The ROI of ROI Selling

Written by Craig LeGrande and Venkat Lakshminarayanan

Craig LeGrande is CEO of Mainstay, a leading provider of value management services to Cisco, Oracle, AWS, Nutanix, and many other industry innovators. Craig also authored two prior business best sellers: Competing for Customers (2016) and Ruthless Execution II (2014).

Venkat Lakshminarayanan is a Board Member at CRON AI, and former Global Head of Strategy, Strategic Value Advisory for ServiceNow

The rise of business value services

In the past two decades, a growing number of enterprise technology companies have been looking to boost sales by investing in a practice called business value services. Also referred to as value management, value engineering, or simply ROI selling, the practice aims to show potential customers how the vendors’ products and services will deliver real business value – not just empty promises. It has become popular with major tech vendors including Salesforce, Cisco, Oracle, AWS, Nutanix and hundreds more.

At the heart of the practice are experts known as business value consultants (or business value engineers). Their main job is to create business cases that help customers understand the potential business value of the product they might invest in. The best cases can be key to helping companies win large, complex, and strategic deals, improve upselling, and even grow pipeline when applied imaginatively throughout the customer lifecycle. For the potential buyer, business value services with strong business cases can help justify the investment and secure funding internally.

Due to their success in helping sales teams close more (and larger) deals, business value services are proliferating at many tech companies – along with the associated costs. Headcount is rising with the hiring of new business value consultants, spending on value-automation tools such as ROI calculators is increasing, and demand is growing for related services such as sales enablement solutions and content creation.

Drinking your own champagne

As the costs for business value services have risen steadily, corporate executives have started to ask probing questions and asking for better accountability – including more formal commitments to delivering measurable business outcomes. This raises the question: Just like we approach business cases for customers, is there a formal, rigorous approach we could use to justify the spend on business value services?

The short answer is: Yes, ROI selling works.

But exactly what outcomes can we expect from every dollar spent in business value services? In other words, what is the ROI of ROI selling?

As former business value consultants who have been fortunate to be part of the amazing evolution of the value management community, we feel compelled to share what we have learned!

A formal methodology for estimating the ROI of ROI Selling

Let’s start by breaking down the impact of ROI selling using a tried-and-tested method that we call a Value Tree, which evaluates both costs (investments) and benefits (outcomes).

A closer look at benefits

Outcome #1: Expanded pipelines

By articulating the art of the possible to prospects and customers, your existing pipelines can expand, and new pipelines can be created.

• Business value consultants bring thought leadership and imagination in a business language that resonates with decision-makers early in the sales cycle.
• Well-crafted business cases can elevate the messaging and quality of conversations with key decision-makers, allowing smaller vendors to gain access to large customers that may have been off limits in the past. (Over the years, we’ve seen many startups become global brands using this approach.)

Outcome #2: Greater revenue & margins

By clearly quantifying and communicating the strategic and financial value of the investment, your business value practice boosts win rates, deal profitability, and revenue.

• An effective business value management practice can help you prioritize your deals to focus on high-value targets, helping you spend money more wisely.
• Accelerate deals by providing a detailed, well-articulated business case, giving senior leadership at the customer more confidence in their investment decisions.
• Increase deal size by nurturing a more holistic strategic partnership vs. being a point-product vendor.
• By creating a self-service, low-touch business case program, sales teams can build their own business cases, enabling the program to scale across the enterprise and drive additional margin.

Outcome #3: Churn reduction & upselling

Building stronger C-level relationships and providing better clarity around the value you promised (and delivered) can help you reduce churn and expand sales during renewals.

• Business value consultants can build stronger and higher-level relationships with the customer, helping reduce customer churn and reducing the risk that the solution isn’t adopted.
• In addition to churn reduction, the team can help upsell and expand the business during renewals by making a strong business case for additional value.

A closer look at investment costs

Let’s look at the investment requirements and cost drivers for successful value selling.

• Labor is typically the largest investment, mostly due to the experience and compensation requirements needed to build a successful business value services team. Team size can range from just a few to hundreds.
• Investing in new digital tools, including new SaaS platform to automate key processes, can help accelerate and scale business case development.
• Travel and expense budgets are needed to pay for executive briefings and events that help promote and communicate your business case.
• Often overlooked, training and adoption services are necessary to help scale business value programs to your enterprise sales teams.
• Other investment costs include hiring vendors to create content, subscriptions for collecting industry and company data, and expenses for gifts and awards.

Critical success factors that influence the ROI of ROI Selling

Want to get the most out of your ROI selling program? Here are several useful tips:

Focus on the right accounts and deals
Often, you’ll get better returns from a business value services practice when you focus on selling complex solutions that have substantial business impacts, rather than a commodity offering.  It’s often a good idea to set a deal size threshold so that the business case efforts can be concentrated on the most important, large, and complex deals and accounts.

Build a robust operating model
Designing good workflows for how business value services will work on the ground, and defining roles and responsibilities, is critical to the success of the program. This ensures that your business value consultants are not lone wolves in the sales cycle.

Cover the full range of products and solutions
Although it’s natural to prioritize your time on specific deals, but it is also important to develop value models for your entire portfolio of products and services. With access to multiple ready-made value models, you can cover more deals and deliver more consistent results.

Address the full customer lifecycle
You can apply value management principles beyond just sales teams – for example by helping marketing generate more qualified leads and by working with customer success teams to improve retention and expansion.

Get executive buy-in
Securing the commitment of sales leadership is critical for ensuring a smooth working relationship between the business value practice and the enterprise sales team. In our experience, this is one of the most significant success factors in delivering a positive ROI.

Scaling out business value programs: A breakeven [sensitivity] analysis

As value management programs grow, they can benefit by broadening their outlook and adopting a multidimensional approach to program building. This will mean moving from simply hiring more consultants to gradually integrating new strategies, processes, and technologies (described above) to create value at scale.

The good news is that achieving a positive ROI from your business value practice is within reach, even at the very beginning of your value management journey. And your returns grow as your program increases in scale and maturity. To illustrate this point, we’ve created a simple economic sensitivity analysis of the ROI of programs from small to large, as the following table shows.

Breakeven sensitivity analysis

[1] Assumptions include: FTEs – approx. $350K fully loaded cost; annual program spend includes: travel, value management platform, data subscriptions, training/adoption; deal revenue = $500k, net margin = 20%

Based on interviews with value management leaders, the sensitivity model demonstrates that as you scale the business value team, the productivity of the team must also increase if you expect to meet financial breakeven levels. As the model shows, the number of closed deals directly influenced by value management consultants jumps from 3.4 deals to 6.7 deals per year as the programs move from their infancy (1.5 FTEs) to enterprise scale (100 FTEs). There are several factors that drive the greater deal productivity and output of larger team sizes. These drivers invariably require strategic investments and process changes in the value management program, including:

1. Investing in more infrastructure to support the team, including solution specialists, tooling, and travel-related expenses.
2. Organizing business value teams efficiently into geographical and/or industry specialists with associated management and administrative support.
3. Supporting mature business-value functions such as training and education, financial and HR administration, and related operating expenses.

The goal of these programs isn’t to “throw business-value resources” at the problem, but rather to enable the efficient scaling of these programs by empowering the enterprise sales teams to take on more deals, including mid-to-smaller deal opportunities. The other lesson from our modeling effort is that deal size matters. To generate a significant ROI from your ROI selling program, the average deal size should meet a minimum threshold. For example, we’ve found that deals under $100K can often become economically unsustainable whereas deal sizes above $1M offer breakeven levels that are much easier to clear.

Our goal for this blog is to highlight the fact that ROI selling programs require significant investments as they grow. We must “drink our own champagne” to successfully prioritize the investment in our programs.  Hopefully, the insights we’ve shared in this piece will set you on the right path to master the economics of value management and deliver a solid business case!

If you are a business leader involved in a value management program, we would love to hear your thoughts. Please contacts us to let us know any insights you have from your experience.