How detailed do you get with ROI calculations in your presentations? Simple payback period or full NPV analysis? Client is asking for "detailed financial analysis" but I don't want to overcomplicate things.
ROI Calculations - Simple vs. Complex
Beth, start simple. Payback period and annual savings are enough for most clients. If they want more detail, you can always add NPV and IRR calculations later. Don't overwhelm them upfront.
I include both. Simple payback in the executive summary, detailed NPV analysis in appendix. That way CFO types can dig into discount rates and cash flows if they want to.
What discount rate do you use for NPV? I've been using 8% but wondering if that's too high for current interest rate environment.
Lee, I ask the client what their hurdle rate is. Usually 6-10% depending on company size and industry. Manufacturing companies tend to want higher returns than office buildings.
Don't forget to account for escalation in utility rates. 3-4% annual increase makes the savings look much better over 10-year analysis period.
Randy's right about being conservative. I got burned once projecting 5% rate increases and they only went up 2%. Now I use historical averages from the specific utility, not industry averages.
Holly brings up a good point about escalation. Just be conservative with your assumptions. Better to under-promise and over-deliver than the other way around. Clients remember when projections don't pan out.