How to Build an Effective ROI Calculator
How to Build an Effective ROI Calculator
- 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%
How to Build an Effective ROI Calculator - To learn more about this author, visit Glenn Clowney's Website.
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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%
How to Build an Effective ROI Calculator - To learn more about this author, visit Glenn Clowney's Website.
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Leanne Hoagland-SmithAre your sales where you want them to be? Will you be one of the few who achieves sales or business success or one of the many who have failed to change? Are you tired of being told you are like everyone else? Then you may find my first book on sales of interest. Be the Red Jacket in the Sea of Gray Suits, The Keys to Unlocking Sales available at Amazon or at http://www.processspecialist.com/red-jacket.htm. This book is a reflection of my no-nonsense approach to improving sales to overall business results. If you are truly committed to making sustainable changes, then I can help you secure a positive return on your investment because I focus on executable solutions not telling you the problems you already know you have. From training to corporate (group) coaching to executive one on one coaching, my approach is to assess, create awareness, build a goal driven action plan and then execute. The bottom line question is "Not do you or your employees know it, but do you or they want to do it?" Please call for a free strategy session at 219.759.5601. - Visit Leanne Hoagland-Smith's Website |
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 Glenn Clowney (Visit Glenn's Website) Glenn Clowney, President of ROI-Calc, Inc. glenn@roi -calc.com At ROI-Calc we quantify the business results your prospective customers will get from purchasing your product or service. We can create customized interactive flash-based calculators and other tools to help you build the “business case” your customer needs to get the internal support necessary to buy from you. We can also customize ROI sales training that easily integrates into your current selling process to quickly double your profits by accelerating sales cycles 20-50%, reducing customer ‘no decisions’ rates 25-40%, and cutting price discounts 35-50%. Glenn has managed 6 products that became worldwide market share and gross margin dollar leaders, including InternetWeek’s Best of Best Award and being ranked #1 for overall product value (Information Week Survey). To view examples of our Calcs visit www.roi-calc.com/demos_calcula tors.htm Call 877-764-2252 and learn more in a 15 minute phone conversation than most people learn in a sales seminar.
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