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Should I Expect my Vendor to Conduct ROI Analysis?
The responsibility to provide ROI analysis falls to vendors.
Posted Apr 19, 2004
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In a recent study by CIO Insight and Computerworld, 80 percent of buyers rate financial justification as important for IT purchase approvals. However, more than 65 percent of buyers revealed that they do not have the knowledge or tools needed to do return on investment (ROI) calculations. As a result, the responsibility to provide ROI analysis falls to vendors for three major reasons: Vendors have the product feature and benefit insight, financial modeling knowledge, and analysis tools needed to quantify the value of the proposed solution Their sales cycles increase with speedy and accurate justifications They can quantify the differentiating value and total cost of ownership advantages of the proposed solutions vs. competitive solutions This is proven in a recent Ernst & Young study in which more than 81 percent of buyers expect IT vendors to quantify the value proposition of proposed solutions, and 61 percent of buyers rate a vendor's ability to quantify its value proposition as important in the vendor selection process. The good news is that, on the whole, IT vendors have accepted the fact that closing deals today requires proving that their solution delivers substantial value. But the rose's thorn is that with some buyers' budgets projected to rise in 2004, vendors are tempted to return of the happy days of pre-bubble selling, and abandon their commitment to ROI-based selling programs. As many buyers realize, however, most of the 2004 IT budget increases will not materialize into a spending windfall, and scarce dollars are already allocated to meet backlogged demands and cover key compliance, security, and infrastructure projects. Organizations this year and beyond will require vendors to improve value selling methodologies, use tools to help sales professionals and partners quantify ROI presales, and implement ongoing ROI service level agreements. The new ROI selling requirements for vendors represent a real and permanent shift in the way solutions are bought and sold. In this new era of corporate accountability, buyers will remain in control of purchasing decisions. Companies are becoming more decentralized in their decision-making, and more stakeholders are involved in every purchasing decision. It is vital for vendor to quantify value to helping prospects rationalize their decisions to other stakeholders, competitively analyze and align each purchase decision with all other opportunities, and prove value delivery on an ongoing basis.
To date, success-minded vendors have implemented several types of ROI tools to help meet the new ROI selling requirements. These include: 1) Web-based ROI calculators primarily used for basic analysis, education, and lead generation 2) Spreadsheet-based selling tools, typically developed by an in-house, financially savvy marketer or consultant 3) More advanced software that encapsulates the spreadsheet models into a better presentation and report-building package Customer-focused vendors will deploy a standardized selling toolkit that addresses each step in the sales process with credible value quantification, and seamless integration into current CRM solutions and selling methodologies. Just as other solutions have migrated from simple tools to enterprise applications, buyers should expect that leading vendors will move their ROI selling programs beyond point-based ROI solutions, and view ROI as an integral component of a successful enterprise selling process both pre- and post-sale.
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