How to justify the ROI of your AI product
Keep it simple
As AI adoption moves along the adoption curve, buyers are taking a harder look at the ROI of their AI purchases. It’s no longer enough to simply count on early adopter exuberance and CEO mandates to get deals done. You need to show the projected ROI.
There are two ways to measure the ROI of a product. Either you show how much it increases revenue or you show much it reduces expenses. However, many sellers make the mistake of thinking there’s also third way — showing how much time it saves — only to get shot down when their deal hits the CFO’s desk for approval.
In this issue:
How to show the ROI based on increasing revenue
How to show the ROI based on reducing expenses
How to show the ROI based on saving time
How to show the ROI based on increasing revenue
If your ROI story is based on increasing revenue, you need to be able to prove it directly and quickly in a time-limited trial in order to have a predictable motion for customer acquisition.
For example, my client Ajax is an AI timekeeping solution for mid-size law firms which finds billable hours that were missed and attributes them to the relevant matter. To show the ROI, the Ajax sales team runs a pilot with new customers to track how many incremental hours the software finds, divides the value of the additional billable hours by the cost of the software and shows a healthy return on investment (typically 10x or more), making it an easy decision for the buyer to approve. After all, who doesn’t love found money.
How to show the ROI based on reducing expenses
If your AI product replaces an existing legacy tool at a lower cost the ROI story is fairly straightforward. The customer buys your product, rips out the old product and as long as the new and existing contract terms don’t overlap too much, they are guaranteed to reduce their overall expenses.
For example, my client Surface Labs has an AI solution for marketers that combines multi-step forms, lead nurturing, lead scoring, qualification and routing in a single product that replaces tools like Zapier, Chili Piper and parts of a CRM at a lower cost. This makes it an easy decision for marketers looking to consolidate vendors, reduce tool spend and increase website conversion.
How to show ROI based on saving time
If your AI product saves time, simply showing the amount of time saved is not enough.
Nor is simply asking your buyer, “What would you do with those time savings?” and using their answer, “We’ll be able to spend it on more important things” as your ROI justification. As a former COO, I lost count of the number of times people on my teams pitched me to buy salestech that would enable them to “spend more time selling” only to fold when I asked them if they’d be ok with a higher quota.
Nor is translating time savings into a dollar amount e.g. if each person on the team saves 10% of their time and makes $100k/year salary then the time savings are somehow magically worth $10k/year. This is meaningless unless the buyer is planning to reduce headcount.
The only way to predictably show the ROI from time savings is how it increases the capacity of an existing team without having to add more people to the team:
For example, several of my clients sell AI products that reduce the time taken to perform repetitive tasks; Scope reduces the time to produce industrial inspection reports, Fleetcraft reduces the time to complete aircraft maintenance paperwork, Henry reduces the time to produce commercial real estate pitch decks, Tracelight reduces the time to produce financial models in Excel.
For all of these companies the ROI story has a similar structure: