ROI…Without the “I”

Return on Investment (ROI) without the “I”; meaning, returns without the investment. Another way of explaining this is contingency or success-based revenue model; meaning, nothing saved nothing owed. This revenue model is becoming more and more common in the business world. I see it in vertical solutions such as shipping and fulfillment, but I also see it in horizontal solutions like accounts payables.

I’m really intrigued by this revenue model as it is entirely performance-based with little or no risk to the participant. I’ve seen this in the shipping vertical where savings are applied as a credit to a vendor for future consumption and the participant is invoiced by the provider a percentage of the credit savings. The net effect is the same, but this can be confusing to participants as the credit becomes “out of sight/out of mind” and the provider invoice can comes as a surprise. This can create collection and payment challenges. In some cases it also forces the participant to pay their vendors late in order for the vendor credits to fully reconcile. Nevertheless, the savings are very real, but you have to clearly communicate the distribution and billing process to avoid any confusion with the participants.

Not all contingency or success-based solutions work this way; hence, the best solutions don’t apply a vendor credit, but rather distribute monthly or quarterly checks to the participants in the form of rebates. These can be quite substantial depending on the solution. Most importantly, these rebates have cash value with immediate revenue recognition as opposed to an applied vendor credit. The most notable application for this type of solution is by optimizing vendor payments within your accounts payable. Most participants pay their vendors either by check or ACH. This is very expensive; whereas, you can reduce this cost by paying a percentage of your vendors using a virtual credit card provider. There is significant savings in doing this, and they come back to the participant in the form of monthly or quarterly rebate checks. This is very attractive to CFO’s and Controllers. By example and in the spirit of under-promise/over-deliver, here’s what a typical annual savings looks like for a $125M company:

Medium – Average Size Target Client
$125M Annual Revenue
$93.75M Annual AP Spend (75%)
$18.75M Converted to VC Payments (20%)
Client Annual Savings/Rebate: $210,938

As interesting as this is, I’m less interested in how we get there, and more interested in the final result – $210,938. This is ongoing recurring annual revenue to the company’s bottom line. As you think about long-term budgetary planning, this is found money that can be used to fund CAPEX or OPEX initiatives to improve a company’s operations. You can’t dictate to a company how they use these funds, but you can paint a picture and become a part of the Strategic Budgetary Planning process. There’s a large ecosystem of vendors that would be interested leveraging these savings to offset the costs of their core offerings that are being pitched to the participating company.

If you are a company with $50M or more in annual revenues and paying your vendors via check or ACH, please reach out and I can share more about this program. We have a vendor list north of 700,000 participating vendors; hence, you may already have immediate savings available to you that you’re not getting. If you have vendors not on our approved vendor list, we can easily get them enrolled. If you’re selling solutions into companies that fit this profile, this may be an alternative funding vehicle you could leverage to accelerate your sales cycle.