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The Proper Metrics



One of the major topics I teach at our financial analysis workshops and at every Efficiency Sales Professional Boot Camp is how to use proper financial metrics. The difference between the simple metrics that most efficiency salespeople use and the proper metrics that efficiency sales professionals use can often mean the difference between a “no” and a “yes.”  

Unfortunately, your prospects may be very attached to popular, substandard metrics like simple payback period, return on investment, and internal rate of return. In some cases, they may even be resistant to proper metrics like net present value, modified internal rate of return, or savings-to-investment ratio because they don’t understand the calculations and would rather use what they already know.

When a prospect is using substandard metrics to drive capital budgeting decision-making – especially with expense-reducing capital projects – it's your job to be the adult in the relationship and to share with that person in a very “tough love” way that those metrics are not going to serve them best.

Unless you know for a fact that your prospect is already using the right metrics to evaluate projects, it’s a good idea to include both “popular” and “proper” metrics on your financial summary spreadsheet. This will allow you to compare the metrics they are used to seeing with the ones you recommend they start using, and through that comparison, demonstrate why they should be using more advanced metrics to evaluate the project.

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Posted by Mark Jewell