in Business Models, SAAS, Sales, Startups

A Great ROI is Not Enough

It’s easy to think that all you have to do is provide a big enough ROI to your customer. However this is not enough on its own – you also have to move the needle for the customer’s business. Your ROI might be fabulous but if you don’t move the needle for your customer then it’s going to worth your customer’s effort dealing with with you.

For example let’s say you are selling sales leads for second hand cars. You are selling the leads for €25 euros each and you expect 10% to convert to sales, so it costs about €250 for each car sold. The dealership makes about €750 per car, so the ROI of 300% is great. You’d naturally think that you could sell these leads to anyone, after all you are effectively selling €750 for €250.  But there is another dimension – volume.

Let’s say you only have 20 leads a month to sell. A small regional dealership that only sells 20 cars a month will happily do business with you because you are likely to boost their sales by 10%. However for a large chain dealership that sells 1,000 cars a month you are only going to grow sales by 2%. You don’t move the needle for them, and it’ll be hard to get them to do business with you because the potential upside isn’t interesting enough.

So how much do you need to move the needle by? I’m sure this varies a lot from industry to industry but in my experience it needs to be about 5%. That’s not necessarily 5% of the whole businesses revenue or cost – it’s the individual’s personal target. So if you are selling into a sales manager then it’s 5% of their new business, if it’s the facilities manager it’s 5% of the cost that they are trying to reduce, etc.

Below 5% you simply don’t move the needle enough to warrant their attention. However, your importance increases the more you move the needle.  I have found that at 20% you can even insist on fundamental changes to the customer business, such as changing their procedures or even business model. Simply put, at 20% you are so important that they can’t afford to lose you.

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