.
The key to the front end of the cold calling sales process is to shift your mind out of “sales” mode and shift it into “information” mode. In other words, don’t sell until you determine if there is a need to sell.
By staying in “information” mode, you’ll find most of the people you speak with are much less defensive and much more helpful. People don’t like to be sold. They like to buy. Our job is to help them buy the way they want to buy which may not be the way we want to sell.
What you need to do is to lead with questions. A good conversation always begins with questions otherwise, it isn’t a conversation but a monologue.
The use of “What are you doing in the area of ____?” or “How do you currently handle ___?” or “What happens when ___ occurs?” will provide the types of answers you need so you will know exactly what solutions to present and the close will then become a natural conclusion.
Resist the urge to talk about your company, your solutions and yourself. Instead focus on being interested, not interesting. You will gain much more valuable actionable sales intelligence from most people you speak with throughout a prospect’s organization.
Using this information will enable you to engineer larger enterprise wide deals, which will put more commissions in your pockets much faster than before.
You can use this content in your own publications.
Please include the following reprint permission…
This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success – Live Cold Call Training Workshops®
Pro-Active Account Management™ (PAAM) involves pro-actively calling your customers or clients on a regular basis (at least annually if not twice or more times a year) to nip any problems in the bud, gain an understanding of potential new business opportunities, gather information about your customer’s current environment, planning process and their buying plans.
Most companies use re-active customer service. Typically companies set up a support line, help desk, chat service or offer an online web form to complete (what a hassle especially when it comes to fixing something simple), which waits for customers to contact them, the vendors with their problems.
Imagine if these companies turned the equation around and had a group of people (i.e. “service reps”) dedicated to pro-actively making outbound “service” calls to all the users of their solutions. The intelligence derived from this type of activity is extremely valuable to all parts of an organization.
I give kudos to those vendors who have a pro-active account management system in place. When I developed the PAAM approach as part of my past sales research career, I generated well over $60 million in additional revenue for numerous major software companies over a very short period of time.
This is How to Create an Account Management Records Update™ (AMRU) Form
If this is information is not currently part of your CRM (Customer Relationship Management) System, then first, you’ll need to adjust the following information to fit your into your company’s CRM based upon your company’s unique solutions. When I design these forms they typically run about 5 to 7 pages or 111+ questions created specifically to find money or save expenses. The data collected (usually done over the phone since multiple conversations with multiple people are usually needed), if done correctly, becomes extremely valuable to all areas of your organization especially sales. Read on to find out why.
Your basic AMRU Form should have room to list the shipping, billing and technical contact names, addresses, phone numbers (land and cell), website and customer details (fax number, email addresses, etc.) at a minimum. Depending on the wording of your Agreements, you may also want to find out if there have been any changes such as an acquisition, merger, a change in the leadership or a change in the percentage of ownership. Each of these can lead to sales opportunities.
After preparing to verify and/or collect the basic customer information (which may have changed considerably since they first bought from you), you’ll need to list out how and where your solution is currently being used, by whom and for what purpose. For example, you may find Ron LaVine, who is a part of the life insurance line of business, uses your reporting solution in the Los Angeles office to run commission reports on a 92XX JJJ CPU (Central Processing Unit), Serial Number 123456. If it the investment was $100,000 for the initial solution, finding out the existence of an additional Mainframe with your solution on it, may uncover a hidden $100,000 sales opportunity.
Next you need to list out your solutions requirements for usage. Make a list of all the perquisites for buying any of your solutions. For example, let’s say a customer must have a XX2 or Occcc database in order to use a version of your reporting solution. You know your customer has one or the other or they could not have purchased your solution in the first place.
Let’s also say knew your customer had a XX2 database. However, you didn’t know they added an Occcc database. If you asked and then found out your customer had an Occcc database, you may have just found a potential business opportunity for another sale.
Following your solution’s requirements or prerequisites information you’ll need to list your major competitor’s solutions broken down into different types of sub-solutions that compete with your individual offerings. For example if you offer online collaboration cloud solutions, then you would list both yours and your competitor’s.
Collaboration Solutions: [ ] Your Solution [ ] Competitor 1 [ ] Competitor 2 [ ] Other: ________
Reporting Solutions: [ ] Your Solution [ ] Competitor 1 [ ] Competitor 2 [ ] Other: __________
Finally, your form will need to contain a list of these types of questions to uncover potential sales or expense savings opportunities such as:
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Identifying needs for additional licenses. Let’s say your software is on two CPUs and only one is licensed. You may want to ask: “How many CPUs does our software run on?”
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Finding needs for additional equipment or services. Want to find out plans or needs for additional solutions, then ask: “What are your future plans in the areas of…?”
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Becoming aware of needs for additional documentation. An excellent question to add help embed the usage of your solution if this applies is to ask: “Based upon XX end users, are there any needs for additional user manuals or technical documentation?”
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Locating customer user stories, testimonials, recommendations or case studies. You may want to ask “We are looking for companies such as yours who have successfully implemented our solutions to write a user story or case study. Whom would I speak with in your company to get permission to do this?”
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Identifying and clarifying the customer’s future strategic direction. For example: “Do you plan to stay on the mainframe or move to cloud?”
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Notifying the customer of potential solution upgrades. This is where you might ask: “What version of our ABC Solution are you currently using?” followed by “Are you aware of the benefits of the new upgrade capabilities?” Asking these questions should spark a discussion about the new capabilities or the lack of use of your solution (in the software world this is known as “shelf-ware”) and why.
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Getting phone references. I like and use this phrase a lot. “If someone wanted to speak with someone who uses our solutions and likes them, who would they speak with?” Hint: usually it will be the end or main user of your solution.
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Establishing needs for solution add-ons. “What are you doing in the area of…?” “Are there any needs for ____________ in the ___________ line of business?”
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Finding potential needs for professional or consulting services “Are there any needs in the areas of…?”
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Looking for needs for user education or training “How do you currently conduct your training and are there any needs for additional training?”
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Identifying potential user group attendees or speakers. Try this statement followed by this question: “It sounds like you know a lot about the use of our solution. “Would you be interested in speaking about how you have successfully used our solution in your environment?”
Implementing Pro-Active Account Management using a AMRU Form
Start by locating the main user of your solution and ask them to help you update their records. If they don’t know a piece of information, ask them “Who should I speak with to find out?” Customers will readily provide you with information if you call with the attitude of “I’m calling to be of service” rather than “I’m trying to sell you something.”
For example, have you ever received a call from a car dealership asking what you thought about your recent visit for service? You took the time to answer their questions. Why? Because you are a customer! What if there had been a recall, you sure would want to know about it, wouldn’t you? Why? Because you are a customer.
The same principle applies when you call in to update an account’s records. They feel compelled to help you. If they don’t feel compelled and there is a problem with your company as a supplier, you want to know about it ASAP before they switch to a competitor. This process enables your company the opportunity to can fix the problem and hopefully maintain and then expand the business you do with them.
In fact fixing problems pro-actively makes you, the “service rep”, look like the troubleshooter.
You’ll find when you fix any potential problems, the word tends to be spread around that your company takes care of its customers. Be sure to begin by explaining the reason for your call is to be sure their records are up to date so they, the customer, can receive the service they deserve. Letting them know this reduces the resistance to answering your questions. Let them also know that by providing this information, it will enable them to receive information on new developments and future solutions.
A Few of the Benefits of a Pro-Active “Service” Approach
Although the benefits are numerous, here are eleven of them.
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You can find new business opportunities for more existing solutions, consulting, training, education and sales of new solutions.
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You can cut your communications costs and time by avoiding people who are no longer there.
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The information you find is useful to several areas of your company (accounting, shipping, etc).
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You can identify both short-term and long-term business opportunities.
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Updated customer records, can lead to internal cost reductions which can ultimately add to directly to your company’s bottom line and your profit sharing plan (if you have one).
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Pro-Active Account Management can be used to nip potential customer problems in the bud before they become unmanageable.
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You are able to identify and qualify high level contacts and locate key decision-makers by using internal customer referrals across business segments or divisions.
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You can ask about the evaluation and decision making processes including time-frame and budget for any potential solutions being considered.
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You can enable faster processing and payment of your invoices while eliminating many unnecessary customer paperwork and phone calls.
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Identifying and implementing areas of customer service improvement can increase customer retention rate using Pro-Active Account Management approach.
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You can leverage your ability to increase your amount of closed sales. An AMRU enables you to understand industry and competitor changes and create a competitive advantage for your company.
In Summary
Pro-Active Account Management over the phone using a Account Management Records Update Form is not only time and cost efficient, it can uncover a wealth of valuable data, which when analyzed, can be converted into useful intelligence your salesforce can use immediately to make more sales.
For more information on how to develop and implement a custom designed Account Management Records Update Form for your company, call me at +1-818-991-6487 or send an email to ronlavine @coldcalltraining.com with AMRU in the subject line and your contact details in the body of the email.
You can use this content in your own publications.
Please include the following reprint permission…
This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success® – Live Cold Call Training Workshops
Look at any team sport and ask yourself what happens when the other side makes a move or a play such as a base hit in baseball or a run in football? The answer is the other team shifts in reaction to what has occurred.
However until some action is taken, no shift can be made. If a baseball is hit towards the shortstop he moves or shifts in the direction of the ball. You typically don’t see him move before the ball is hit.
If a running back is running a play off the end of the right tackle you’ll see the linebacker shift in anticipation of where the runner is headed. They shift to where they think the play is headed however if they are wrong they quickly shift again to where the actual ball is.
A similar phenomenon happens on the phone. People ask you questions and you must be prepared to shift. The difference between sports and sales is you can help direct the shift be asking questions.
The person who asks the questions controls the conversation.
Think about it for a minute. If I ask you what you like about blue and you answer it looks good on me. Who is directing the conversation? If you guessed me, you are correct.
Now let’s turn the situation around. There are two possibilities. One is you lead with a statement or question or a combination of both or secondly, you let the other person ask the question and then they gain control of the conversation.
So the conversation might go your way by you asking the first question or making the first statement such as “Maybe you can help me.” “Who is responsible for software? Do you have a CIO or VP of I.S.?”
Or it could go the other way where an executive’s assistant asks you “Why are you calling?” or “What do you want?” Now they are in control. You need to be prepared to handle both situations.
When you ask the questions first, you control the call. If they ask the questions first then they control the call. It is that simple. Your goal then becomes to make a statement and/or ask a question first.
So by now your asking “Ron, how do I stay in control?” It is very easy. Simply stop and make a statement such as “Maybe you can help me” or “Let me ask you a question” or “By the way’. I find “Maybe you can help me” works best since people naturally like to help other people.
When the assistant says, “Why are you calling?” or “What do you want?” You can respond by saying, “Maybe you can help me.” “Who is responsible for software? Do you have a CIO or VP of I.S.?” You have just shifted the direction and taken control of the call.
In large ticket sales you must be able to shift and react quickly to what the prospect is saying. So many times I hear reps on the phone and they are asked a question and are thrown for a loop. Or the other person keeps talking on and on and moves the conversation off the topic.
Let’s say the topic is application development but the prospect begins to talk about systems operations. You can bring the conversation back onto to the topic of application development by saying something such as “I understand what you are saying about systems operations. Now let me ask you a question. How do you handle application development?” Each time you ask the questions, you stay in the driver’s seat driving the direction of the call where you want it to go.
If you ever watch a football or any professional team practice you’ll notice they are constantly preparing for the unexpected.
I believe that in sales we need to be able to do the same thing. This leads me to my point. Sit down and write out questions prospects might ask. Next write out responses to those questions. Then practice using those statements and questions to keep control of the call and move it in the direction you want it to go.
Does this mean you don’t listen to what the other person has to say? Of course not. Instead you base your questions upon their answers and that is what creates the basis of a conversation.
So in summary, when someone asks you a question. Stop and wait for them to finish. Feedback what you heard and then ask your next question based upon their answer.
You’ll find you will be having much longer conversations, which are also more meaningful and which will also lead to more sales in less time.
You can use this content in your own publications.
Please include the following reprint permission…
This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
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By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success® – Live Cold Call Training Workshops
Imagine an orchestra playing before you. Now think what would happen if one of the violin players suddenly ignored the what the composer had written on the sheet music started playing another tune right during the middle of another piece. Or what if the violin player kept their instrument aloft and accidentally played a note or two?
What would happen? At the very least, the harmony would end. Why? The person was not paying attention or was intent on making themselves heard.
Now imagine being on the telephone having a conversation with a prospect when all of a sudden instead of listening to what is being said to you, you decide you must start talking about all the features and benefits you feel the prospect must know about your technology. Instead of continuing to listen and discuss what is important to the prospect, you interrupt thinking if only they knew how great your technology is they would buy immediately.
Let’s go back to our orchestra scenario. What happens when a violinist decides to play another piece or accidentally plays a note during the middle of a piece? Similar to the disharmony they would cause, you would probably end up with something equally bad. This maybe the loss of a sale and possibly damaging any future relationship.
The telephone is similar to a violin. It is an instrument. It takes practice to learn how to derive the most benefits from using it. When you learn how to play the violin, unless you are a prodigy born with innate talent, you need to practice following what the composer has written (or in the case of a conversation, listening to what the prospect is saying without interrupting).
This can and is a real challenge for many of us. Why? We like to hear ourselves speak. We like to share all of what we know.
While on the telephone, one of the ways you can prevent this is to place a finger over your mouth reminding yourself that your job at this point is to listen and not speak. This serves four purposes.
One, it is very difficult to talk when your finger is covering your mouth.
Two, it will remind you to listen (and concentrate) more and while speaking less.
Three, you will begin to become conscious of your need to speak.
Four, you will be able to learn how to control your urge to speak.
This is a simple yet useful technique to force yourself to get in the habit of listening.
Using the telephone to make sales requires discipline. Since you cannot see the other person and therefore cannot rely upon visual signs, you must rely solely upon what you hear. Decide to listen. STOP! Stop talking on purpose.
Encourage the person to answer each question in detail by remaining silent. Remember that silence often gives the person on the other end of the line time to think about an answer to your question. If you interrupt them, you may never know what important piece of information they were going to tell you.
Allow them time to think, you will get more information that way, rather than trying to fill in the gaps of silence. Show you are listening by using statements such as “I see” or “I hear you” “Okay” “I understand what you mean” or “Right.” If you overlook this step, misunderstandings can come back to haunt you later.
Have you ever watched an orchestra when a group of instruments are not playing or are not getting ready to play? What do they do? Typically they put their instruments down or away from their mouths. Why do you think they do this? Could it be so they don’t accidentally play a note and ruin the piece that is being played?
Control your urge to speak and you will make more sales. Remember, the secret to listening is to be interested, not interesting.
You can use this content in your own publications.
Please include the following reprint permission…
This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
CLICK HERE TO GET YOUR FREE COLD CALL TRAINING NEEDS ANALYSIS
HOME PAGE // SITE MAP // STORE // WORKSHOPS // REINFORCEMENT // CLIENTS
TESTIMONIAL LETTERS // MORE TESTIMONIAL LETTERS // QUOTES FROM CLIENTS
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By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success® – Live Cold Call Training Workshops
I found an interesting article in an issue of Sales & Marketing Magazine written by John Graham, president of Graham Communications, Quincy, MA. The question posed was “Does the weekly sales report still have value?” I adapted Mr. Graham’s article to look at a bigger picture or what I call the Sales Planning Process.
The Sales Planning Process is composed of four parts:
Where are you now?
Where do you want to be?
How do you plan to get there?
Now take action.
Throughout Mr. Graham’s response he asks questions, I feel are more important than solely determining if a sales report is still needed. In validating, the use of a sales report Mr. Graham said the report should help the salesperson answer five critical questions.
1. How am I using my time?
If you are in sales, ask yourself the following.
Am I conscious of where my selling time is being used?
Am I making calls on my most profitable or most comfortable clients?
Can some of my face to face calls be replaced by more time and cost effective phone calls?
If you are in sales management ask yourself the following.
How much time are my reps spending on non-selling tasks such as meetings?
What is the effect of these meeting interruptions on the productivity of my sales rep?
How can I increase my sales by reducing or eliminating non-selling tasks?
2. How good am I at understanding a client’s business?
Do I have a clear grasp on what is happening in each client’s business?
What are the problems facing the industry?
Were and what are my client’s objectives?
How do my company and I fit into all of this?
What can we do to be helpful and add value to our client relationships?
What must we be doing to become an indispensable vendor, supplier or partner?
3. How effective is my sales planning?
Do I know who I am going to see and why?
Do I have everything down in writing so I am not depending on my memory?
How am I going to use my time day by day next week?
What do I need to accomplish with these clients over the next thirty days?
4. What is going on within my territory?
Salespeople need to understand what they see and hear about current customers, prospects and competitors.
Salespeople are their company’s intelligence agents.
Salespeople must recognize that even if the tidbits of information they obtain, don’t seem to make sense or appear to possess value, the individual pieces can serve to create a helpful big picture.
I am constantly reminding my students the answers they are seeking are within the little details. Are you paying attention too and keeping track of the little details?
5. Who should become a client?
What is the profile of my company’s most profitable client?
What is the prospecting strategy both the sales rep and sales management have adapted for evaluating and cultivating these types of prospects?
In conclusion…
Are you capturing and using this type of information? If so, great! If not, why not? When you are answering these questions on a regular basis, you will not only have justified a weekly sales report (assuming you use one), you’ll be able to make better use of your time.
You can use this content in your own publications.
Please include the following reprint permission…
This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
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| By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc. Cold Calling System for Sales Success – Live Cold Call Training Workshops® In order to establish your solution’s value, you must first know what is valued. These are the areas of concern for most Global 2000 executives.Very SecureHow does your solution provide increased security and protection?What can a prospect or customer expect from you solution in terms of providing additional security?AdaptableWhat enables your solution able to expand and contract quickly?Is your solution scalable?If more of your product or service was required, would you be in a position to provide it?What are your capabilities as a company in terms of adapting your solution to fit the prospect or customer’s specific needs or environment?Low Total Cost of OwnershipWhat will be the Total Cost of Ownership?Remember to factor in the additional costs of documentation, training or education, consulting services and maintenance or maintenance renewal costs.What type of Return on Investment can the prospect reasonably expect?How fast or what is the net payback period of your solution?UsableHow difficult will your solution be to implement and use?What can the prospect expect to encounter when using your solution?What type of support is available if they encounter problems?Efficient and EffectiveHow will your solution increase their efficiency or the effectiveness on the way they do business?What is it about your solution that will allow the prospect to get more done in less time than before?DependableWhat is your solution track record in terms of being consistent and reliable?Who has used it and for what types of applications?ConclusionTake some time to write out your answers to each question. Then read your answers aloud. Which make the most sense? Which ring true when you say them? Add those statements to your sales toolbox.
You can use this content in your own publications. This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at 818-991-6487 by clicking here. Follow me on Twitter by clicking here.
CLICK HERE TO GET YOUR FREE COLD CALL TRAINING NEEDS ANALYSISHOME PAGE // SITE MAP // STORE // WORKSHOPS // REINFORCEMENT // CLIENTS TESTIMONIAL LETTERS // MORE TESTIMONIAL LETTERS // QUOTES FROM CLIENTS ORGANIZATIONS CALLED // FREE SALES TIPS // FREE RESOURCES // FREE ARTICLES |
By Ron LaVine, MBA and President of Accelerated Cold Call Training, Inc.
Cold Calling System for Sales Success – Live Cold Call Training Workshops®
PAYBACK PERIOD
Definition: An investment’s payback period in years is equal to the net investment amount divided by the average annual cash flow from the investment.
Meaning: How long will it take to get my money back?
Strengths: It’s easy to calculate, understand and provides some indication of risk by separating long-term projects from short-term projects.
Weaknesses: Doesn’t measure profitability or account for the time value of money and ignores financial performance after the break-even period.
NET PRESENT VALUE
Definition: The NPV of an investment is the present (discounted) value of future cash inflows minus the present value of the investment and any associated future cash outflows.
Meaning: It’s the net result of a multi-year investment expressed in today’s dollars.
Strengths: By considering the time value of money, it allows consideration of such things as cost of capital, interest rates, and investment opportunity costs. It’s especially appropriate for long term projects.
Weaknesses: Ranking investments by NPV doesn’t compare absolute levels of investment. NPV looks at cash flows, not at profits and losses the way accounting systems do. NPV is highly sensitive to the discount percentage and that can be tricky to determine.
INTERNAL RATE OF RETURN
Definition: The IRR is the discount rate that results in a net present value of zero for a series of future cash flows.
Meaning: It’s a cutoff rate of return; avoid investment or project if its IRR is less than your cost of capital or the minimum desired rate of return.
Strengths: It provides simple hurdle rate for investment decision-making. It’s the method favored by many accountants and finance people, possibly the ones at your clients or prospects’ companies.
Weaknesses: It’s not as easy to understand as some measures and not as easy to compute (even Excel uses approximations). Computational anomalies can produce misleading results, particularly with regards to re-investments.
BALANCED SCORECARD
Definition: A set of principles and analytic techniques for improving an organization’s performance in four general areas: financials, customers, learning and internal processes.
Meaning: Long-term organizational excellence can be achieved by only taking a broad and holistic approach, not focusing solely on financials.
Strengths: This approach is potentially all encompassing, combining financial and non-financial goals and measures. It can encompass the performance of entire companies or business units, not just individual investments or projects. Balanced /Scorecard is future-oriented, not a rear view mirror on performance.
Weaknesses: The method is so potentially broad that it may divert resources from those few areas that are really vital to shareholder return. It doesn’t readily weight the relative importance of the different metrics it uses.
ECONOMIC VALUE ADDED
Definition: EVA is a trademarked name by Stern Stewart & Co. – subtracts the capital charge (the capital investment times the cost of capital) from the net financial benefits of the investment.
Meaning: Economic profit is wealth created above the capital cost of the investment. EVA prevents managers from thinking that the cost of capital is free.
Strengths: EVA focuses managers on the question, “For any given investment, will the company generate returns above the cost of capital?” Companies that embrace EVA have bonus compensation schemes that reward or punish managers for adding value to or subtracting value from the company.
Weaknesses: As with any metric, it’s hard to link precise EVA returns to a specific technology investment. EVA is ideally suited for publicly traded companies.
Three Major Challenges of Return in Investment Calculations
1. How does the company arrive at the figures? Are all the costs factored in including soft benefits such as customer service?
2. Can you tie a productivity improvement directly back to the investment in your solution? To what extent was result accomplished caused by your solution?
3. Who’s accountable? No matter what method you use to calculate the ROI, the bottom line is who is responsible and accountable for the investment and for tracking it.
Top Five Challenges for CIOs
1. Maintaining operations with a lower budget
2. Cutting costs
3. Completing major projects
4. Maintaining infrastructure
5. Improving security
The Growing Importance of ROI Calculations
Out of 113 IT Managers involved in IT Spending decisions surveyed, 65% said ROI calculations are becoming more important in their organization while 48% said sometimes ROI calculations are a good idea and sometime not and 41% said ROI calculations are essential to prudent management of IT investments.
The Bottom Line
If you want to make it easier for your buyer to buy your solution, now is the time to have at least one, if not multiple variations of ROI calculators developed and ready for use.
SOURCE: “Knowledge Center ROI, Do the Math! Special Report: A CIO’s guide to the strengths and weaknesses of ROI calculations. www.computerworld.com
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This article is reprinted with permission from Ron LaVine’s “Sales Tips for Success” complementary e-Zine. Ron LaVine, MBA is President and Founder of Accelerated Cold Calling Training, Inc., an Oak Park, CA cold call training company. Get two FREE Reports, plus the FREE e-Zine, Sales Tips for Success by clicking here. Learn more about Cold Calling for Sales Success On-site, Virtual, Individual or Group, Live Cold Call Training Workshops® by calling me, Ron LaVine at +1-818-991-6487 by clicking here. Follow me on Twitter by clicking here.
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