Ah, finances! Nobody ever has “too much” budget—at least, I haven’t met that person yet. That means most of us are in the same boat when it comes to making purchase decisions. I used to get calls every day from people that would say “I can save you a lot of money.” Yet, most had no understanding of what that meant for me or how to apply their software to tangible metrics for my organization—it became quite frustrating.
Over my years of tech purchasing, the few select sales experiences that stood out had one thing in common. The software providers spent time working with me to “figure it out” before committing to any proposed cost savings or financial metrics that could help me justify the purchase.
Companies today face increased budget scrutiny, innovation demands, and pressure to operate at a global scale, making purchase decisions more complex than ever before. As a forward-looking tech buyer, you need to understand the risks, buying factors, and ROI of every major decision in order to feel confident with your commitment. I’d like to share some insight into how I approached these decisions, in the hopes that it might help you calculate the true ROI of your software investment.
How to calculate the ROI for your software investment
Despite what some might tell you, an ROI calculation isn’t as simple as subtracting the initial cost of investment from the added value—especially not when you’re dealing with complex factors, like those involved in a software investment.
In order to achieve an accurate, value-adding ROI analysis, you need to analyze your risk dimensions, assess the buying factors, and consider both the soft and hard ROI implications. It’s a dynamic process, but it pays off in the end. Let’s take a closer look at each component of this equation.
Analyzing your risks
All change has an element of associated risk—It’s a natural part of any decision. However, it’s important to realize there is also a risk associated with not making a decision. Holding on to the status quo or legacy software for too long can inhibit your growth potential, inject additional risk and create unnecessary organizational issues.
That’s why I always look at the three dimensions of risk when deciding if something is worth exploring. Ask yourself the following questions:
Does the technology complement or extend the capabilities I have today or need tomorrow?
What impacts to my current tech stack do I need to consider before committing to something new?
What will this software do for our organization?
Will this investment create a competitive advantage or differentiator?
Will this investment give us a “first-mover advantage” in a way that we just don’t have today?
Are our people ready for this software?
Does the team know we need this solution?
How will my team react to this decision?
Have I built enough organizational momentum, awareness, and support to ensure this purchase is successful?
Assessing buying factors
Once you address the risk elements of purchasing software, it’s time to assess the “buying factors.” This exercise will help you understand the impact, benefits, and overall elements of justification required for your board or executive leadership.
Similarly to how you analyzed risks, I recommend considering four primary buying factors when making any tech purchase decision. Consider these prompts:
Time to Value (TTV):
How long will it take for your org to start realizing value from this purchase? If the most amazing technology in the world takes you 12+ months to implement, will you be able to justify it? Unpacking the time to value, complexity in getting to results, and benefits of quick wins is key in finding your buyers confidence.
Time to obsolescence:
How long will this software investment support the needs of your team? For example, when will the technology break, run out of warranty, or become a burden? This factor is especially important to consider when you’re purchasing in a space where there is a lot of competition and innovation. In short, work to ensure your team agrees on how long you expect (or need) this purchase to support your organization.
When will I outgrow this purchase? I often used to phrase this as “when will this purchase bite me in the a**?” This is especially important when buying technology like storage infrastructure, consumption-oriented cloud services, or the likes. Many people get this wrong.
Don’t underestimate your need in an effort to “make the purchase fit.” This sacrifice or miscalculation will force you to have reactive and awkward discussions about scaling up at some future date where your budget is uncertain—or even unplanned for. It’s never a good look to keep going back to the board or CFO to ask for “a little more” when you could have just planned better from the start. Do yourself a favor and learn this lesson early: It’s easier to frontload your larger consumption negotiations, better address your scale needs and stay out of the finance team doghouse.
Return on Investment (ROI):
Aka: Justify the price and establish how you’re going to pay for this. While this step may often be the single most impactful part of a buyer’s decision, it only works if you’ve successfully navigated the risks and other buying factors above. That little bit of prework will make your ROI conversations run much more smoothly and leave you feeling much more accurate and aligned in your tech selection.
So, without any further delay, let’s talk about ROI!
Calculating hard and soft ROI
In the world of ROI, calculations can be divided into two buckets: hard and soft. Both play an important role in making purchase decisions. Understanding how each approach works is your key to maximizing results:
What is hard ROI?
Hard ROI typically shows a tangible return on an existing budget or future spend, creating a new or reallocated budget for an incremental purchase. In short, if I can stop paying for one thing or save x amount in the future, I can use that savings to pay for something new. That’s the definition of a solid Hard ROI. Hard ROI is obviously my favorite of the two, because your savings in this category can literally justify and pay for the investment.
What is soft ROI?
Soft ROI helps complete the “total value” story of a purchase. Some of my colleagues were quick to refute the value of soft ROI, but I never overlook the significance of this component. That’s because a positive soft ROI helps reallocate “sunk costs.”
For example, soft ROI might look like freeing up time for existing staff and creating opportunities to take on new organizational initiatives. In my experience, freeing up people to help in additional areas of impact had one of the best improvements in net promoter score (NPS) and in overall team confidence. That’s because most teams don’t outside of mine didn’t care about budget as much as they question team bandwidth.
Calculating ROI for the modern data stack
If you’re a CIO or business leader navigating the ever-growing number of providers in the modern data stack, you no-doubt have plenty of opportunities to put these ROI calculation skills to the test. I hope you’ll engage with me on LinkedIn and let me know how these tactics work for you.
If you’re looking for help applying the criteria above and calculating the ROI of ThoughtSpot, I hope you’ll stay tuned for part two of this series. Until then, start a risk-free, 30-day trial to see the real-time ROI that an investment in self-service analytics can provide.
David Zolnier (Dave Z) is a 25+ year, career IT professional experienced across numerous disciplines and verticals—currently he leads the Global Sales Enablement team at ThoughtSpot. Dave is a noted leader in our enablement, sales GTM, and differentiation efforts. Drawing on diverse experiences working at the CIO and exec-seller level, Dave infuses his strategic and technical expertise into his leadership to ThoughtSpot.