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Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 1 Cisco Quick Hit Briefing Financial Selling for Dummies Brian Avery Territory.

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Presentation on theme: "Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 1 Cisco Quick Hit Briefing Financial Selling for Dummies Brian Avery Territory."— Presentation transcript:

1 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 1 Cisco Quick Hit Briefing Financial Selling for Dummies Brian Avery Territory Business Manager – Cisco Systems August 28, 2014 Connect using the audio conference box or by calling into the meeting : 1. Toll-Free: (866) Enter Meeting ID: Press “1” to join the conference.

2 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 2 Brian J Avery Territory Business Manager Cisco Sales and Channels (9 yrs) Priors: President and CEO (6 yrs) Cisco Premier Partner Director of Sales (2 yrs) Cisco Silver Partner Financial Analyst (7 yrs) Sprint Corporation Agenda  Introduction  Quick Hit Overview  Why Learn, Objectives  The Cost of Capital  Financial Selling Tutorial and Case Study  The Power of Cisco Capital  Tools and Calculators  Call To Action, Next Steps

3 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 3 What Is a Quick Hit Briefing? A weekly partner briefing series designed for Cisco Commercial Territory partners Concise, relevant updates on: Cisco products and solutions Partner programs and promotions Partner Enablement – Demand Generation, Selling Skills, Closing Tools, etc. Next Quick Hit Briefing Who's On First? - Navigating Cisco Resources Thursday September 4 th, 2015 at 9:30 ET Check for registration links and replayshttp://cs.co/quickhit

4 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 4 Financial Selling for Dummies (No offense intended!)

5 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 5 Why Learn Financial Selling? 1. To impress your friends at parties 2. To improve your love life 3. To close more deals and make more money

6 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 6 Where it was once “nice” to understand the business (financial) justification for what the customer is buying… You now need to know in order to: Be relevant or remain relevant Address what is top of mind for your customers daily Continue to successfully sell The Old Days Are Over

7 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 7 The Cost of Capital Every business deals with the “cost of capital” whether they pay cash, lease or use credit. Cost of Capital (n) a)the opportunity cost of funds employed as the result of an investment decision; b)the rate of return that a business could earn if it chose another investment with equivalent risk The value and cost of Capital Cash in the bank – earns interest $$ Cash deployed in the business – generates revenue $$ Debt (bank loan, line of credit) – costs interest $$ Lease – costs interest $$ (but generally less than debt)

8 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 8 Cost of Capital Popeye’s Friend – J. Wellington Wimpy “I’ll gladly pay you Tuesday for a hamburger today!” Is it better to pay now or pay later? Is it better to receive a dollar today or a dollar in a year? What is a dollar that you will receive a year from now worth to you if you could get it TODAY?

9 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 9 Evaluating Capital Choices How much can I earn if I keep my cash and invest it in the bank or the financial markets?

10 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 10 Evaluating Capital Choices How much revenue can I generate if I invest the cash in my business?

11 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 11 Evaluating Capital Choices How much will borrowing money cost me?

12 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 12 Evaluating Capital Choices Is leasing or financing a better choice?

13 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 13 Evaluating Capital Choices Which choice (cash purchase, debt purchase, lease purchase) will offer the maximum benefit?

14 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 14 Evaluating Capital Choices All of these questions should be considered when making a capital purchase!

15 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 15 Today’s Objectives 1. Help you to understand the importance of Financial Selling in today’s economic environment 2. Share with you techniques on how to apply Financial Selling techniques 3. Share with you ways you can improve your Financial Selling skills 4. Enable you to have CFO / Procurement team engagements 5. Help you to position both the business and financial benefits of a Cisco solution

16 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 16 HPIBMEMCCisco Est. Product Pen Rates: ~15% ( *overall, estimated 30% in DC) ~31%30%+~11% (*overall) 1.Whether you’re aware or not, all proposals will at some point land on the desk of a CFO 2.CFO’s / Finance / Purchasing will assess and appraise any proposal and ultimately approve or reject the solution or suggest alternatives that offer better value to the company 3.Whether you’re involved or not, many companies & government departments apply some form of financing to most of their solutions and projects 4.You need to be a part of the financial discussion to move up the value chain/secure sales WHY FINANCIAL SELLING IS IMPORTANT… THE FACTS

17 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 17 Why does a Customer buy a Cisco solution? a)Performance b)Security c)Quality / Industry Standard d)Features e)Other Reasons

18 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 18 Why does a Customer buy a Cisco solution? Why does a Customer buy a Cisco Borderless Networks solution? a)Performance b)Security c)Quality / Industry Standard d)Features e)Other Reasons 1.Cost savings and / or 2.Revenue generation The motivation to purchase is, first and foremost, a financial decision

19 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 19 Getting This Right Means $$ Getting access to more Influencers within your accounts Positioning solutions that meet the company’s business objectives AND their financial metrics Assessing if proposals will pass the CFO / Financing / Purchasing test to save you time and increase credibility Anticipating customer objections by building the business / financial case before the proposal Financing can equal upgrades every 3 years Expanding the overall deal size and/or creating deals out of budget that doesn’t currently exist Overcoming the “Cisco is too expensive” challenge and competitive threats

20 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 20 What financial tools do finance DMs use to assess an investment? What financial tools do CFO \ Financing \ Purchasing staff usually use to assess an investment? a)ROI b)IRR c)TCO d)NPV

21 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 21 What financial tools do finance DMs use to assess an investment? What financial tools do CFO \ Financing \ Purchasing staff usually use to assess an investment? a)ROI b)IRR c)TCO d)NPV

22 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 22 What is Net Present Value? a)The net present worth of a time series of incoming cash flows b)The cost of buying a net as a present for the fisherman in your family. c)The net present worth of a time series of outgoing cash flows d)A standard method for using the time value of money to appraise a series of incoming and outgoing cash flows What is Net Present Value?

23 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 23 What is Net Present Value? a)The net present worth of a time series of incoming cash flows b)The cost of buying a net as a present for the fisherman in your family. c)The net present worth of a time series of outgoing cash flows d)A standard method for using the time value of money to appraise a series of incoming and outgoing cash flows

24 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 24 What is Return on Investment? a)The internal rate of return on any given investment b)When you make a withdrawal from the bank c)The ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested d)The ratio of money gained and realized on an investment relative to the amount of money invested

25 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 25 What is Return on Investment? a)The internal rate of return on any given investment b)When you make a withdrawal from the bank c)The ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested d)The ratio of money gained and realized on an investment relative to the amount of money invested

26 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 26 What is Payback? a)A cheesy 1990’s movie with Mel Gibson b)The period of time required for the return on an investment to "repay" the sum of the original investment c)The positive return from an investment after the original investment has paid itself off d)The period of time required for the positive return from an investment after the original investment has paid itself off

27 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 27 What is Payback? a)A cheesy 1990’s movie with Mel Gibson b)The period of time required for the return on an investment to "repay" the sum of the original investment c)The positive return from an investment after the original investment has paid itself off d)The period of time required for the positive return from an investment after the original investment has paid itself off

28 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 28 ROI, PAYBACK, NPV, IRR HOW A CFO / FINANCE OR PURCHASE OFFICER APPRAISES AN INVESTMENT

29 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 29 4 SIDES TO THE EQUATION NET INVESTMENT Incremental net investments NET BENEFITS Incremental profits Incremental savings Incremental costs TIMING When do the above occur ALTERNATIVES How do they compare against alternatives

30 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 30 Percentage of CFOs Who Always Use–or Almost Always Use–a Given Technique* * Source: “The Theory and Practice of Corporate Finance: Evidence from the Field”, Journal of Financial Economics 60, Figure 2 The New Normal – Some Stats

31 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 31 RETURN ON INVESTMENT (“ROI”) The simplistic view used by many accountants Example: A company invests $75,000 in a machine that will save $18,000 per year over the 5-year life of the machine. Total savings = $90,000 ($18,000 x 5) Net return = $15,000 ($90,000 - $75,000) ROI = 20% ($15,000 / $75,000 ) Is this a good return? Net return from an investment Net investment Total benefits received from an investment – net investment Net investment =

32 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 32 PAYBACK Annual savings x P = Net Investment How long it will take a particular investment to pay for itself Example: A company invests $75,000 in a machine that will save $18,000 per year over the 5-year life of the machine. Net investment = $75,000 Annual savings = $18,000 Payback = 4.2 years Is this a good payback?

33 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 33 Time Value of Money ANSWER: Compound Interest 20 year old Britney makes a one-time $5,000 contribution to a retirement fund that grows at 8% annually. If she never touches it until she retires at 65, how much will she have? 20 year old Britney makes a one-time $5,000 contribution to a retirement fund that grows at 8% annually. If she never touches it until she retires at 65, how much will she have? $159,000 If she waited until she was 39 to make her one-time $5,000 contribution, how much would it grow to? $37,000 ‘A Dollar today is worth more than a Dollar tomorrow’ Compound interest is an example of growth that we all understand Discounted Cash Flow is it’s opposite… ‘A Dollar today is worth more than a Dollar tomorrow’ Compound interest is an example of growth that we all understand Discounted Cash Flow is it’s opposite… Albert Einstein was once asked what is the most powerful force on Earth… What was his answer? E=MC 2 ? Atomic Bomb? A Woman Scorned?

34 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 34 Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows InvestmentSavingsNet Benefits Discount 10% NPV Year 075,000(75,000)1.00(75,000) Year 1-18, ,364 Year 2-18, ,876 Year 3-18, ,524 Year 4-18, ,294 Year 5-18, ,177 Net Present Value(6,765) Present Value accounts for the time value of money. ‘A dollar tomorrow is worth less than a dollar today’ QUESTION: Would a CFO or Financing Officer approve this? Net Present Value

35 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 35 Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows ANSWER: No InvestmentSavingsNet Benefits Discount 10% NPV Year 075,000(75,000)1.00(75,000) Year 1-18, ,364 Year 2-18, ,876 Year 3-18, ,524 Year 4-18, ,294 Year 5-18, ,177 Net Present Value(6,765) Net Present Value Present Value accounts for the time value of money. ‘A dollar tomorrow is worth less than a dollar today’

36 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 36 NPV DEPENDS HEAVILY ON THE DISCOUNT RATE The Discount Rate: The opportunity cost of Capital = the potential return the company could have made if it had invested in something else Weighted Average Cost of Capital is the rate that a company is expected to pay on average to all its security holders to finance its assets

37 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 37 Weighted Average Cost of Capital (WACC) Risk ROI

38 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 38 Cost of Capital By Industry Sector wacc.htm wacc.htm

39 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 39 Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows What should this be compared against? Decision Rule 1.Positive NPV = GOOD 2.Negative NPV = BAD Decision Rule 1.Positive NPV = GOOD 2.Negative NPV = BAD InvestmentSavingsNet Benefits Discount 10% NPV Year 075,000(75,000)1.00(75,000) Year 1-18, ,364 Year 2-18, ,876 Year 3-18, ,524 Year 4-18, ,294 Year 5-18, ,177 Net Present Value(6,765) Net Present Value

40 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 40 Investment Appraisal Techniques

41 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 41 Customer Financials This is what your customer sent you about the financial impact of your proposed Cisco solution. The CFO won’t approve the solution! This looks great as it produces a profit. So what’s the problem with the CFO?

42 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 42 Customer Investment Appraisal The financial accountants say this is not good. What should they be? ROI? Payback? NPV? IRR?

43 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 43 Why is this ROI not acceptable? Return on Investment (ROI) The simplistic view used by many accountants

44 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 44 Payback is 3 yrs mths Why is this Payback not acceptable? Payback The duration it will take for an investment to be repaid by the incremental net benefits

45 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 45 Why is this NPV not acceptable? Net Present Value (NPV) Today’s value of all cash flows after taking into account the time value of money

46 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 46 IRR = 13.54% Why is the IRR not acceptable? Internal Rate of Return (IRR) Discount Rate used to arrive at an NPV of $0

47 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 47 Investment Appraisal Techniques Case Study You now understand why the customer has rejected your proposal. So what are you going to do now?

48 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 48 Potential Answers 1. Negotiate for better outcomes Revenues Other costs 2. Improve the costs from Cisco Hardware discount Services discounts Timing of payments 3. Restructure the deal Finance lease Operating lease Consumption model Now get Cisco Capital involved!

49 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 49 Case Study You have asked Cisco Capital if they can rescue the deal. You think the customer’s problem is they do not have the money to finance the deal. Cisco Capital says:  They can finance the deal with a cost of capital of 5%.  Over 5 years this will mean six annual payments of US$403,417 with the first payment due on signing.  They tell you this is not a CAPEX to OPEX deal. You ask them if that will achieve the customers investment hurdles. They tell you to figure that out. What gives you hope?

50 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 50 Net Present Value (NPV) Today’s value of all cash flows after taking into account the time value of money Now positive!

51 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 51 Case Study You have now WON THE DEAL by leveraging the power of financing and Cisco Capital!

52 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 52 NPV Ingredients Bake NPV Into Your Deal! Factors to consider in a capital purchase: Financing Cost Maintenance costs, Upgrade costs Services, Warranty costs Move/Add/Change costs Costs of required ancillary items Savings or costs avoided Productivity Gains Revenues Generated

53 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 53 The Power of Cisco Capital Agree the availability of financing was critical in choosing their IT supplier Said their companies use leasing to balance project costs with future benefits, accelerating ROI 70% 48% Said leasing is a way to free up capital for other uses 58%

54 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 54 If you don’t participate in these discussions early, with the right people, you risk that the decision will be made based on factors outside of your control. Why We’re Here A Finance or “How to Buy” decision occurs for EVERY purchase, especially larger ones.

55 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 55 An IDC survey of 153 IT organizations that lease/finance their IT equipment found that over 70 % reported the following leasing/financing benefits: Aids in protection against obsolescence Balances project cost with benefits Faster approval process Budget flexibility and equipment disposal/decommissioning services Don’t Take Our Word for it…

56 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 56 Enhance YOUR Selling Power What’s in it for YOU? Act and Bain Findings for Cisco Capital Close Ratio:+12.4% Deal Size:+25 – 30% Sales Cycle:Close 5X Faster Profit Margin+.5% Close Ratio:+12.4% Deal Size:+25 – 30% Sales Cycle:Close 5X Faster Profit Margin+.5%

57 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 57 Probing Questions How do you normally acquire technology equipment? How long do you keep this equipment? Do you budget on an Operational or Capital basis? Do you perform a financial analysis on purchases? If not, why not? I can help! What is your Cost of Capital? Don’t know? I can help you! What is the approval process for financing decision? Who is involved in this process? Is this project competing with other initiatives for funding?

58 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 58 Cisco Capital FY15 Offers z Cisco Collaborate Now! Customer Financing Cisco collaboration solutions with attractive rates as low as: 0% for 2 yrs.; 1% for 3 yrs.; 2% for 4 yrs.; 3% for 5 yrs. Multi-Year Service Contracts Financing Cisco Capital is making the acquisition of Cisco services more affordable than ever with an aggressive finance rate of 2.5%. US SMB Customer Financing 3-year, 3.5% ($1 buyout) financing up to $250K for U.S. small and mid-sized customers for all Cisco hardware, software, and bundled services Three Month Deferral Get the benefit of turning a large, up- front investment into affordable monthly or periodic payments. 3-month, interest- free payment deferral US SMB Game Changer 42 month Fair Market Value (FMV) 2.335% interest lease up to $250K per customer – U.S, SMB. For all Cisco, hardware, software and bundled services Expires: July 25, 2015

59 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 59 Tools and Calculators

60 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 60 Cisco Capital Partner Portal

61 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 61 Cisco Capital Quote Calculator ator_tool.xls ator_tool.xls

62 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Online credit application and approval is directly linked to automated credit scoring, enabling: submission of applications online management of pipeline business virtual review of portfolios Contact Cisco Capital to request access (800) CISCO-80

63 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 63 CCW Financial Calculator Cisco Capital Financial Calculator is a tool in which Partners can use to receive indicative financing quotes when registering a deal in Cisco Commerce Workspace Generate an instant indicative financing quote Save Time - calculate a finance quote 24/7 Request access - Build and Price Users can generate proposals and financial quotes using Build & Price and share them with their customers. The selected configuration will be stored to a shopping cart. It can be seamlessly threaded to the quoting and ordering process in CCW.

64 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 64 Financial Calculator App iTunes App Store Google Play Store

65 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 65 NPV Calculator us/templates/net- present-value- calculator- TC aspx us/templates/net- present-value- calculator- TC aspx

66 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 66 Call To Action, Next Steps

67 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 67 Revisit and become familiar with the concepts and language that CFOs and financial decision makers use Engage with Cisco Capital early and as often as possible – use financing instead of a price discount! Try it: Find a deal over 100K at an early stage in your funnel and engage in proving Payback, ROI, NPV and adding a financing offer Find your Cisco Capital Financial Solutions Manager and engage with them Start engaging, asking questions about customer’s ability to execute and finance Understand where they are in the buying process Don’t be afraid to ask about the budget/ financing question Call To Action

68 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 68 Expand customer relationships, accelerate and grow deals, create account control, and enhance cash flow Call to Action Include finance quotes with your proposals – overcome budget and cost barriers up-front! Close more deals!!! Reach out to your local Cisco Capital FSM Call: 866 Cisco 80 Reach out to your local Cisco Capital FSM Call: 866 Cisco 80

69 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 69 For Your Reading Pleasure Corporate Finance For Dummies By Michael Taillard ate-finance-for-dummies-michael- taillard/ ?ean= ate-finance-for-dummies-michael- taillard/ ?ean=

70 Cisco Confidential © 2012 Cisco and/or its affiliates. All rights reserved. 70 Join Us Next Week! Next Quick Hit Briefing Who's On First? - Navigating Cisco Resources Thursday September 4 th, 2015 at 9:30 ET Check for registration links and replayshttp://cs.co/quickhit

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