So when you start looking at deriving a ROI model, you need to go back to the basics. You again start with what is the problem you are going to solve? ROI represents a customer’s expectations from their investment measured against   goal elements like time, money, or resources along with the status of clients to the business. 

Imagine this scenario you are a large bakery chain and your baked good are selling like “hot cakes”. The line from the bakery is so long that it goes on for several blocks.  The baker in the front of the line is having a hard time keeping up with the orders. The bakery manager is can’t optimize his supply chain enough and continues to pressure the point of sale staff i.e. the bakers .  The president of the bakery chain states that because of this inefficiency in their supply chain they are losing close to $600,000 at each branch and the profit per branch is 2% of revenue.  As you are aware in the bakery business every penny of profit matters since it is a low margin business.

Now you are provider of an automation system that will solve this problem. Now I want you to understand that solution cost is not the only element to consider when developing a ROI model. There are other elements involved as well such as

These costs you can classify as direct costs and then there are indirect costs such

So we now know what the problem is with this bakery and we have seen problem from the baker’s, manager’s, and the president’s perspective (this element is key, you need to empathize with the various stakeholders that your are going to solve the problem for. This is one of the key components for designing your solution as well, checkout my earlier blog).  Let us now proceed to put together an estimated ROI model (it is estimated because it is not validated by the client or even realized via the implementation).

I understand this is trivial but something like this can actually resonate with a potential client in a presentation. If you have been listening to your community of potential clients to draw up something like this is not hard.

The above ROI model is an estimated ROI model of what the solution might potentially save the client. The alternative is that the client continues lose important clientele or go with a suboptimal solution from a competitor (Maybe this could be a topic for a future blog on competitive analysis, if the readers of my blog demand it).

It would be amiss if I did not provide proper attribution to the book  “The Four steps to the Epiphany” by Steven Gary Blank. I still believe that this is the best reference to client development.

As for what I did when faced with the quandary mentioned earlier in the blog. Well I am still happily married and I know my priorities really well J. I can participate in a different topic at the water cooler @ work. 
You can contact me @ kkanakas on twitter with your comments