A solid business case often hinges on some financial metrics that would help in supporting a deal, clarity on the metrics is considered to be helpful, and is quite useful in showing your inclination towards a more heuristic approach towards a deal. !!!.

I have listed down some basic metrics & KPI's which are very common and some basic knowledge of these metrics would help in a deal

Return on Investment (ROI)

By far the most common metric and is defined as a performance measure that is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment

In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest.  Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.

Cumulative Cash Flow

A financial statement that reflects the inflow of revenue vs. the outflow of expenses resulting from operating, investing and financing activities during a specific time period (For a deal we usually use a 3 / 5 year outlay depending upon the requirement of the prospect.

These statements and projections express  the plans in terms of cash in and out of the product implementation, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the implementation will be profitable, but it does show the cash position of the implementation at any given point in time by measuring revenue against outlays.

Payback Period

The Payback period refers to the period of time required for the return on an investment to "repay" the sum of the original investment.

Payback Period = Year before Recovery + ((Un recovered cost at start of the year) / (Cash flow during the year))

Net Present Value (NPV)

 It can be defined as the difference between the present value of the future cash flows from an investment and the amount of investment. Present value of the expected cash flows is computed by discounting them at the required rate of return. There is a function on Excel which can be used to calculate the value.

Usually when NPV is greater than zero it means that the discounted value of future cash flows is greater than your initial investment and you would be getting an even higher return than you desire.

When NPV is zero it means that the discounted value of future cash flows equals your initial investment and you would be getting exactly the return you desire.

When NPV is less than zero (a negative number) it means that the discounted value of future cash flows is less than your initial investment and you would be getting a lower return than you desire.

Internal Rate of Return (IRR)

 The internal rate of return on an investment or project is the "annualized effective compounded return rate" or "rate of return" that makes the net present value (NPV as NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero.

Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project.

If you want some perspective on how you or  your company needs to enhance their Sales/Client Management Capabilities, please email me at This email address is being protected from spambots. You need JavaScript enabled to view it..


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