Financial justification tools face three major challenges: Prospects don’t believe their output; facilities managers are not financially trained; and sales reps are not trusted to explain the numbers.]]>
Rebates, ITCs, projected energy costs, NPV... Finance is not a shallow subject, but most people barely get their toes wet before they drown. Just ask three CFOs to explain "return on investment." You'll soon be gasping for air, even if you thought you knew what it meant.
Corporations still are for-profit businesses. Without a business case, few sustainability projects end up getting past the "nice idea" stage.
This is as true for chiller plant controls as it is for a utility-class wind farm. A capex approver needs to be sure that a sustainability measure goes beyond saving polar bears, and is fiscally the right thing to do for their company.
Take energy efficiency as an example, performance contracts aside. Unless a C-level executive thinks about energy as a manageable P&L line item, instead of as a fixed expense, the sales rep will be going out the way they came in -- empty-handed. No business case, no deal.
Point of failure
Who prepares the business cases for your proposals? Unless you can find a way to keep your finance department out of doing it, this is a bottleneck in the buying process. Thus the popularity of ROI calculators.
Has your company used an ROI calculator?
Post a comment and share your experience.
Sales reps who open up an ROI calculator are likely to experience a vague sense of dread. The facilities manager is skeptical of the result -- accounting isn't their profession, after all -- but they provide the numbers and nod politely.
An attempt to explain the results is likely to embarrass the sales rep -- accounting isn't their profession, either -- but they try. The prospect does more nodding, and grows more skeptical.
The marketing department, who spent plenty to have the ROI tool developed, hears neutral feedback or nothing at all. They don’t know the tool is ineffective and has fallen into disuse.
Soon, though, the tool is out of date. The state grant expires, the latest energy bill changed the depreciation rules again, or energy costs have outpaced the projections. Even a spreadsheet that is still valid is not trusted beyond a few months after it was created.
What's the formula?
In companies where I've seen ROI tools succeed, there have been common traits. First, these typically are larger companies with multiple products, so they have more than one ROI tool. One or two people with financial backgrounds are assigned to researching, building, and maintaining the tools. They take pride in their product.
Second, each tool is designed to allow the prospect and sales rep to produce a believable business case. That means believable for the customer even if it's not as favorable to the vendor. When it's readable and believable, it has a chance of showing up in the C-level decision maker's e-mail. All assumptions and constants are footnoted with credible sources, and none of them are locked. If the customer wants to reduce the power factor or increase the number of cloudy days, let them. It's their ROI.
Finally, train sales reps and give them a support line. Try as you may to make the user interface simple, it's still Excel and it's still complex. Webinars are effective at teaching sales reps how to use these tools, especially in a third-party sales channel -- and the recording of the webinar stays around for reference. Reps then need to know who to call for help whenever they get stumped in front of a prospect.
To close a business-to-business sale, you need to demonstrate the cause-and-effect relationship between investing in your product and achieving a business goal. In the C-suite, there's nothing as powerful as a good ROI tool in the hands of someone who is comfortable using it.
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By Denis Du Bois on May 02, 2008 at Energy Priorities
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