Sales is from Mars and Marketing is from Venus

(This blog is focused on companies that require a field sales organization to sell their products.)

I recently sat on a panel where the topic we were discussing was lead conversions to sales.  The moderator asked, “What percentage of your sales leads convert into sales?”  I had to laugh because I’ve seen so many situations where the sales teams don’t get any leads from marketing at all.

It’s not that there aren’t any inbound inquiries from customers as much as it is the tendency for some marketing organizations to “over qualify the lead.”  Sales teams find this frustrating.  I get that Marketing doesn’t want to send junk to the sales teams.  However, the fatal assumption here is that the lead MUST turn into an immediate sales opportunity before the sales teams waste their time on it.  Bad assumption!

Most sales people spend a lot of their time nurturing customers who are not ready to buy.  Sales people actually want to go out and meet new customers even if they’re not yet in the buying process.  This means they will get in early and have an opportunity to educate the customer before they develop their requirements.

Sales has not been without their faults in this story either.  Marketing organizations frequently get frustrated because they feel the sales teams don’t follow-up on leads and this has a big impact on their metrics.  Sales leaders need to ensure their sales teams have proper expectations on lead follow up and providing feedback to marketing.

The responsibility to get the sales and marketing teams on the same page is the CEO’s.  They are the person that sets the direction and objectives for everyone in the company.  Here is some advice in establishing better alignment between sales and marketing:

Alignment of Goals – I believe one of the key reasons there tends to be mis-alignment between sales and marketing is because they don’t have the same mission and goals.  In your annual planning process ensure that both sales and marketing share key goals around pipeline development.  And then pay both of them to achieve those goals.

Lead Definition & SLAs – Require sales and marketing to agree on what defines a lead (or types of leads) and ensure that everyone across the organizations (sales and marketing) understand the definitions.  Establish SLAs and metrics for when marketing gets those leads to sales and when sales is expected to provide feedback on the leads.

Partner Models – Many sales organizations sell through partners or resellers.  It seems like these teams are commonly an after thought in this process as well.  Make sure there is a process and clear expectations with these partners that they MUST follow up on their assigned leads timely and MUST provide feedback on the process.  If they don’t comply, they don’t get more leads.

Integrated CRM System – Make sure your CRM system is integrated with your marketing and sales systems so you can tie together your marketing, sales engagement and bookings data.

Report the Data in Terms Everyone Understands – We certainly have enough data to work with in this area.  The challenge isn’t having data.  The challenge is publishing the data in a meaningful way for everyone to know what’s going on.  It’s also important to publish the terms in plain English not just marketing terms that others can’t relate to.  The key data points to consider are:

  • Qualified lead volumes
  • Campaign effectiveness
  • Pipeline generated by inbound leads
  • SLAs on leads to sales and sales follow-up
  • Closed business from inbound leads

Publish the data in places where both sales and marketing teams will see them frequently.

I know I’ve been a bit rough on sales and marketing in this blog.  I do believe we are living in a very exciting time when it comes to sales and marketing and the options available to reach customers.  The issues I’m pointing out are organizational and the core responsibility to ensure good alignment between sales and marketing falls to the CEO. 

Make sure you’re not inadvertently pitting these two groups against each other by assuming they can come together and work out the alignment problem.

Winning with ROI

I can thank Lotus 1-2-3 (one of the original spreadsheet programs) for helping me launch my professional career (Lotus had me at hello.)  Early in my career I worked for Costco in the transportation department.  My job was to help the buyers figure out how much money they needed for freight costs for their orders.  I developed a really cool spreadsheet that did magic when it came to figuring out the lowest cost.  It saved the company over $1 million in the first year.  Long story short, I submitted an internal request to buy a new computer to take the program to the next level and my request was denied.  I didn’t do a good job of asking for money!

Sales people need to learn the lesson I learned in this story.  Someone has to help shake the budget free so the order can get placed.  Sales people still seem reluctant to proactively drive ROI as a strategy to get their deals closed.  Here are some key reasons sales people struggle in using ROI in their selling strategies

1.     Hope is Not a Strategy – Many sales people just want to submit the proposal and let the customer figure out the internal justification.  That is a big risk. 

2.     Lack of Tools – Most sales people don’t have access to good tools to help them do the ROI Analysis.  That leaves the task up to them and they don’t have the background to pull the spreadsheet together on their own.  In some cases, the tools they have are too complicated so the sales people don’t want to use them.

3.     Intimidated by Finance – Many sales people feel like they need to be a CPA in order to run an ROI Analysis.  Many of the terms and metrics seem foreign to them.

Telling the story about the financial value of the solution is a critical skill for sales people.  Having a compelling financial story is one of the best ways to get your deal accelerated and closed.  Once you decide you want to go through the process, here are some keys to making it a successful effort:

1.     Have a good discovery process – Getting to what’s important for the decision makers is critical in securing budget.  Do your homework and figure out the key priorities of the executive and make sure you connect the dots on how your solution helps meet the needs of those priorities.

2.     Focus on Savings and Payback – When it comes to the financial metrics you use, focus on overall savings and payback.  How much money will they save and how long before the investment gets paid back by the savings.  This will help keep the conversation away from complicated and technical financial terms like Net Present Value, Internal Rate of Return and Hurdle rates.  Also Return on Investment is not the greatest financial metric to use.  It doesn’t work well across different investment types like technology, real estate or large ticket equipment items.

3.     Be conservative and credible – Don’t oversell the value of the financial benefits of your solution.  Be conservative in the assumptions you use and if you can, downplay the numbers a bit.  Make them good enough for the customer to move forward but not so good that they are skeptical.

4.     Make your presentation look great, clear, easy to understand – This is a VERY important point.  The clarity and quality of your presentation will make all the difference.  Put as much (or more) work into the presentation or document you are using to present the results.  Don’t dump a bunch of data that requires the customer to figure out what he analysis means.  A nice PowerPoint with 5 or 6, cleanly laid out, slides is your best bet.

Remember,  you’re really building the internal budget request for your primary contact.  If you do a good job of getting to the important issues, be conservative and credible in the way you do your analysis and build a killer presentation you will greatly increase the odds that your work will lead to securing the budget to move forward.

Check out our new ROI/TCO Sales Tool - if you don't already have a tool this one may be a good starting point for your team.

Building Great Culture Takes Courage

I am fortunate to be on a great sales team right now.  I’ve had the privilege to build a sales team from the ground up and the kind of team you would want to be a part of.  It wasn’t easy.  Three years ago the team was performing poorly, dependent on one successful account manager and generally disconnected from each other.  We’ve been through very difficult challenges to progress to where we are now.

More than any other reason, courage has been the driving force in developing our team culture.  Sales is a demanding, high pressure profession.  Most seasoned sales people have worked for sales leaders that are demanding, critical and condescending especially when a sales person falls short of the number.

In my opinion, this style doesn’t work (at least over the long run) and is the leading cause for toxic culture on a sales team.  I believe this style is based on that leader’s inability to do their jobs more than it has to do with the performance of anyone on the team.

Here is some advice for those who want to build great culture for their sales team:

  1. Put Your People First – I see a lot of sales leaders that are great at managing up but when it comes to really engaging with the team, they fall short.  It’s critical that your sales people feel you’re committed to their success.  This is a function of showing them, on a daily basis, that their success is your number one priority, not your success.
  2. Build Trust First, Accountability Will Follow – When I first joined this team, everyone was cautious about the “new manager.”  The first several quarters were difficult to get the team to feel comfortable that I wasn’t going to blast them at the first sign of trouble.  I had to show them that I included myself in the results of falling short.  Eventually they came to trust that I was committed to their success.  Now, they are as committed to me hitting my number as I’ve ever seen a team be.  They are driving their own accountability.
  3. Have a System – One of the best ways to build trust with the team is to build a system that makes sense to the team and shows them a path to success.  This takes time but is important.  It also shows the team that you’re serious about doing your job well, not just babysitting the numbers.
  4. Avoid Criticism, Focus on Coaching – As a sales leader, resist the urge just to criticize the poor performance.  On July 19th I wrote about What Drives Bad Sales Management Behavior, it’s really about a lack of control.  So as a sales leader, apply your energies to coaching and that will allow you to avoid criticism and focus on coaching the behavior and execution that will drive success.
  5. Always Do the Right Thing – This is the most important advice I can give.  In all situations, do the right thing.   This goes for all team members, including you.  I see sales teams all the time bend the rules, manipulate facts and generally act selfishly to get a deal done or to get paid just a little bit more.  This begins and ends with you.  Make sure your team sees that you are committed to taking the high ground and always doing what’s right.

Remember, it takes courage to do things the right way and overcome the day-to-day frustrations of a sales leader.  Your courage will set the tone for a great sales culture that people will want to be a part of.

What Drives Bad Sales Management Behavior?

The Need to Control!

Several years ago, I was asked to interview someone that would be a peer to me.  They were an internal candidate and this role would be a promotion for them.  They had been a successful account manager and felt that sales management was the next step in their career. 

I went through the interview process with my questions and the candidate kept over-simplifying their answers.  I would ask "how would you inspect forecasted opportunities with your sales reps?"  They became frustrated with my questions and responded by saying, “I’ll just call the customer directly and get the deal done.”  When I debriefed with the hiring manager I asked him “Is this person a controlling person?”  the hiring manager said, “Oh yeah, they want to do everything themselves.”  I told him to reconsider the candidate and look for someone new.  The hiring manager didn’t listen and a couple of years later, that person was struggling badly as a manager, rarely hit their numbers and their team members kept leaving the company.

The fact is, being a sales manager is difficult because you have to create a process for the team, inspect the business and get out of the way.  Micro-managing good sales people rarely works, at least not for the good sales people..

The secret to being successful as a sales leader is to hire great sales people, be organized, inspect the business and GET OUT OF THE WAY!

Here is a simple formula to go from a controlling to an enabling Sales Leader:

1.     Build your Metrics – Every sales teams has metrics that are unique to their business but we all have common metrics inherent to sales. I call them the Leading and Lagging Indicators.  Your Leading indicators are typically your pipeline numbers.  Whether you track straight open pipeline or factored pipeline, they are all leading indicators that determine the likelihood of future success for your team’s performance.  Lagging indicators are the revenue (or bookings) and things like average sale, sales cycle times, and net new customers.  But lagging indicators are always a measurement of things that have already happened.  In my experience, the leading indicators tend to be the ones sales teams struggle with the most.

2.     Create a Process and Cadence – So many managers are reactive and say “I don’t have time to be organized!”  Don’t ever say that around me.  I have no patience for that statement.  An Ounce of Prevention is Worth a Pound of Cure.  Just sit down and design your meetings, review sessions and metrics.  There is no excuse for not doing this other than you may be a controlling sales manager.  It literally would take (at the most) one day a year, if you stay focused.

3.     Coach and Inspire – Once you have your metrics defined and your cadence in place, your job is to focus on coaching.  Mainly situational coaching, where your experience and ideas can actually impact the sale.  Focus on providing your team with inspiration.  They all really want to be motivated and inspired.  Being a controlling manager will be de-motivating and drives them further away from trusting you.

Take the time to get organized.  Your team will appreciate it and respect you for being a true leader vs. a controlling manager.

The Lost Art in Sales – Business Writing

By: Tony Kevin

Sales is all about communication.  Over the last several years there has been a generational shift in how we communicate.  Obviously, we are using social media, video, mobile communications and email to consume information and also get our point across to our customers. 

As a result of these shifts, I believe, the sales profession is losing a key capability, the ability to use a well-written business document as a difference maker in the sales process.  There are several contributing factors to this:

  • Buyers are more educated
  • Everyone is feeling overwhelmed with too much communication
  • Sales teams are barely keeping their heads above water on the day-to-day stuff
  • Sales Leaders are not driving proposals and business cases as an important issue
  • Our writing styles have shifted towards short and quick messages

Why is Business Writing Important to the Sales Process?

Once I get past the skills issue, my biggest challenge with this is convincing my sales team (and sometimes the buyer) about why it’s important to be able to have well-written business documents to facilitate the buying process. 

As much as we all love to say we sell at the C-Level, the reality is that most sales people spend a majority of their time (over 80%) with non C-Level buyers.  Once the selling is done, the more difficult task exists to help that buyer secure budget internally.  Unfortunately, those buyers tend to not be very good at selling the value of your solution to their management. 

One of the highest-level sales skills is shifting your focus from “your selling ability” to helping and coaching your buyer to sell the deal internally.

I’m a big fan of training sales people to write business cases vs. proposals.  It’s a better document for the buying process.  Let’s first start by defining the difference between a proposal and business case.

Proposal – A proposal is a selling document.  It’s your document to explain the key features of your solution and why what you offer is different from other solutions.  Most Importantly, It’s a document that is written in your voice.  It typically gets one level above where you are engaged in the account.

Business Case – A business case is a buying document.  It’s the customer’s internal document justifying why spending the money is important.  All the value points in the document are focused on how the customer benefits from spending the money.  It’s written in the customer’s voice not the seller’s voice.  It typically gets two or three levels above where you are engaged and moves horizontally into the hands of the internal departments who may benefit from the solution.

Keys making a business case effort pay off:

  1. Do Your Homework – Do the deep discovery to find out what’s going on in the customer’s business and make sure your solution is aligned to their important initiatives.  (Preparation is the Key to Business Value.)
  2. Have a Sense of Your Value – Once you’ve done your homework.  Build a quick version of a value proposition that articulates how your solution helps.  This quick value proposition will help you secure executive support in further developing your business case.
  3. Gain Executive Support – Once you have your value proposition developed, use it to gain executive sponsorship to build the case.  Typically this sponsorship will provide you access to others in the organization to gather input and perspective, gather more information and data, and establishes an interest with the executive to see how the final case turned out.
  4. Build an Executive Summary – No matter how long your business case ends up being you need to make sure it has a one page Executive Summary (NO MORE).  The people reading the business case are even busier than you are so don’t expect they have the time to read through a long document.  Get the point across clearly and succinctly in the executive summary.

The real value of being able to provide a business case is that it tends to get distributed through your customer’s environment and it’s an excellent way to have access to people without being there in person.  With out one, you’re left to depend on the skills of your key contact to secure the budget to buy.  In today’s world, a business case is a big differentiator because most sales teams aren’t selling this way.

Discover the "Lost Art" and use it to impress your customer.

Recruiting the Right Inside Sales Talent

Posted by: Andy Catterall

Many sales leaders across a broad range of industry verticals struggle with finding the most productive blend of inside and field sales resources and activities for their teams. A common misperception is that the inside sales function requires the same skills and approach as field sales, minus the face-to-face meetings inherent in the external role. In addition, sales leaders often fail to fully think through the tools, processes and activities related to the stage of the sales process they want to assign to the inside function. Are you looking to drive early-stage qualifying and appointment setting, or the full sales cycle including closing, add-on sales and renewals? These are different sub-roles, each with their own distinct skill set.

Let’s consider some of the key criteria for recruiting and hiring the right inside sales talent for growth-oriented B2B organizations:

Job Posting

Recruiting is to some extent a numbers game, so you must attract a high volume of candidates in order to increase the likelihood of finding the best fit. From our experience, 70-80% of inside sales applicants can be screened out based on their resume or LinkedIn profile alone. Many applicants have little to no sales experience, others have spent their career in field sales roles and may just be looking to “get off the road”. A well-crafted job description is essential in terms of allowing the ideal candidate(s) to envision themselves in the role, but an unclear posting will appeal to the wrong audience. Make it crystal clear that the role is primarily phone-based, include some of the your inside sales activity metrics and the field sales oriented candidates will move on to the next opportunity.

LinkedIn Review

In today’s marketplace, would you even consider a sales candidate whose LinkedIn profile was poorly written, incomplete, riddled with typos or missing entirely? 500+ connections may not be absolutely necessary, but even if the candidate’s network is focused on a different vertical or geographic territory, the quantity and quality of their network speaks to their ability to build trust and rapport. A candidate’s profile tends to reflect their writing style and quality, which is an important indicator of their ability to craft appropriate follow-up emails. Has the candidate enhanced their profile with certifications, projects and other indicators of their proficiency? Have they been endorsed and recommended by their peers, managers and customers? Remember that if you hire this candidate, your customers will be looking at their LinkedIn profile as well.

Phone Screen

Any inside sales candidate expects to be interviewed over the phone by their future manager and potentially other related roles within the hiring organization. You are looking to determine the candidate’s ability to listen as much as their presentation skills, if not more so – too much self-promotion can be a red flag. Are they well-prepared? What kind of questions are they asking? Have other team members interview them as well, to ensure they can work effectively with field sales, marketing and finance as well as their inside sales peers. After the phone screens have been completed, consider having the candidate complete a written assignment on a relevant topic to see how they articulate themselves “on paper”.

Online Assessments

Many organizations leverage the science built into assessment tools such as those offered by Objective Management Group (www.objectivemanagement.com). If you choose to go this route, carefully explain that it is not a test (i.e. you can’t pass or fail it) but the results will highlight their likely behaviors – how they are “wired” as a sales professional. Most candidates will be intrigued by this process, and may even enjoy it. It also shows that you have thought through your recruiting model very carefully and take it seriously. Maintain the integrity of the process and trust the tool if you decide to use it – don’t deviate just because you like a candidate’s personality.

Career History

Does your compensation plan align with their salary history, and by definition, ongoing financial needs, motivations and expectations? If the OTE for your opening won’t be satisfying even if they overachieve, you owe it to yourself and the candidate to keep looking. Sales professionals of any variety will rarely be satisfied with much less than their recent average W-2, 1099 or P60.

Final Thoughts

A final face-to-face interview is always recommended to confirm cultural fit, and be sure to check their unpublished references as well as the official list. Remember, if you can’t find the right candidate initially – keep looking until you do. The only thing worse than leaving the headcount open when you desperately need to fill it is making a bad hire. The consequences of a rushed or inappropriate offer can be much more costly and time-consuming than leaving a few prospects untouched.

In future posts we’ll discuss the key metrics behind inside sales onboarding, retention and success. Until then – happy hunting!

Close % - Why It's Important

By: Tony Kevin

I’m always talking about closing percentage amongst my peers.  About 18 months ago I became obsessed with building metrics that helped me forecast better.  I ended up focusing in on tracking my pipeline metrics and now 18 months later I have been deadly accurate in my forecasting.

Ultimately, for me, it came down to figuring out my on-going, consistent close percentage.  I began by trapping key metrics about my pipeline before I submitted my forecast.  Those who know me, know that I’m not a huge fan of factored pipeline.  The concept of getting all my reps to use the sales stages the same way is a challenge, AT BEST.  I use Total Open Pipeline.  I believe it’s more practical to work with sales reps to enter their opportunities and then categorize them by commit, best case and general pipeline than it is to get all the reps to comply with the details associated with al the sales stages related to a sales process.

 I’m not saying the sales process isn’t important.  I believe strongly that it is.  I just believe that reps don’t spend the time in the CRM system representing all their deals accurately.  So until utopia comes to visit me, I will continue to use Total Pipeline.

My method is to trap the pipeline numbers at the beginning of the month by the categories I listed above; Commit, Best Case and General Pipeline and then compare my actuals each month against my pipeline.  Over the last 18 months I’ve been within 2 percentage points every quarter.  I’ve been averaging right at 19.5% close rate.

My definition of close rate is to divide my actual bookings by my open pipeline at the beginning of the period, typically by quarter.

Some teams calculate close % differently.  Usually the other popular method is to calculate the metric based on number of deals.  My teams sell a pretty large ticket solution so I feel revenue (bookings) is a better metric.

The Real Value

The real value in calculating this metric is to use it to drive better selling strategies.  Once a sales team can see what it’s close % is they can focus on efforts to improve the metric.  Without Close %, they simply don’t know whether they are becoming more efficient in their sales efforts.

I use it on my team to drive awareness around value selling.  That’s the most obvious remedy for an anemic close %.

How a Balance Sheet Can Help in the Sales Process?

Posted by:  Tony Kevin

Some people on my team think I’m a freak because I like to read Profit and Loss (P&L) statements and Balance Sheets.  So that begs the question, why would a sales person spend any time looking at a customer’s balance sheet?

In B2B sales we are taught to understand the needs of our customers.  To truly accomplish this, sales people need to do their homework.  So discovering what’s important to your customer should be done through asking great questions, broadening your reach and doing research on what’s going on with the customer.

The Balance Sheet is an excellent source of information to shape your discovery process.  Based on what you see in the Balance Sheet can define the types of questions you ask and the areas you dig into in order to ensure your solution can help your customer reach their goals and objectives.  And most importantly, help you in developing your own value story to get your deal funded.

Let’s start by looking at the key reasons sales people don’t typically want to delve into the financial statements of their customers: 

Intimidated – I’ve found that the primary reason sales people don’t consider this as part of their discovery process is because they are intimidated with the concept.  It’s a mental block. 

Not Sure What They Are Looking At – I will admit there are several things on a balance sheet that aren’t self explanatory like Intangible Assets or Goodwill.  But most of the categories are simply to understand.  Assets, Liabilities, Accounts Payable and Accounts Receivable are all things that the average B2B sales person can relate to.

Do They Have to Meet with the CFO? – Some sales people think if they are using financial statements as a part of their discovery that means they will have to meet with the CFO.  That’s absolutely not true.  We’re just looking for clues to what’s going on with the customer not preparing for a meeting with a seasoned financial executive.

Best Practices in Reading a Balance Sheet

The best way to coach a sales person on this point is to keep the effort simple and high level.  The goal is to understand the information at a high level to get a sense for how the company is doing.  Here are some guidelines to use when reading a Balance Sheet:

Use Yahoo Finance – Yahoo Finance makes it really easy to look at Balance Sheets (and Profit & Loss Statements too.)  Simply look up your customer’s stock symbol and on the lower left you will see a link to see their Balance Sheet.  It will display the last three years data for their Balance Sheet. 

Look at the “Big 3” – Don’t worry about each individual line item on the Balance Sheet.  Just focus on the “Big 3.” Assets, Liabilities and Shareholder Equity. 

·      Assets are the property, cash, accounts receivable and investments the company owns

·      Liabilities are the debts (short and long term), accounts payable and obligations they have

·      Shareholder Equity is the value of the company

Look for Trends – Really what you’re looking for is to see if these numbers are trending up, staying the same or declining.  Their trend line will begin to give you the clues you’re looking for.  Typically, if these numbers are trending up the company is doing well and growing.  If they are staying the same the company is maintaining a status quo.  If they are declining they are probably struggling.

Building Your Value Story Based on What You Find

Doing this research should culminate in crafting your value story to position your solution for budgeting and funding.  Your value story should be based on what you discover in the process.  Here are some simple suggestions for your value story based on your customer’s financial performance:

Growing – If your customer is in growth mode, build your value story around how your solution will help in enabling more growth. 

Status Quo – If your customer’s financial performance has been stagnating for the last three years focus your value story around Total Cost of Ownership (TCO) or efficiency.  They are likely looking for ways to optimize their costs with flat or declining budgets. 

Declining – If your customer’s performance is declining focus your value story on cost savings and how you help them do more with less investment.  Sometimes Return on Investment (ROI) would be a good strategy to show them a quick return on their investment.

As a Sales Leader, help your sales teams with this exercise by pulling up the balance sheet of one of you customers and walk through it together.  Show them that the information is easier to figure out than they thought.

ROI and TCO Explained

Posted by: Tony Kevin

TCO and ROI are two important metrics that buyers and C-level executives look for to justify an investment. Which metric you should supply depends on the question the customer is asking.

When executives consider the financial impact of a new investment, they typically look to two metrics: total cost of ownership (TCO) and return on investment (ROI). Although these two terms are sometimes thrown together, they are actually measures of two very different things and which metric is preferable depends on the parameters of your decision.

First of all, let’s clear up the definition of these terms.

TCO or total cost of ownership is a measure of cost. This includes the capital cost to purchase the solution, deploy it, or integrate it within the customer’s business, and the operational costs (sometimes referred to as the run-rate) to operate and administer the solution over a given period of time. Time is a key component of TCO, as most operating costs are ongoing; therefore, the longer the timeframe, the higher the TCO.

Return on investment is a measure of benefit from a capital investment. ROI is depicted as a percentage. ROI looks at the total capital cost of an investment and calculates the value returned by that investment over a given time period. Time is a key component in calculating ROI in two ways. Like TCO, an ROI result will change over time as ongoing benefits (like a reduction in operating costs) continue to accrue. The timing of investment is also critical to an accurate ROI calculation. In most scenarios where ROI is an effective metric, an upfront capital investment is offset by some kind of ongoing operational benefit to create a positive cash flow. To generate a positive ROI, the positive cash flow generated by the benefits of that investment must outweigh the initial cost of the investment.

To calculate ROI, you need to model the outbound cash flows (costs) and inbound cash flows (benefits) associated with a particular investment. Any accurate ROI calculation should consider all costs associated with an investment, therefore, an ROI analysis must start with the TCO of the proposed solution. You must also model benefits of the investment which you will weigh against the cost. These benefits can be savings over an existing cost, additional profit generated from new revenue streams enabled by the solution, or any other benefit that can be quantified as currency.

So, which metric is better? The answer is different depending on your customer’s decision point.

TCO is a useful metric for comparing a proposed solution to the TCO of another similar solution. It is especially useful it comparisons of competitive solutions that may provide similar functionality to the business, but in different ways. Considering the capabilities offered by two competing solutions to be equal, a lower TCO is a better TCO. TCO is a useful metric for the buyer who is asking, “Which new solution should I invest in?”

ROI is often used to compare a proposed investment against an existing solution. In this type of scenario, the proposed solution generally promises to deliver the same functionality as the existing one, but in a more efficient manner or with lower overhead costs.  ROI can also be used, however, to demonstrate the benefit of new business capabilities that are not supported by the existing solution. ROI is a useful metric for an buyer who is asking “Should I invest in a new solution at all?”