ROI: Now It`s for Real

Creating the case

Moving the ROI conversation from best-case hopes to real-world expectations can be hard work, but solution providers and distributors say it’s possible with help from customers.

The first key is using actual figures from the the customer’s environment rather than averages. “When we do an ROI study, we can show exactly how much power current the environment is using and how much we could consolidate it,” Avnet’s Hayes said. It’s also possible to figure out what the resulting power is to the kilowatt, he said.

If customers don’t want to take time to provide data as a first step in the discussion, some solution providers use similar clients as real-world examples.

“We have a wealth of information from past engagements so that we can find a client in a similar situation with the same technology and same number of users, and we can talk to them about how they are supporting their technologies,” said Jamie Kustak, an account executive at IT services company NGen. The company uses Autotask service automation software to track business metrics from its clients, Kustak said.

It’s also important to concentrate on hard-dollar savings rather than soft savings because the latter varies widely depending on the customer and factors such as labor costs, HP’s Sinclair said. These more nebulous costs can be mentioned as a bonus but should be left out of the discussion initially so that customers can build realistic expectations of how much a solution can help, solution providers said.

When selling services, providers should help customers understand the impact on accounting. “In many companies, capital dollars are more readily available than operating dollars,” Cowie said. “The CFO has different buckets of money, and they tell us that they have all sorts of capital. For them, at the end of the day it is not so much about reducing expenses as it is about increasing service levels and shifting those operational expenses to a capital expense.”

For an MSP, then, the ROI discussion becomes a critical part of the sales cycle. MasterIT uses a full network assessment and TOC analysis to determine where the customer is spending its IT dollars. MasterIT then highlights for the customer the advantage of a service purchase over adding infrastructure.

MasterIT typically produces savings of 20 to 50 percent for customers while helping to identify operational headaches. The company presents its findings in a 60-page document that provides best-practice recommendations and outlines potential cost savings, Drake said. For top management, a 15-slide highlight presentation is prepared. Clients that participate in this ROI process are much more likely to sign up with MasterIT, and 90 percent of them do, Drake said.

Getting expert help

Many solution providers lack the skills or tools to produce real-world, provable ROI assessments, but there is help. Vendors and distributors are stepping forward with the necessary tools and services.

“Our vendor partners are extremely useful for us,” Heartland’s May said. “Because we offer so many solutions, we oftentimes may not have the expertise to drill down in the way that a vendor does. We try to utilize all the resources we can.”

Avnet, for example, offers its OneTech CIA (Consolidation Impact Assessment) service, which helps solution providers perform server, storage consolidation and Unix server consolidation assessments for customers. The methodology provides technical and financial analyses of current server and storage environments as well as recommendations for future system investments based on anticipated demands and TCO.

As part of its CIA service, Avnet collects comprehensive server performance and workload data over several weeks to determine how much processing power and memory are being used in a customer’s data center. Avnet also evaluates the financial aspects of a server environment, focusing on the hard-costs model, which calculates actual expenses related to systems purchasing, power consumption, heating and cooling, system management resources, and downtime due to standard maintenance requirements.

Many vendors provide sophisticated tools and services that go well beyond the simplistic free calculators found online. VMware’s Capacity Planner is a hosted application service that lets solution providers and their customers assess the current capacity of an IT infrastructure; benchmark, trend and identify alternatives; run through various scenarios; and then monitor resources on an ongoing basis.

HP offers a blade server tool that allows VARs to perform formal cost justifications based on data center space and the cost of equipment, management support, installation and more. “This kind of tool is useful when the CFO or CIO requires a more formal and in-depth cost justification because it allows the VAR to calculate costs based on the existing, exact costs at the customer site,” Sinclair said.

Held accountable

To make ROI matter, more and more customers want solution providers to take responsibility for results. Some customers are even asking providers to agree to take a hit to their pocketbooks if proposed ROI goals aren’t met.

“Customers own the ROI conversation,” said Bobby Grisham, chief sales officer at Electronic Data Systems. “Some are more confident that they can measure and hold partners accountable for results.”

However, as relationships become more established and one project grows on top of another, this long-term measurement gets harder to perform, especially in large organizations.

“These customers sell divisions, bring in new leadership, launch new projects, take work in-house [and] give us more scope, so that at the end of three years into a relationship, it is rare that we can point back to … exactly where we were and where we are now and then connect those dots,” Ingram Micro’s Fago said. The conversation then turns to an annual review process to measure the relationship, he added.

Some solution providers add tools to provide visibility into results. For example, MasterIT requires each customer to engage in monthly wellness updates and an annual review. The results can surprise the customer: A commercial real estate company found it had saved 25 percent on IT expenses, while an independent insurance agency realized 11 percent in hard-dollar savings, MasterIT’s Drake said.

Charging for ROI?

Good ROI information takes time, and every solution provider needs to decide if the ROI analysis is part of the sales cycle or a service to be sold. A fee gets customers engaged in the process, while a cost-free approach may persuade them to consider the exercise.

Every solution provider takes a slightly different approach. “We do run into the situation where customers don’t value free stuff,” said Osborn, although he added that Lilien does not charge for its assessments. By asking the customer for minimal information, Lilien can finish an assessment and proposal in about a day.

Heartland reserves deep, up-front analysis of current customer costs for large solution deals, said May.

MasterIT sells assessments as a service with a per-seat fee, charging an average of about $160 per seat.

“We collect half the fee up-front,” Drake said. “It’s a great prequalifying tool to help us determine if a company will be a good client going forward. If they aren’t willing to pay for a good three- to five-year road map, they probably wouldn’t be willing to pay for a fixed-fee engagement. It separates the serious from the casual.”

Hailey Lynne McKeefry is a freelance writer based in Belmont, Calif. She can be reached at hailey@cyberdeacon.com.