04018 Building an ROI Calculator

One important contribution that Product Managers make is to play a key role in
developing tools for the sales force that qualify prospects and reduce the
sales cycle.

is a natural outcome of the Product Manager having deep familiarity not only
with the product and benefits but also with the needs and goals of the
product's users.

When a business buys software, the critical question it must answer is: "Will
this make more money for us than we are going to spend on it?" If the answer is
yes, and especially if that money is made up within a year of purchase, then
you have a good chance of winning a customer.

ROI (Return on Investment) Calculator helps a sales rep work with a prospect to
answer this question. It helps the rep attract prospects and helps them quickly
figure out whether they stand a chance of making a sale.

have created all sorts of ROI Calculators for all kinds of different products.
The one you create for your product will be unique to reflect the very
individual ways your product can save money for customers. Read on below for
some tips on building an ROI Calculator that leads to better sales at a lower


Pull Together the Right Team

an ROI Calculator will be a team effort. While Product Management may do most
of the work, it will need important assistance from other areas.

ROI Calculator is most of all a numbers-based measurement to justify a business
decision. The folks in Finance do such projects all the time. Make sure that
someone from Finance plays an active role in structuring and vetting the

also want the input of sales reps and sales engineers to make sure that you hit
the benefits that most resonate with the audience. A second aspect of help from
Sales is making sure that the tool is simple enough that someone from your
company can get a prospect to work through it with them.

can also provide valuable input on realistic numbers.

It's Never Going to Be a

have heard of companies who spoke of hiring consultants to develop ROI models
for them. These were projects lasting several months. Sounds complicated and

main thing is to create something that has enough content to be worthwhile and
reasonably comprehensive, without being the most brilliant financial analysis
of all time.

of aiming for something that is perfect, or even great, aim for something that
has enough content to be deemed meaningful by prospective buyers.

key is a usable tool that actually gets used. Something that is too complex may
not end up ever being used, in which case the ROI that YOU get from the effort
to build the calculator is negative.

Helping Throughout the Sales

ROI Calculator can be put to profitable use at all points in the sales cycle.
This is true even if there's a typical point in the sales cycle where it plays
its most important role.

calculator is a great tool to attract prospects and qualify them. Don't give it
away for free, but instead offer a one-hour session where someone from your
company can walk the prospect through a preliminary stab at the numbers. At the
end of the session your company has a copy of the preliminary ROI figure and
can judge the value of the prospect accordingly.

ROI is a Very, Very Practical

notion of Return on Investment is one of the beloved notions of the guys up in
the business stratosphere: executive management, shareholders, analysts, and
investors. It's a beautiful thing, especially when people are all relaxing
around a big table in a fancy conference room talking about it.

to actual calculate ROI for a given business initiative, you need to boil it
down to the practical level. Look for activities that can be measured, such as:

    Number of records processed. This is a practical measure of staff productivity,
    for example.
    Number of sales made, a practical measure for increased sales effectiveness.
    Length of customer support calls, a practical measure for more efficient customer

Only Benefits That Count

you think such things as greater customer satisfaction and loyalty are
important? So do I. Unfortunately, they're very hard to measure.

a look back at the measurement of length of customer support calls in the
section above. Reducing this number does not necessarily indicate more
effective customer service, just more efficient call center activity. But it's
a good, hard, measurable number.

the ROI Calculator, you will have to distinguish between benefits that can be
quantified, in terms of dollars, versus benefits that can't. Only the first
type of benefit can be included in the ROI Calculator.

second type of benefit is still important, and your prospects can understand
the significance, say, of improved customer loyalty, even if almost nobody has
a good way to quantify it in money terms. But such benefits will have to be
touted somewhere else, not in formal ROI estimates.

Build in Variables

order for your ROI Calculator to gain the necessary credibility with prospects,
you need to supply one that lets you specify and change the variables. The
variables are the elements that change from prospect to prospect, such as pay
rates, employee count, or number of transactions.

with the whole team to figure out which components of the ROI calculation are
the variables.

Provide Guideline Numbers

you and the team have built in the variables, you end up with a calculator that
only gives good results when those variables have been entered and are
reasonably accurate. While every prospect will want to change at least one of
the variables, many will not necessarily be ready to estimate all of them.

as part of the team discussions regarding variables, provide default numbers
that represent a reasonable average number which prospects can use to obtain an
initial ROI estimate without having to determine a home-grown figure for every

addition to providing the guideline numbers as "live" fields in a spreadsheet
to feed the calculation, provide a non-functioning field where each number can
always show as a reference (or include the default value in the label). This
way when the number is changed from the default, there's an easy way to get the
original one back.

certain default numbers, you may also consider providing a typical range of
highs and lows that you see across a large prospect base. This helps keep
prospects within reasonable limits as they play with the calculator.

Keep Breaking Down Numbers

important to break down numbers to their lowest level building blocks. As you
discuss specific numbers, especially variables, with the team, you'll discover
they are actually made up of more than one component. It's better to break
these out so that prospects can feel confident that the calculation truly
represents their unique situation.

example, rather than creating a single figure for personnel costs, create a
headcount and a unit cost. Further break the unit cost down to an average
salary cost and an overhead multiplier. Companies plug in their unique
headcount, average salary and overhead coefficient or multiplier to obtain a
fully customized number.

It's an Expert Tool

effort to build an ROI Calculator that produces results which will hold up when
a prospect needs to justify their investment is bound to create a tool that
isn't simple. It will require a certain amount of discussion, analysis, and
effort to work with. So while it would be nice to have something so simple that
everyone and his uncle could do it right from your web site, when it's too
simple, it won't do the job of providing a qualified number as well as
qualifying the prospect as having a serious level of interest in the benefits
your software can provide.

that someone from your company with solid training on the tool will be required
to walk a prospect through the ROI calculation. This could be a sales rep, a
sales engineer or an implementation consultant trained to work the calculator
and talk about the issues and benefits. Also, having a detailed and
personalized conversation with the prospect is a superior way, by far, to
qualify them.

Product Manager, your effort to produce the calculator will not be complete
until you organize and deliver training in how to use it. You will also find
yourself fighting the tendency of some coworkers to just hand the ROI
Calculator to prospects with no discussion or assistance.

Account for Ramp-up Time

common flaw of many ROI Calculators is to make the assumption that benefits
begin to accrue as soon as you buy the software. While it's not simple to
estimate a realistic implementation period, it's important to build one into
the calculations.

forget to incorporate a period for learning the new system, where returns might
be only a percentage of the returns once users are proficient with it.

Plainly Document the

any other financial projections, you will have to base your figures on reasonable
assumptions. When prospects work to understand the ROI estimate, they will want
to understand what assumptions went into the number. The simplest way to
address this is by explaining the assumptions right on the spreadsheet or
worksheet where the calculations are made. This also makes it easier to train
coworkers on the ROI Calculator.

Build a Library of Actual

your company uses the ROI Calculator as part of a formal process, Product
Management can collect all the estimates and build a library. This provides the
sales force with a whole set of examples and stories that can be used to
describe the benefits of your product and justify the investment. You can use
these estimates after implementation to measure how well the actual return met
the original goals. With somewhat conservative ROI estimates, this will give
Marketing fodder for case studies where the return was even greater than
initially anticipated.

Jacques Murphy, Product Management Challenges


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