Cumulative Cash Flow + Payback = Committed Customer

By June 29, 2010Finance

This is the third post in a series about selling with Finance, the Universal Language of Business.

OK, here we go again…  Doesn’t matter what they sell or what their SIC code is, ALL of your customers are in the money-making business. It makes good sense to speak to them in the language they care about most.

The focus of the last post was Net Cash Flow, the amount of money that came into or went out of the proverbial cash register.  It is shown in the last row of the following:

The next level of analysis examines “how am I doing so far?”  In other words, instead of looking only at financial performance in a given year, look at the cumulative total after 1, 2, 3, etc. years.  In our example, after the first year, the customer has invested a net total $106K.  In the second year, a net of another $33K is invested for a 2-year total of $139K.  The third year is when the money starts flowing in vs. out to the tune of $114K, but since that $139K has already been invested, the customer is still down $25K cumulatively.  Years four and five are all cumulative net black ink!

Both rep and customer now have a deeper understanding of the value proposition.  Yes it’s worth a half a million bucks, but we’re in the hole until sometime in year 4.  Exactly how far into year 4?  When precisely do we get back to zero and start enjoying the fruits of our investment?  (The Finance folks call this Payback Period or Break Even Point.)

If the mathematical gymnastics give you a headache, don’t worry about it.  Let your spreadsheet do the heavy lifting by plugging in the formula shown above.

Now…  Back to selling.  Back to Value Proposition.  What’s more powerful?  “My widget this, my widget that, my company this, my company that.” Or “By working together long term we can break even in 3.1 years and generate $486,000 in additional cash.”

Stay tuned for:

  • Part 4:  ROI
  • Part 5:  Net Present Value
  • Part 6:  IRR (Internal Rate of Return – The King of the numbers!)

Join the discussion 2 Comments

  • Keenan says:

    Todd,

    You wont’ get any push back from me on the importance of selling financial value, however the sale can be motivated by more than just the finances.

    Sometimes the financial return is just too difficult to measure. Customer experience investments are an example. I wrote about this a while back, in reference to a Vail investment. “The Problem with ROI” http://asalesguy.com/2009/12/23/the-problem-with-roi/

    good stuff, just not always so black and white.

    • Jim,

      I agree there’s much more to the message than the money. That said, the level of ignorance among sales reps regarding financial analysis is, well, staggering. That means there’s a HUGE opportunity for the few.

      Understanding and speaking $$$ opens the door to the CFO’s office. The insights gained and intelligence available there are GOLD. Plus, many a decision-making executive is uncomfortable with financial lingo positioning the $$$-savvy rep extremely well.

      Todd

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