This isn’t the first time you’ve read about The Universal Language of Business on this blog. Doesn’t matter what they sell or what their SIC code is, ALL of your customers are in the money-making business. All sales reps must therefore learn how to communicate effectively using Finance, the universal language.
And don’t tell me it’s too hard! Part two of the Finance series, dealing with Net Cash Flow, involves nothing more than addition and subtraction. Oh… along with a thorough understanding of the customer’s business operations. Anyone care to debate the necessity of that?
Sell using a net cash flow analysis by laying out the value and costs of the “Before” and “After” scenarios and highlighting the differences between the two. In this example, my opening value proposition would be something like:
The suggested changes to the project plan can return almost $500,000 to your budget over five years.
The story continues… According the numbers you provided me, Mr. Customer, the cash flow for Department X is as shown by following chart. It shows:
- The value projected to be generated by Items 1, 2 and 3 for each of the next five years. (Cash Inflows)
- The projected amounts to be spent to create that value (Cash Outflows)
- And the net difference (Cash Flow Summary)
The return with your current plan is about $2.2 million. Wow! Pretty impressive.
Mary, Bill, Frank and I really dug through the current plan and concluded it was pretty darn bullet proof. We did, however dig up a few items that could be done just a tad better. You’ll need to invest a bit over $6 million as opposed to the planned $5.5 million, but I think you’ll agree it’s worth it. First though, here’s what the revised budget value and costs would look like:
OK, now lets take a look at the 3rd chart, the net difference between the two scenarios. As you can see, the total additional cash in pocket after five years is $486,000.
What customer wouldn’t get really, really interested in whatever the heck it is you’re selling when you dangle a half a million bucks out there? Wouldn’t that be awful if you got stuck in long conversation with a decision making executive about business issues?
Grunt through the above numbers. Understand them. Try a Net Cash Flow Analysis with one with one of your customers. Stay tuned for:
- Part 3: Cumulative Cash Flow
- Part 4: Payback (aka Break Even Point)
- Part 5: ROI
- Part 6: Net Present Value
- Part 7: IRR (Internal Rate of Return – The King of the numbers!)
Todd: thanks for posting this. Blogs that truly aim to boost the business literacy of salespeople are few and far between–and much needed. In light of that, I’m glad you didn’t call this ‘ROI,’ a term has specific financial meaning and one that is trampled and misunderstood in the sales world.
I’d like to add that a business-savvy salesperson will recognize that there are assumptions and risks that are associated with “Benefit items 1, 2, 3, etc.” and that these should be discussed in the context of the target company’s financial strategy and risk governance.
For example, your solution might offer lower projected financial returns than mine, but if you can demonstrate there is greater certainty and shorter time-to-value in your cash flow projections, it’s highly likely your solution will be more appealing than mine.
There’s a little more to proving a financial case than dangling $500,000 in front of a prospect–although it does seem tantalizing. Demonstrating that the financial outcome fits in the context of the company’s financial strategy and risk profile is required as well. Doing that requires the business sense that you are promoting.
Two related posts I wrote on this topic:
Will the Next Sales Achiever Need an MBA?, and ROI Hype: Finance for Fools?