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Why ROI Doesn’t Work (Part 1 of 2)

by Glenn Gow  |  
January 7, 2003

Many technology companies--especially those that offer complex or expensive solutions--have developed Return on Investment (ROI) tools for their sales organizations. The goal is to provide a way to offer prospects a factual, economic basis for making a purchase decision.

Unfortunately, very few companies are making a real impact with this important approach to selling. Virtually all of our clients have developed some type of economic justification tool, but very few would claim that they are winning significant business as a result.

This article talks about why most approaches to ROI-based selling don't work, and provides a seven-step process to make it work in your company.

First, though, a bit of definition. Everything this article says about ROI also applies to other methods of selling using economic justification--namely, Total Cost of Ownership (TCO) and Return on Assets (ROA). Crimson has worked with clients to develop ROI, TCO, and ROA approaches to selling; each approach has its proper role depending on a variety of circumstances.

ROI, TCO, and ROA: Which One, When

ROI is typically used earlier in a product's lifecycle, when the prospect is trying to justify spending any money on a product of this type. The question prospects are attempting to answer is “what return will I get for an investment of this type?”

TCO is generally used at a more mature point in a product's lifecycle, when the prospect is trying to justify investing in one vendor's solution over another. The question in this case is “what will it really cost us to use product X vs. product Y?”

ROA is often used when the solution offered by the vendor enhances the value of technologies currently in place. Both the return and the assets being measured are a combination of the additional investment and the investment already in place. The question here is “How will this additional investment increase the return on the assets I have in place?”

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Glenn Gow is an expert in marketing technology, an advisory board member, author, speaker, podcast host, and the CEO of Crimson Marketing. Follow his insights on marketing technology at the Crimson Marketing Technology Blog and read his book, Moneyball for Marketing: How Brilliant Marketers Use Big Data and Marketing Technology to Win.

LinkedIn: Glenn Gow

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