Archives For proposal

ROI vs. TCO

March 24, 2011 — Leave a comment

A question came in today asking, “What is the difference between ROI and TCO?  Our company uses the terms interchangeably.”

This is common…but they really are different.  Here is some explanation:

I use the term TCO specifically to mean that it will cost you less to produce the same or better results.  By focusing more on business results and less on cost, the seller has a chance to avoid a true ROI study; which may be analogous to asking the CFO to audit your proposal.  The last person I want to sell this to is a CFO (or anyone in the purchasing department).  Once the focus on business moves to finances, value is compared only to the cost of other options, and not on the value you bring to the business.

You might think of ROI as purely mathematical.  One way to describe it is:

ROI = (Financial Gain – Cost of the Investment)/ Cost of the Investment.

True ROI calculations involve a deal’s net present value ( taking into consideration  a proposal’s future estimated cash flow the cost of capital), payback period or hurdle rate, and an internal rate of return.  In other words, ROI at its core is a math problem dealing with investments, returns, and the cost of capital.  The average sales person’s ability to compute these numbers, or even review them with a financial officer is limited in most cases.

TCO might be defined as the cost of acquisition, installation, and operation.  In this case, we can take into consideration only the current solution and whatever solutions might be under consideration or in use at the present time.  Gartner Group often reports TCO numbers for various technologies,  taking into consideration the above as well as long term operations and future replacement or decommissioning of a technology solution.  When TCO is fairly evident, meaning one solution might involve many smaller servers or appliances that require data center real estate, cooling, and possibly additional staff, it makes sense to use this as justification to buy your solution.

I put this under operational efficiency because the cost savings generally are tied to an efficiency gained by the solution, and that is where the seller’s focus needs to stay.  To focus on the math is to kill the deal, unless the customer is already determined to buy, and is just price shopping at this point.

© 2011, David Stelzl

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Thinking about TCO

March 23, 2011 — Leave a comment

Continuing on with operational  efficiency sales tactics from yesterday’s post, the problem comes in when the product or service does not directly relate to a business issue.  This is common with efficiency gains when considering products that relate more to infrastructure. However TCO numbers can play a strong supporting role here; where product doesn’t necessarily require a tight connection to a business function.  Virtualization and data center consolidation are good examples, where a true ROI might be hard to prove, but TCO may be apparent.  If you’re going down this road, make sure your numbers make sense.  Always best to get numbers from the client – at a level above those charged with system administration.

© 2011, David Stelzl

Shooting in the Dark

February 10, 2011 — Leave a comment

Yesterday I mentioned Covey’s second habit – Beginning with the end in mind…how does this work in practice?

When planning a sales call, “the end”, or meeting outcome must be the first consideration!  Doing otherwise wastes both yours and the prospects time.  What should the call outcome be?  Almost every company I work with can tell me what tends to lead to a sale.  For instance, last week I was speaking at a software company’s partner summit.  They quoted a statistic showing that ninety percent of their “Proof of Concept” initiatives lead to a buying decision.  In another national sales meeting I spoke at, an access assurance company presented a similar statistic.  One reseller client I work with on quarterly marketing events says that he closes follow-on projects for ninety percent of the complementary assessments he offers.  With this in mind, they are generally able to quantify what qualifies their proof of concept effort, who should be involved, and how to run the program.  This is the goal, to get to this point with these people.  On the other hand, my non-scientific surveys show that companies are closing about ten percent of their proposals; even among companies who have shared their key to success as stated above.  What that tells me is we are writing the proposals before getting to that predictable key point in the sales process, or we just have not identified it yet.   If you don’t know the end goal, you’re just shooting in the dark.  If you do know it, you may be wasting great opportunities.

© 2011, David Stelzl

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© 2011, David Stelzl

The Movie-Star Experience

January 17, 2011 — 3 Comments

Growing up, I thought like many young boys, that being a movie star meant they actually experienced what we see in movies.  In case you still think that, it’s far from true.  On my recent trip to Australia, I had another opportunity to watch a motion picture in the making.  If you’ve never done this, it’s incredibly boring.  The same simple scenes are shot over and over.  I was on my way to the harbor area when I stopped to watch a scene depicting two businessmen greeting each other in front of an office building.  An entire crew of extras sat on the sidewalks waiting for the producer’s call to action.  Once called, the “stars” would walk toward each other and shake hands while dozens of extras crossed the brick patio in a seemly-unarranged pattern.  But everything was choreographed, and it had to be perfect.  I stood there well over forty-five minutes as they executed the same steps over and over.  It all looked the same to me, but somehow it just wasn’t right.  After moving on, I returned to that same area over an hour later and guess what?  You’ve got it…they were still working on the same scene.  I didn’t bother hanging around this time.

The director knew what he was looking for, and when the film hits the theatres it must be perfect.  They only have one shot at profitability.  Presentations are similar; you often get just one shot at the top players.  If it’s not great, you won’t see a profit either.  So why are so many presentations thrown together at the last minute, or prepared in a vacuum by a marketing department that has no selling experience?  Busy slides are delivered to the sales team, and then brought to stage without any real critic or practice.  This is not the way to reach predictable success.

© 2011, David Stelzl

In preparation for our final day in the Virtual Making Money w/ Security Workshop I thought this short clip on urgent proposals would be apropos:

© 2011, David Stelzl

The fastest way to inculcate the concepts from our Making Money with Security Class is to try it.  Last week I had opportunity to interact with one person attending the 3-day virtual class currently in process…

He writes, “I thought I would try to apply some of the nuggets I have learned this week, in a meeting I had earlier this morning.  It went really well!  I met with a CISO and we discussed assets and started applying the likelihood vs. impact philosophy.  As I was doing this, my customer said the biggest problem he has is understanding likelihood.”

…This is predictable.  As I stated in last Thursday’s session, everyone seems to focus on the impact side of the security equation, but CISO’s and asset owners are already well aware of this, and continue to hear the same ROI and Insurance sales pitches almost daily from your competition.  By taking the “Likelihood” approach, a new discussion evolves.

He continues with a great question, “Based on this approach, is determining likelihood done through risk assessment or are there more dimensions to consider?”

If you’re in the class, you know we have one more session to cover, and this is where we will address this in detail, …but, this is the right question to be asking…how do we move this conversation forward to create business?  Here is a portion of my reply:

“…it means starting with executives rather than IT, and interviewing them to understand the assets; how they’re used, who uses them, who can’t use them…etc.  Then, armed with a complete understanding of the data (the assets), the technical side of the assessment should be used to discover how the necessary security is being achieved, or how to reduce the likelihood to an acceptable level of risk.  The ‘’Impact vs. likelihood” graph from by book, The House & the Cloud becomes our primary deliverable, backed by data from the assessment.

His final comment: “Application to real world is the best way to learn… I personally missed focusing on the asset and pitched it more towards the vulnerability discovery.  The asset that has the vulnerability determines the impact and the level of the vulnerability determines the likelihood.  Starting to add up.’’

This is exactly right and leads to the justification this sales person needs to create new business.

© 2011, David Stelzl