Those Three Little Letters: ROI

In our economy it is important for end users to justify all expenditures before submitting capital requests. Few meetings are held without somebody pulling the cliché of "do more with less" from the shelf of management rhetoric. ROI is an important phrase for all of your customers.

Present Customers With Tangible Savings
The goal of an ROI argument is to determine how many fewer checks your customer will have to write out at the end of every month. The most common misdirection is the "saved time" argument. Often a vendor/reseller presents a project that carries with it large capital expenses seemingly justified by labor savings. The intent is to make the end user believe that an actual savings will be realized. For example, a vendor/reseller may point out that their product will save 10 minutes a day for store managers. They will go on to insert a labor rate for these positions and apply that rate to the aggregate time saved across all end users' stores. The problem with this argument is, a collection of 12 hours of store manager time saved a night - 10 minutes per manager over 720 stores - results in no staff reductions. With zero physical reduction in staff your customer will write no fewer checks each month. You will also find that the 10 minutes a night now free for other matters quickly gets absorbed. With no reduction in expenses realized and a large capital expense incurred, this project is a net loss.

Implement In-Store Demos
Stronger ROI arguments are ones of displaced expenses and/or increased revenue. These types of arguments usually boast that an existing expense will be reduced or eliminated by a certain product. Occasionally, secondary claims of increased sales revenue follow. A pertinent example of this type of claim would be the use of the transaction receipt as a marketing message delivery tool. Vendors of this product type claim a reduction or elimination of other forms of advertising expenses, such as in-store signage. Often these assertions are followed with claims of increased revenue. The scrutiny required of these arguments is verification of the values used. Do your customers really spend that much on in-store signage? Can they eliminate in-store signage altogether or reduce it by the percentage advertised? The best way to verify these questions is to offer your customer a pilot to test assumptions. Products that don't require intrusive and expensive infrastructure updates lend themselves to pilot programs, a proposition most vendors will be happy to accommodate. Similarly, a claim of increased revenue should be validated by a location pilot or by relevant example material; however examples stand a distant second to store pilots.

Sell Customers On Savings
If nothing else is retained from this article, remember that the true value of savings is in the reduction of outgoing monies, or checks written. Labor savings rarely materialize into a dollar amount due to their values being accumulated over multiple locations, making it impossible to physically reduce personnel. Secondly, nothing is as valuable as a test. Examples and referenced tests can be inflated, and a short test to prove that the vendor's values are in the ballpark is invaluable when the purse strings are tight. Lastly, be sure that everything makes sense. The concept of ROI is often portrayed as a complicated concept, when in fact it is not. You should be able to explain to your customers, step by step, where all their savings will come from.