Calculating Customer ROI For SaaS Sales
Customer ROI (Return On Investment) is the primary reason why someone buys your SaaS product. Customers are making an investment by using their cash to pay for a software product on the assumption that it should deliver that value (if not more) back to the company in some form. Unique Value Selling, a fundamental concept in the discipline of modern sales, is the notion that a salesperson will help the prospect understand how the product provides unique value to him or her. For example, if you’re selling OxiClean™, it probably has different unique value propositions for families with multiple children, people who play a lot of sports, and Billy Mays enthusiasts. For each, the customer ROI is unique: the detergent is cheaper for volume washers, more powerful to get out grass strains, and was pitched nationwide by none other than the king of infomercial sales, Billy Mays.
The SaaS world heavily relies on customer ROI. I’d bet 99% of SaaS salespeople have had the supposed value prop of their solution drilled into their head from Day 1. Early in a startup’s development, management will understand the general pain point they’re solving, and once they have some sales resources, will train them on how to convey that conception. As a company grows, however, it will naturally develop various buyer profiles, each of which may have their own customer ROI. In that case, it’s critical that you don’t assume your understanding of the product’s ROI is the same for all of your customers. Dharmesh Shah, a SaaS thought leader and the founder of HubSpot, once said: “When you’re trying to make an important decision, and you’re sort of divided on the issue, ask yourself: If the customer were here, what would she say?”
In our most recent episode of the Bowery Capital Startup Sales Podcast, Aaron Mittman (SVP of Global Sales at Nanigans), joined me to discuss “Unique Value Selling Through ROI Quantification.” His core message: not only should you define customer ROI for each buyer profile, but you should also develop an actual mathematical formula to demonstrate how your product is ROI-positive. Aaron’s quantitative customer ROI model seeks to calculate positive impact in 4 areas: (1) increased revenue, (2) decreased costs, (3) decreased risk, and (4) increased speed-to-market. Using this model, an informed salesperson will be able to walk a potential client through top- and bottom-line math, highlight protection against threats (e.g. increase uptime, reduce liability), and underscore how a product can help clients execute more quickly than ever before. It’s also a helpful exercise for an early-stage founder, as it forces you to think through pricing and value dynamics from your customer’s perspective.
To help you explore starting this exercise for your own company, I’ve drafted a simple Customer ROI Calculator template (link to the public Google Sheet here). I’ve outlined how an ROI Calculator might look for a fake company called CartCo that runs retargeting campaigns on online shoppers who create carts then abandon them (not a particularly creative, I know). This SaaS startup sells into eCommerce companies and their customer ROI is largely based on revenue lift; the cost element is also shown here to highlight how even though it’s $10k / month, that’s cheap when compared against the incremental revenue. Of course, these numbers are fake. But note that while the template is general enough to apply to all eCommerce prospects, the inputs are customized to the customer (“Customer X”). The salesperson can work with his or her contact to collect as much of the requisite info as possible (which is helpful anyway for a variety of reasons). Then when they swing back with the calculation, it speaks to their dollars-and-cents ROI, not some high level conception. It anchors the $10k / month price against vastly larger savings, making it seem not so expensive after all. Then the salesperson can supplement with proof points around how the key assumptions (e.g. 50% open rate, 50% conversion from retarget to purchase with CartCo) are valid, and A, B & C peer customers have seen rates at least that high. Again, I encourage you to check out / download this template here.
Of course, the customer ROI calculator is going to be different for every startup. And it might even be different for separate buyer profiles (e.g. SaaS users in different industries, with different margin profiles). In addition, your ROI may be more closely tied to cost savings, de-risking, or speed-to-market, rather than revenue lifts. But hopefully this will give you a good conceptual start.
Thanks again to Aaron Mittman at Nanigans for the inspiration!