Lesson 36 - Prove Return-on-Investment

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Demonstrating ROI is critical to convincing decision-makers. In this lesson, you’ll learn techniques to calculate and present ROI effectively. Your assignment will involve creating an ROI calculation and narrative for a target account.

Transcript

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Nicholas, welcome back to the daily quota. I'm your host, Nicholas Hill, and in today's lesson, we're going to continue our discussion around metrics. Now in the last lesson, you learned all about identifying the metrics that your customer or prospect cares the most about, and hopefully, during the assignment, you identified four metrics that you believe would help them to see the value that your solution was able to provide. In today's lesson, we're going to take that even further. We're going to build an ROI calculator to show how those metrics can provide a return on investment for our prospect. I'll be the first to admit, this is going to be a very ambitious lesson. It's really difficult to show something as technical as building an ROI calculator without actually kind of like pulling up a Google sheet and building it out with you. So the study guide is going to do a lot of the heavy lifting for me here, but I want to talk through each of the elements of what an ROI calculator provides. So let's go back to our Sprout Social example. If you're a salesperson selling sprout socials, social media management platform, the metrics that you're working to improve, the four that we identified might include increase in social media engagement rate, increase in follower growth, decrease in time spent on social media management, decrease in customer acquisition cost. Let's focus on those four metrics we have. What we're looking to do to those numbers and what the numbers are. Now, once you know the metrics, your solution is able to impact the first thing you want to learn is, what are the averages for those metrics in the industry that you're selling to so you need to go gather as much benchmark data on these metrics as you can. And this data can come from a lot of different places. It can come from industry reports, case studies, internal analytics that your own company has done, or surveys that your own company has run with customers, surveys that your competitors have run. There are a lot of different ways to do it. I would recommend just going to chat GPT or perplexity and asking, saying, I'm looking to find the benchmarks for these four metrics. Can you help me understand where to where to start? So following my Sprout Social example, I would want to learn the following benchmarks. What is the industry average for social media engagement rate. What is the industry average for follower growth year over year? What is the industry average for time spent on social media management, arguably a more difficult one to find out, and what is the industry average for customer acquisition cost, probably a little bit easier to find out once you have the industry averages for the metrics that your solution is able to improve, then you want to find out the average change that your solution can make to those metrics. So if you're following me so far, we identify the four metrics we want to impact, then we find the industry averages for those metrics, then we find the average change that our solution is able to make. More importantly, you want to gather data that proves it. If I'm going in front of a customer and I say we're going to reduce your time spent on social media management by 10 hours per week, you better believe the next question out of their mouth is going to be, what proof do you have that you are reducing by that amount of time? What customers have you worked with that can show or attest that they've reduced by that amount of time? So you need to go get data that proves it. This is normally done through case studies, internal data analytics on how people are using your platform today, customer wide, survey data, etc. All three of these are highly involved processes. This is beyond the scope of the curriculum, but your organization may have already proven these out. Your organization may already have a value team, a value engineering team, ROI or cost calculation team. So you need to go talk with them and see if you have what impact numbers you have, what numbers you're able to see from the case studies or customer stories you've done so far. You can also go to your Yeah, product marketing teams might know this information. Your product team might know this information, but you need to have some hard data to back up your claims. So continuing to follow our Sprout Social example, we would list the following. Sprout, on average, is able to increase social media engagement rates by X on average, sprout is able to increase follower growth. By x. Sprout on average is able to decrease time spent on social media management by x. Sprout on average is able to decrease customer acquisition cost by x. So once we know how our solution can impact the numbers, then it's time to ask the customer what their numbers are. So now this is where we start to get into customer or prospect. I shouldn't have said customer prospect. We're going to ask the prospect what their numbers are, and this is where we start to get into prospect specific ROI calculation. So for example, as a rep for Sprout Social, I would ask my customer, how many hours are you spending on social media management? What is your current customer acquisition cost? What is your current engagement rate on your social posts? Because now I know about what percentage rate I can affect those by. And once you have the answer to those questions, it's time to plug in the customer's numbers to calculate the specific benefits that your solution can provide them. So for Sprout Social I might say, what is the monetary value of time saved? What is the increased revenue from higher engagement and follower follower growth? What is the reduced customer acquisition cost that I'm able to provide. So this part's really important. I want to make sure I don't gloss over it. What I've done, what I've been doing the entire time, is I've been looking at the four metrics I told the customer I could that matter to the customer. I looked at their industry benchmarks to figure and then I looked at the average amount that we can influence those benchmarks by. From there, I go figure out my percentage. So what percentage Am I able to influence these things by? And then I know that I can apply that percentage to whatever my customers numbers are. So now I go ask my and I keep saying customer to whatever my prospects numbers are. So now I go ask my prospect, what are your numbers today? And then I plug them into an ROI calculator to figure out what, what percentage can I increase or decrease those numbers by now? None of that has to do with cost, other than customer acquisition cost, right? So the next step that I need to do is I need to actually put $1 amount on these things. So if I go to a customer and I say, Yeah, we're able to save you 30% of time managing social media posts, they're like, Okay, that's great. But like, quantify that for me. What is it? What is that when it comes to labor cost. So then I say, Okay, let's take this a step further, and let's figure out the labor cost of what I'm actually doing for them. So your solution is obviously going to have its own benefits, but ultimately it should be tied to revenue or cost. So what I'm going to do is I'm going to say, let me find my example that I've written down here. Let's say that I know my prospective customer is spending 20 hours per week on social media management, and I know that my solution, Sprout Social can save them 10 hours per week on average. So what I need to do now is I say, Okay, I'm going to save them 10 hours per week on average. That's what I can prove. What does that turn to turn into in labor cost? So now I'm going to go see on Glass Door, what does the average Social Media Manager make? Well, on glass door, I see the average social media manager makes $75,000 per year, which comes to about $36 per hour. Which means, if I can save them 10 hours per week managing social media time, not only is that time they can spend doing something else, but it also is saving $360 of direct company time. So if I take that and I say, Okay, I'm saving you $1,440 a month, and my platform only costs $150 a month, which ultimately gets me to a return on investment of over 860% I'll show the math in the study Guide, but basically I'm learning that I'm saving you $1,440 in labor cost. My product only costs $150 that's an 860% return on investment. Now immediately my my red flags should be going off, because that's a huge return on investment. So I need to be asking myself, is that validated by other customers do I have hard survey data to back that up, because my customers are going to call bullshit on that, so I need to be able to say, No, it's true. Here are the customers that we can refer you to that will vouch for this, but I need to be but now tying it to the numbers allows me to confidently go. In front of my customer and say, we are going to be able to create a return on investment for you of 860% not bad. So two more tips on this. First, you can always make your ROI calculator more persuasive by adding customer stories, real customers that have experienced the results that you're aiming to achieve. Second you should always test these calculations out on current customers. So you should go to a current customer and say, Hey, this is the these are the amount of hours that we're claiming to save. Does this pass the sniff test with you? Is this? Are these the results that you've seen at your organization right make sure that you can validate these with a few current customers before you go evangelizing them to your prospects. Make sure that they're being received as realistic and credible. Remember, so let's, let's recap what we've said so far, the process for presenting your ROI to a prospect input, their current metrics show them the projected improvement to those metrics based on your solution, based on what you've learned, what against the industry averages, explain how those improvements are going to lead to money, cost savings, revenue growth, and ultimately plug that monetary value into an ROI calculation to show them the ROI that they can expect. Pretty ambitious lesson, right right now, your head might be completely spinning, but the study guide is going to help you make this more concrete. So now it's your turn for today's assignment, you are going to create an ROI calculator for your own product. You're going to list the four key metrics that your solution can impact based on what you learned. In the last lesson, you're going to gather industry benchmark data for those metrics. You're going to determine your solutions average impact, and therefore the percentage impact. Then you're going to discover the customers or your prospects, baseline metrics. You'll calculate the benefits and tie those to revenue or cost. And then you'll build the ROI calculator, bonus points, if you include proof points every step of the way, to prove the impact you're making. And then test your calculator with your mentor manager, new hire buddy, and hopefully a few customers to make sure that it passes muster. Your study guide will walk you through it, and that is it for today's lesson on the daily quota. Thanks for listening, and we'll see you next time. Bye. You.