February 26, 2002

How to sell your software to the CFO

by Bruce Scheer, FutureSight Consulting

In a recession, sales of business technology slow down like everything else. Now, more than ever, customers are seeking value justification before they open their purse strings, and the person holding the strings most frequently is the CFO. And what does the CFO need to see to believe in your technology solution? After the main business benefits have been well defined and understood, the CFO wants to see a true value proposition instead of the half-baked, fuzzy propositions and value notions of days gone past.

Use the "4 P's" to approach the CFO:
#1: Be professional. Present a top-level summary and detailed financial model with solid, quantified benefits and supporting analysis. Using this model and "what if" scenarios, the CFO can easily understand how the solution fits his or her particular needs.

#2: Be practical. Four things make your model practical. It needs to be: simple to understand, navigate and use; time sensitive, in that it uses relevant benchmark data; flexible given the insights, perspectives, and risk analysis to be tested; and complete in terms of the metrics the CFO needs.

#3: Offer proof. Your numbers must be backed up by evidence that the value being derived can be proven in a real-world context. This means necessary benchmark and case study data are woven into the analysis, offering concrete evidence around the claims of financial impact for the organization.

#4: Provide perspective. When vendors measure themselves, they tend to have artificially positive results. CFOs often ask their own staff to conduct the analysis to ensure an impartial and validated view. Therefore, your tools and selling materials must be complete yet easy to understand and use.

The CFO's desired financial metrics
Now that you have embarked on creating the compelling case for your software, you need to present the metrics that the CFO needs to see to believe:

ROI: Return on investment is the cumulative net benefits (benefits minus direct costs of benefits) derived from a technology initiative, divided by cumulative costs of the technology investment plus associated deployment and ongoing costs. ROI is CFOs' number-one metric in technology purchase decisions right now — it allows them to cut through the technology hype to determine the true economic worth to their firm.

Benefits: This includes hard (tangible) and soft (intangible and strategic) benefits. Tangible benefits are directly quantifiable and undisputable in nature. They are the cash flow producing benefits, showing either revenue enhancements or cost-reductions; e.g., savings derived from less disk storage required. Intangible benefits are more challenging to quantify; e.g., improving customer satisfaction. Strategic benefits have strategic organizational impact; e.g., improving the quality of customer experience.

Payback Period: The point in time (sometimes referred to as breakeven point) where the organization recoups its costs for a particular technology solution. The payback period is a good measure of risk, letting the investor know how long it is going to take to recoup an investment outlay.

TCO: Total cost of ownership seeks to measure all of the expenses, both human and technical, behind a given technology initiative. It includes all costs related to the technology lifecycle, including procurement, deployment, maintenance and support. A TCO analysis can be very good for budgeting purposes, or choosing between alternative courses for technology initiatives.

NPV: In its simplest form, net present value is the value today of cash received at a future date, given a discount rate (cost of capital). CFOs want to see all of the future net cash flows associated with the technology initiative, discounted by an appropriate interest rate, so they can determine present value of the future cash flows, and compare this with other potential investments.

IRR: The internal rate of return is the effective yield on the project. I.e., the discount rate that causes the net present value to be equal to zero. Its disadvantage is that it might give an incorrect decision when deciding among mutually exclusive projects.

Savvy software vendors will appreciate the CFO's situation in these tough times, and offer him or her a solid approach and grounded financial metrics when presenting their business case and closing the sale. Follow the 4 P's and provide the top-line financial metrics, and you'll substantially increase your probability of sales success.