In a recent meeting, we were discussing the current state of the economy, the time value of money, our services, and the return on investment (ROI) between Hosted Voice and Premise Based PBX (click here for a brief description of both).
Our Sr. VP of Sales, Sean Burke offered us the following insights:
Let’s say the charges for our service is $3,000/month. You may look at that and do the following calculation to determine the ROI on our solution: $3,000 x 36 = $108,000.
That is merely tells you how much you are going to spend on our service over the next 3 years, but speaks nothing of your ROI.
The best way to determine the value of your investment is by looking at your investment taking the time value of money into consideration. Let’s look at this from a strict money comparison (which does not include the value of added features, innovation, support, etc.):
Here are 2 examples:
- CONSERVATIVE – If your company received a small business loan today from the Small Business Administration Loan (these are actually pretty hard to get too given the economy)- the rates range from NY Prime (3.25%) + 2.25% = 5.5% to NY Prime (3.25%) + 6.5% = 9.75%. So let’s use 7% to show a middle ground calculation. A $3,000 monthly payment over 3 years with a 7% rate is VALUED in today’s money at = $97,159 for a difference of about $10,000 (from what was calculated above based on total $’s spent). But even this calculation is extremely conservative and here is why…7% interest is a very conservative estimate of the value of a growing companies future value.
- A FAST GROWING COMPANY (REAL EXAMPLE) – The average growth rate of the Inc 500 companies is 46%. If you use this number the value of $3,000 paid monthly over 3 years is = $58,057 for a difference of about $50,000. From a business perspective/cash flow perspective – leaders of high growth companies should understand that deferring your payments to monthly amounts so that you can free those dollars to invest in your high growth entity is ALWAYS a smart decision. Think of it this way…the company is growing by 46%. Which means each dollar you invest in growing your business is worth $1.46 in one year; in two years it is worth $2.13, in year 3 it is worth $3.11 – so there is a much larger value to them in investing their money INTO growing their business vs. buying PBX’s.
If you are interested in learning more, please contact us – we’d love to discuss this with you.
Also, for a calculator you can use to determine the time value of your money – click here.