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How to Build an Effective ROI Calculator
Written by: Glenn ClowneyArticle Overview: Building an ROI Calculator should be a team effort. Get the insight and input of key sales professionals and sales engineers to incorporate the benefits that are appropriate for your customers. They should also make sure the calculator looks very professional (we strongly suggest building the calculator in flash instead of using an Excel spreadsheet) and that it can be placed on your website or in a presentation that is used in front of a potential customers.
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How to Build an Effective ROI Calculator
The main objective is to create an ROI calculator that helps the sales professionals in your company sell a lot more of your product or service. The ROI calculator will only be valuable to your sales professionals if it is deemed meaningful by prospective customers. These prospective customers must be able to quickly specify and change variables that are important to them. The best way to accomplish this is to use several dynamic sliders to change variables that should be measured, such as:
- Number of records processed. This is a practical measure of productivity.
- Number of sales made, a practical measure for increased sales effectiveness.
- Length of customer support calls, a practical measure for more efficient customer service.
Other variables that are unique for each business is salary of target employees, number of employees, and the number of transactions.
CLOSE THE DEAL AT ANY POINT IN THE SALES CYCLE
A well designed ROI Calculator can be effectively used at any point in the sales cycle. A calculator is a great tool to attract prospects and qualify them. Put flash based version on your website or on your laptop so that you can walk the prospect through the model while you collect and save their preliminary thoughts. At the end of the session you will have excellent insight and a preliminary ROI figure that you can use to judge the value of the prospect.
THE SERIES OF TASKS THAT SHOULD BE COMPLETED
1. Select the target customer segments and understand their needs
2. Select the financial metrics that you will use (ROI, NPV, IRR, etc)
3. Quantify the value of “features & benefits” into calculations
4. Determine the assumptions and inputs
5. Determine default values for assumptions
6. Determine default values for inputs
7. Determine the appropriate high and low limit range for each variable
8. Develop a very professional looking calculator
9. Test and refine the calculator
10. Train sales and customer facing employees on how to use the tool
ESTABLISHING A CENTRAL REPOSITORY OF INFORMATION
Use the ROI Calculator as part of your sales process and make sure that all of the information from customers is saved. You can use the saved information to refine the customer segmentation and improve the customer qualification process. The saved information also provides the foundation for excellent customer case studies.
ROI BASICS:
Return on Investment (adjusted for the time value of money)
Return on Investment (ROI) is the most popular financial metric when you need to compare the attractiveness of one business investment to another. Your return on investment equals the present value of your accumulated net benefits (gross benefits minus ongoing costs) over a specific time period divided by your initial costs. It is expressed as a percentage over a certain amount of time; for this example we will assume that the product will be effectively obsolete after 3 years. The equation for a 3-year ROI is:
(net benefit year 1 / (1+discount rate) + net benefit year 2 / (1+discount rate) + net benefit year 3 / (1+discount rate)) / initial cost.
So if the initial cost for your product is $100,000, your annual benefits minus annual costs are constant at $50,000 for the next three years, and the discount rate is 10%, your 3-year ROI would be:
($50,000 / (1 + .1) + $50,000 / (1 + .1)^2 + $50,000 / (1 + .1)^3)/$100,000 = 124%
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- [quote="orxan":3118uboz]My advise is FOCUS on your business.
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Thanks orxan! But how do you know if you truly have a good idea or not? If we ask ourselves, we may be suffering from tunnel vision. On the other hand, friends/family may try to discourage us from pursuing a small business because of their own fears, while others will simply give us an empty "you can do it!" line.
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