In the consulting portion of our business we are often shown an exciting new ROI model that has been developed by a medical equipment manufacturer to enhance their ability to close more deals. Its purpose is to show C-Suite level executives why they should purchase their product by quantifying the financial benefits.
Each ROI model is elaborate in design, highly interactive and is shown with a great deal of pride and enthusiasm. Most permit customized assumptions and provide graphic portrayals of the financial calculations in colorful charts and tables. Most fail, however, to help the sales representative. Here is why.
- Lack of Customer Credibility
ROI tools lack customer credibility for three reasons:
a). Developed Internally Without Customer Input. When the ROI tool is developed internally without customer input, you lose credibility. It is imperative that customers aid in the design of the ROI tool since they are the ones that must believe in the integrity of the model. When customers help in the design of the ROI tool, it eliminates their inherent bias that they have against the tool’s accuracy and completeness. After all, customers are aware that you wouldn’t show them an ROI tool that doesn’t document a financial benefit. With that said, it’s amazing to us how many ROI tools are developed internally by marketing, finance and health economics and then given to the sales force to use without any customer validation.
b) It’s Proprietary! When the sales representative cannot leave the ROI tool behind or it’s not on a website for the customer to use at their convenience, you lose If the tool is valid, it should be open to anyone’s scrutiny and use. It works like this:
NO ROI TOOL ACCESS = NO USE= NO VERIFICATION = NO SALE
c) Inadequate Design. Several times we have reviewed an ROI Tool and learned that a specific key parameter could not be entered. When this happens you lose credibility. Why does this occur? Because the designer didn’t realize the parameter was important. Why didn’t they realize it’s important? Because they didn’t test the tool with several potential customers before releasing it to the sales force. If a Hospital CFO cannot enter key data or if he/she cannot measure Return on Investment (ROI), Payback, Net Present Value (NPV), Return on Net Assets (RONA), Internal Rate of Return (IRR) or any other financial calculation they desire, then the tool loses its effectiveness and credibility.
Let us share a story with you. Several years ago, we developed an ROI tool to show Home Medical Equipment providers how to evaluate several different types of home oxygen delivery methods. As part of the developmental process, we interviewed several industry experts. We asked them how they measured their revenue, costs and profitability. We took their input and developed several iterations of the ROI tool before they finally agreed we had it right. When we began to talk about it at national meetings, in an attempt to sell it to their peers, we always told the story of how the model was developed. We explained that the ROI tool was developed by their peers and we programmed their thoughts and analysis into the model. The result was the ROI tool sold itself.
- Too Complex
For an ROI tool to be believable it must be intuitive, thorough and easy to use. It must mirror the logical thought process in which Hospital CFOs calculate return. Without input, your model becomes a patchwork of guesses and conjecture. All too often, we see ROI tools that are so intricate that they are difficult to understand short of a Ph.D. in health economics or finance. The flow must be logical, sequential and thorough. This must be designed before programming is done and then verified conclusively.
Recently we reviewed an ROI model and made some suggestions for change based upon our experience in working with hospital CEOs and one of us being a former hospital CEO. We were told no changes could be made to the ROI tool because the project was completed and it would take too much time to re-program it.
- Lack of Tool Understanding
Admittedly, merging a model that mirrors a CFO’s thought process into a format that can be explained by sales representatives can be a challenge. If the sales force cannot demonstrate the ROI tool flawlessly then don’t bother providing it. Often the sales representatives struggle in three main areas.
a) Support Assumptions with Customer Credible Data. The assumptions should be documented with credible data. The best source of data is published data in peer review journals if that applies to the potential customer. This lends credibility to the assumptions. It’s acceptable to include default data in the cells as long as the sales representative knows how it was derived. Users should be able to use the default data or enter their own data.
b) Use Customary Financial Vernacular to Define Terms. Unless your sales force has a finance background the terms can be a bit oblique. Teach the financial terms to the sales force and then have each individual demonstrate a competency of their understanding of the terms and their ability to discuss them fluently.
c) Master Underlying Calculations. Do sales representatives fully understand the formula underlying each cell? The computation may be so simple and self-evident that it’s glossed over until a customer asks, “How did you get this number?”
- Pervasive Impact on Technology
Hospital CFOs have been measuring the return on their technology investment for decades. In today’s high technology environment, people and processes are often so entwined that it requires measuring the benefits of each. Financial measurements such as NPV and IRR don’t measure soft benefits such as customer satisfaction and improvements in employee productivity. There may be hidden costs such as additional hardware, personnel or support that was not originally discussed or anticipated that is required. This is difficult to capture in an ROI tool.
- Poor Alignment With Industry Models
It’s a rare occasion when a manufacturer’s ROI tool aligns precisely with the tools developed by Premier, MD Buyline, ECRI and others. Each of these organizations have sophisticated tools that have been available to hospital CFOs for years. Their ROI tools have credibility. If your ROI tool doesn’t align with their assumptions, default values and conclusions you lose credibility.
Used properly ROI Tools have a place in the sales representatives toolbox because they validate a financial benefit. What must be kept in mind is that every customer makes every buying decision differently every time.1 It’s incumbent on the sales representative to find out what information must be provided to the hospital CFO and other buying influences. In some cases, financial justifications are tossed aside because a project makes good business sense.
Proof can be illusive. What proves a point to one executive may appear shallow and insufficient to another. A powerful business case, however, can disarm the competition and highlight your solution. When combined with stories, customer testimonials and case studies, a strong business case can prove difficult to resist.
As always we welcome your thoughts and input. Feel free to start a discussion.
- Galvin J. The Power of Perspective. MHI Global 2015.