How do I build ROI for a CFO?

Let’s clear the air about prospective ROI: it’s DEFINITELY wrong. No one has ever successfully guessed what an ROI would be. So… why do them at all? And how do we build them for a CFO?

First off, let’s talk about what ROI is and isn’t. ROI stands for Return on Investment. Return is all of the value gained from the investment. This can be hard returns (revenue or monetary cost elimination) or soft returns (security or time cost elimination). And investment is everything that goes in to creating the return: time and money. When creating an ROI model, hard returns are always better than soft returns.

The common unit among ROI is we’re dividing a $ value return by a $ value expense to generate a %.

Pro tip: Everything in an ROI equation should be converted into monetary value

Now, if you’re still reading this, then you probably took a math class at some point and you’ve noticed the most common mistake in ROI: it can’t be calculated unless there is a term length. If you have a linear and positive ROI that is 200% in two years, it would be 400% in 4 years. One isn’t more valuable than the other. We’re just measuring a different payback period.

Pro tip: Never send an ROI without a defined term length

Remember at the beginning when I said prospective ROIs are never right? That doesn’t mean they aren’t valuable. We are creating a model for value realization. You should expect every variable in that model to change based on who is considering it. What might standardly cost $100/hr. could project to $80/hr. for someone else. That might seem like a giant swing in value, but it’s all about getting to a number your stakeholder believes in. A 200% ROI with conviction is better than a 2000% ROI that someone thinks is ludicrous.

Pro tip: Clearly display the equations that build your ROI and allow stakeholders to edit the variables

Finally, ROI is often used as shorthand for the entire financial value story. In other words, ROI isn’t the only way a CFO measures value. One of the other most common metrics financial stakeholders use is time to value (TTV, T2V, or Breakeven). This is the amount of time it’s going to take for your return to exceed the cost. Time to value is often the decider of product affordability. Think about switching to those expensive smart light bulbs: the ROI over ten years is really high, but are you willing to spend $25 on a lightbulb when you currently spend $5/year on that same light?

Financial conversations in any context can be intimidating. This is especially true when we’re seeking financial approval from an expert. Your best approach isn’t to pitch your numbers but to bring them to light to inform the financial decision.

No one buys software in a vacuum. Your ROI is part of a plurality. In other words, it’s not enough to save more than you cost. You have to be a worthy lever for the time and attention of the organization when weighed against other priorities. That means you have to manage ROI’s hidden variable: certainty.

Pro tip: Certainty is the hidden variable in the value equation. If you can demonstrate a strong ROI with a near 100% probability of occurring, you can jump the line to become an immediate priority.

Certainty is demonstrated in how you work. Create clear project plans that show the traction that has already taken place. Identify all the technical blockers for your project and show that they have already been addressed. Finally, show a compelling why and a charted path forward.

CFOs want you to succeed, and they’re thrilled to approve projects that make the business better. Want to win over your CFO? Create a project that’s transparent and destined for success.