The psychology of making decisions: ROI is more important than you think!
If you’re not actively trying to improve ROI then let’s face it, you’ve given up!
And you need to change your mindset because you’d be stupid to give up on ROI. Especially when it comes to your buying process. Why? Because it’s still very much the best way to make your business buying decisions.
ROI was a big thing a few years ago, people were fascinated by it. The idea of understanding the real value of something was brilliant. But it quickly became so complicated with exaggerated returns promised that it just became unbelievable.
So, ROI has in some ways been forgotten or put on the back burner. But businesses that aren’t actively looking at ways to improve their ROI are missing out. If you’re one of them, it could be costing you more than you think!
Why is ROI so important?
If someone said, “There’s a problem with your engine – your car is using too much fuel” and you weren’t aware of how much this was costing you. You probably wouldn’t be motivated to fix it immediately and instead will wait until it’s due a service. Whereas, if someone told you ‘based on the mileage you do every month, you’re overspending on petrol by £200”, you’re going to do something about it!
Now, let’s look at this from a service business perspective.
There’s a problem in the operational side of your business – engineers are spending longer on service jobs or being assigned to jobs they aren’t qualified to complete.
Meaning they have to revisit sites multiple times. It might not be a big deal at first. So what your First Time Fix Rate slips by 5% each month, would you even notice it?
The issue is building here though. What was just a 5% increase across a few engineers and job types can compound into a much larger percentage and value figure. As soon as you start to quantify this in terms of the engineering time, the travelling and administration costs, never mind potential lost customer cost. Then you could realise the issue is starting to cost the business more than £250k each year. Now you’ve got the information and business case you need to improve the exact processes that can make a difference.
And whilst there’s a whole theory of psychology on why we make buying decisions.
Rational/quantifiable value remains a strong factor for business more so than personal purchase decisions where emotional factors feature more.
Understanding and quantifying everyday problems changes the discussion at a senior level, from a dismissive “we can’t be losing a quarter of a million pounds” to “we need to look into how to improve efficiency and make it a key priority”.
So, in short, if you can’t be arsed to quantify the cost of the problem, then it can’t be a real problem…
Quantifying the value of fixing a problem, really helps to bring it into focus. You’ll be able to engage more people in your business and make a much stronger argument for making a change.
ROI doesn’t have to be complicated. Just put it in simple terms for people across departments to understand. Plus, by keeping it simple, more stakeholders will grasp it, come up with improvement ideas and believe they can make a difference.
To wrap this up, my final tip would be to ‘own the figures’. When you’re trying to quantify a problem, put in your value and halve that. Then, if it’s still a big enough problem, you have to do something about it. Let’s say you calculated that your low First Time Fix Rate is costing the business £200,000 every year. Even if you halve that – losing 100k is still a problem. You’ve been conservative and therefore more than believable and when you fix it, you know you could achieve even more in savings.
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