Nov 13 2007
Live by the ROI, Die by the ROI
Many clean technology vendors rely on return on investment (ROI) calculations to justify a sale. The idea is that customer makes an upfront investment and that investment (plus some) is paid back over a period of time. Many vendors will work with prospects to collect data and develop a set of assumptions about costs and savings. These assumptions are fed into an ROI calculator or spreadsheet model that spits out an estimated ROI percentage. See the Advance Green (Canadian Tire) ROI calculator for an example.
The problem with ROI is that even if the cleantech vendor can show that the investment will ultimately pay for itself, that’s not good enough. That’s a 0% ROI. The prospect can get a better return just by parking cash in money market funds. Even a nicely positive ROI, say 7%, may not be enough to persuade a buyer.
Most companies have more investment opportunities than they can fund and can end up ranking these opportunities, one against another. A 7% ROI may not “make the cut.” (For a sobering account of the pitfalls of ROI justification, see Little Green Lies in the October 29, 2007 issue of Business Week.)
Thankfully, in most cases, ROI is not the only criterion used in making a purchase decision. Clean technology vendors have an opportunity to market and sell the value of their offerings against other key customer goals that can include:
- addressing environmental concerns of the company’s key stakeholders (e.g. customers, partners, resellers, investors, employees)
- complying with government regulations
- meeting corporate sustainability commitments or social responsibility missions
- improving the perception of their brand
Cleantech vendors must uncover these other customer needs and values and sell against all of them. This can sometimes mean selling higher in the organization than you might have originally planned, finding the prospect contacts with a broader view of the company’s needs. Then ROI is a piece of the pitch, but only a piece.