cisco quick hit briefing financial selling for dummies
DESCRIPTION
Cisco Quick Hit Briefing Financial Selling for Dummies. Connect using the audio conference box or by calling into the meeting :. Brian Avery. Partner Development Manager – Cisco Systems. December 19, 2013. Toll-Free: (866) 432-9903 Enter Meeting ID: 206 796 773 - PowerPoint PPT PresentationTRANSCRIPT
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 1
Cisco Quick Hit BriefingFinancial Selling for DummiesBrian AveryPartner Development Manager – Cisco Systems
December 19, 2013
Connect using the audio conference box or by calling into the meeting:
1. Toll-Free: (866) 432-9903
2. Enter Meeting ID: 206 796 773
3. Press “1” to join the conference.
Cisco ConfidentialCisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 2
Brian J AveryPartner Development [email protected] Sales and Channels (8 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 IRS Section 179 Tools and Calculators Call To Action, Next Steps
Cisco ConfidentialCisco 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 solutionsPartner programs and promotions
Partner Enablement – Demand Generation, Selling Skills, Closing Tools, etc.
Next Quick Hit BriefingCloud Opportunities for Cisco PartnersThursday January 9th, 2013 at 9:30 ET
Check http://cs.co/quickhit for registration links and replays
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 4
Financial Selling for Dummies(No offense intended!)
© 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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 6
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 CapitalCash 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)
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 7
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?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 8
Evaluating Capital Choices• Which choice (cash purchase, debt purchase, lease purchase)
will offer the maximum benefit?
• How much can you earn if you keep your cash and invest it in the bank or the financial markets?
• How much revenue can you generate if you invest the cash in your business?
• How much will borrowing money cost you?• Is leasing or financing a better choice?
• All of these questions should be considered when making a capital purchase
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 9
Today’s Objectives• Help you to understand the importance of Financial Selling in
today’s economic environment
• Share with you techniques on how to apply Financial selling techniques
• Share with you ways you can improve their Financial selling skills
• Enable you to have CFO / Procurement team engagements
• Help you to position both the business and financial benefits of a Cisco solution in order to prove the value of a potential Cisco premium
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 10
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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 11
HP IBM EMC CiscoEst. 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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 12
Why does a Customer buy a Cisco solution?
Why does a Customer buy a Cisco solution?a) Performanceb) Securityc) Quality / Industry Standardd) Featurese) Other Reasons
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 13
Why does a Customer buy a Cisco solution?
Why does a Customer buy a Cisco Borderless Networks solution?a) Performanceb) Securityc) Quality / Industry Standardd) Featurese) Other Reasons
1. Cost savings and / or 2. Revenue generation
The motivation to purchase is, first and foremost, a financial decision
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 14
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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 15
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) ROIb) IRRc) TCOd) NPV
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 16
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) ROIb) IRRc) TCOd) NPV
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 17
What is Net Present Value?a) The net present worth of a time series of incoming cash flowsb) The cost of buying a net as a present for the angler in your family.c) The net present worth of a time series of outgoing cash flowsd) 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?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 18
What is Net Present Value?
What is Net Present Value?a) The net present worth of a time series of incoming cash flowsb) The cost of buying a net as a present for the angler in your family.c) The net present worth of a time series of outgoing cash flowsd) A standard method for using the time value of money to appraise a
series of incoming and outgoing cash flows
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 19
What is Return on Investment?
What is Return on Investment?a) The internal rate of return on any given investmentb) When you make a withdrawal from the bankc) The ratio of money gained or lost (whether realized or unrealized) on
an investment relative to the amount of money investedd) The ratio of money gained and realized on an investment relative to
the amount of money invested
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 20
What is Return on Investment?
What is Return on Investment?a) The internal rate of return on any given investmentb) When you make a withdrawal from the bankc) The ratio of money gained or lost (whether realized or unrealized) on
an investment relative to the amount of money investedd) The ratio of money gained and realized on an investment relative to
the amount of money invested
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 21
What is Payback?
What is Payback?a) A cheesy 1990’s movie with Mel Gibsonb) The period of time required for the return on an investment to "repay"
the sum of the original investmentc) The positive return from an investment after the original investment
has paid itself offd) The period of time required for the positive return from an investment
after the original investment has paid itself off
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 22
What is Payback?
What is Payback?a) A cheesy 1990’s movie with Mel Gibsonb) The period of time required for the return on an investment to "repay"
the sum of the original investmentc) The positive return from an investment after the original investment
has paid itself offd) The period of time required for the positive return from an investment
after the original investment has paid itself off
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 23
ROI, PAYBACK, NPV, IRRHOW A CFO / FINANCE OR PURCHASE OFFICER APPRAISES AN INVESTMENT
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 24
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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 25
Percentage of CFOs Who Always Use–or Almost Always Use–a Given Technique*
Investment Appraisal Technique
% Always or Almost Always
Internal Rate of Return (IRR)Net Present Value (NPV)
Payback periodReturn On Investment (ROI)
* Source: “The Theory and Practice of Corporate Finance: Evidence from the Field”, Journal of Financial Economics 60, Figure 2
The New Normal – Some Stats
76755730
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 26
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=
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 27
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?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 28
Total Cost of Ownership• Useful for comparing competing offerings
• Factors in the total costs over the life of ownershipPurchase CostFinancing CostMaintenance costs, Upgrade costsServices, Warranty costsMove/Add/Change costsCosts of required ancillary itemsSavings or costs avoidedProductivity GainsRevenues Generated
• Simpler, easier to understand
• Lowest TCO Wins!
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 29
TCO Ideas and Calculators• Productivity and the Business Case for SMB - Sage Research
2005 study of 65 mid-sized organizations focused on measured productivity gains from the deployment of Unified Communications
• Soft Cost and BenefitsIncreased # of calls handled or orders placedFaster response timesReduced processing timesIncreased productivity
• Telecommunications Savings – SIP trunking, branch connectivity
• Energywise Cost Savings Calculator
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 30
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% per
annum.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…
Albert Einstein was once asked what is the most powerful force on Earth… What was his answer?
E=MC2?Atomic Bomb?A Woman Scorned?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 31
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
Investment Savings Net Benefits Discount Factor @ 10% NPV
Year 0 75,000 (75,000) 1.00 (75,000)
Year 1 - 18,000 18,000 0.91 16,364
Year 2 - 18,000 18,000 0.83 14,876
Year 3 - 18,000 18,000 0.75 13,524
Year 4 - 18,000 18,000 0.68 12,294
Year 5 - 18,000 18,000 0.62 11,177
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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 32
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
Present Value accounts for the time value of money. ‘A dollar tomorrow is worth less than a dollar today’
ANSWER: No
Investment Savings Net Benefits Discount Factor @ 10% NPV
Year 0 75,000 (75,000) 1.00 (75,000)
Year 1 - 18,000 18,000 0.91 16,364
Year 2 - 18,000 18,000 0.83 14,876
Year 3 - 18,000 18,000 0.75 13,524
Year 4 - 18,000 18,000 0.68 12,294
Year 5 - 18,000 18,000 0.62 11,177
Net Present Value (6,765)
Net Present Value
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 33
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
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 34
Weighted Average Cost of Capital (WACC)
Invested Capital $ Weighting % Cost of Capital % WACC
Shareholders' funds 2,000 50% 30% 15%Long term borrowings 2,000 50% 10% 5%
Total 4,000 20%
Risk
ROI
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 35
Cost of Capital By Industry Sector• http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/
wacc.html.htm
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 36
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 Rule1. Positive NPV = value
created, investment should be made
Investment Savings Net Benefits Discount Factor @ 10% NPV
Year 0 75,000 (75,000) 1.00 (75,000)
Year 1 - 18,000 18,000 0.91 16,364
Year 2 - 18,000 18,000 0.83 14,876
Year 3 - 18,000 18,000 0.75 13,524
Year 4 - 18,000 18,000 0.68 12,294
Year 5 - 18,000 18,000 0.62 11,177
Net Present Value (6,765)
Net Present Value
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 37
Case Study – Phase 1• Gerus rents flexible office space for small and medium sized businesses and
includes in their offer a range of services from access to servers and telephony to catered lunches and boardroom facilities.
• Gerus is exploring whether to set up Video Conferencing Units in 10 locations around the world offering collaboration services to its tenants.
• Gerus has asked Cisco to submit a solution with costing and they would prefer the Cisco solution, given its branding and quality, which would drive adoption.
• Cisco submitted a Statement Of Work that included the following: Hardware for the 10 locations - US$1,400,000 payable within 30 days Installation services - US$600,000, payable on installation Maintenance services - US$150,000 per annum, payable in advance A managed call service contract from a SP partner - US$90/ hour, decreasing 5% per
year
The CFO has rejected your offer! You want the deal. How would you respond?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 38
Case Study Scenario - Phase 2After repeated phone calls the CFO has agreed to provide you with her assessment of the Cisco offering, including the financial model she developed for Gerus:
• In year 1, Gerus would sell 3,000 hours of Telepresence time increasing the usage by 20% annually for the next 5 years.
• Gerus would charge US$300 per hour for a Telepresence session in year 1 but due to commoditization this rate would fall by 5% per year, as would the SP call costs of $90 per hour.
• Above Cisco’s costs, Gerus expects space and administration costs to be US$70,000 per year.
• Gerus’ Weighted Average Cost of Capital (WACC) is 20%.
• The residual value of the equipment at the end of year 5, when Gerus expects to replace the equipment, is deemed to be US$70,000.
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 39
Customer Financials – Phase 2Customer cashflow Day 0 Year 1 Year 2 Year 3 Year 4 Year 5 TOTALNet Investment in Telepresence ($2,000,000) $0 $0 $0 $0 $70,000 ($1,930,000)Revenues from Telepresence $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 $5,949,094Call costs ($270,000) ($307,800) ($350,892) ($400,017) ($456,019) ($1,784,728)Maintenance costs ($150,000) ($150,000) ($150,000) ($150,000) ($150,000) ($750,000)Other costs ($70,000) ($70,000) ($70,000) ($70,000) ($70,000) ($350,000)Net cashflow ($2,150,000) $410,000 $498,200 $598,748 $713,373 $1,064,045 $1,134,366
Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL$900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 $5,949,094
($490,000) ($527,800) ($570,892) ($620,017) ($676,019) ($2,884,728)($386,000) ($386,000) ($386,000) ($386,000) ($386,000) ($1,930,000)
$24,000 $112,200 $212,748 $327,373 $458,045 $1,134,366
Customer income statement
Net profit
CostsRevenues
Depreciation
• This is what she sent you. This looks great as it produces a profit. So what’s the problem with the CFO?
• As you have no idea, you have now got your financial accountants on the case.
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 40
Investment Appraisal Techniques
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 41
Customer Investment Appraisal – Phase 3
The financial accountants say this is not good.
What should they be?• ROI?• Payback?• NPV?• IRR?
You have asked your financial people to explain how these metrics are calculated.
ROI 59%Payback 3yrs 10 mthsNPV ($344,221)IRR 13.54%
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 42
Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL$900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 $5,949,094
($490,000) ($527,800) ($570,892) ($620,017) ($676,019) ($2,884,728)($386,000) ($386,000) ($386,000) ($386,000) ($386,000) ($1,930,000)
$24,000 $112,200 $212,748 $327,373 $458,045 $1,134,366
Net profit $1,134,366Net Investment $1,930,000Return On Investment 59%
Customer income statementRevenues
DepreciationNet profit
Costs
Why is this ROI not acceptable?
Return on Investment (ROI) – Phase 3 The simplistic view used by many accountants
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 43
Customer cashflow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Net Investment in Telepresence ($2,000,000) $0 $0 $0 $0 $70,000Revenues from Telepresence $0 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064Call costs $0 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019)Maintenance costs ($150,000) ($150,000) ($150,000) ($150,000) ($150,000) $0Other costs $0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000)Net cashflow ($2,150,000) $410,000 $498,200 $598,748 $713,373 $1,064,045Accumulated cashflow ($2,150,000) ($1,740,000) ($1,241,800) ($643,052) $70,321 $1,134,366
Payback 62.93 41.91 24.89 10.82 - 0.79 - 12.00
Payback is 3 yrs 10.82 mthsWhy is this Payback not acceptable?
Payback – Phase 3 The duration it will take for an investment to be repaid by the incremental net benefits
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 44
Why is this NPV not acceptable?
Net Present Value (NPV) – Phase 3 Today’s value of all cash flows after taking into account the time value of money
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5($2,000,000) $0 $0 $0 $0 $70,000
$0 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064$0 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019)
($150,000) ($150,000) ($150,000) ($150,000) ($150,000) $0$0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000)
($2,150,000) $410,000 $498,200 $598,748 $713,373 $1,064,045Discount Rate 20%
100% 83% 69% 58% 48% 40%($2,150,000) $341,667 $345,972 $346,498 $344,026 $427,616($2,150,000) ($1,808,333) ($1,462,361) ($1,115,863) ($771,837) ($344,221)
Net Present Value ($344,221)
Discount FactorDiscounted cashflowAccumulated Discounted cashflow
Customer cashflowNet Investment in TelepresenceRevenues from TelepresenceCall costsMaintenance costsOther costsNet cashflow
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 45
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5($2,000,000) $0 $0 $0 $0 $70,000
$0 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064$0 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019)
($150,000) ($150,000) ($150,000) ($150,000) ($150,000) $0$0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000)
($2,150,000) $410,000 $498,200 $598,748 $713,373 $1,064,045Internal Rate of Return 13.54%
100% 88% 78% 68% 60% 53%($2,150,000) $361,116 $386,482 $409,103 $429,307 $563,993($2,150,000) ($1,788,884) ($1,402,402) ($993,299) ($563,993) $0
$0Net Present Value
Other costs
Customer cashflowNet Investment in TelepresenceRevenues from TelepresenceCall costsMaintenance costs
Net cashflow
Discount factorDiscounted cashflowAccumulated Discounted cashflow
IRR = 13.54%Why is the IRR not acceptable?
Internal Rate of Return (IRR) – Phase 3 Discount Rate used to arrive at an NPV of 0
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 46
Investment Appraisal TechniquesCase Study – Phase 3
You now understand why she has rejected your proposal.
ROI 59%Payback 3yrs 10 mthsNPV ($344,221)IRR 13.54%
So what are you going to do now?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 47
Potential Answers1. Negotiate for better outcomes
• Revenues• Other costs
2. Restructure the deal• Finance lease• Operating lease• Consumption model
3. Improve the costs from Cisco• Hardware discount• Services discounts• Timing of payments
Now get Cisco Capital involved!
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 48
Case Study – Phase 4• 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?
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 49
Financial Outcomes – Phase 4
Hardware, professional services, and the up-front payment for maintenance is being financed by Cisco so no investment required by the customer.
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 50
Payback – Phase 4The duration it will take for an investment to be repaid by the incremental net benefits
Payback is now 3 yrs, 4.13 monthsNearly there!
Customer cashflow Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 TOTALNet Investment in Telepresence $0 $0 $0 $0 $0 $70,000 $70,000Finance lease payments ($403,417) ($403,417) ($403,417) ($403,417) ($403,417) ($403,417) ($2,420,500)Revenues from Telepresence $0 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 $5,949,094Call costs $0 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019) ($1,784,728)Maintenance costs $0 ($150,000) ($150,000) ($150,000) ($150,000) $0 ($600,000)Other costs $0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000) ($350,000)Net cashflow ($403,417) $6,583 $94,783 $195,331 $309,956 $660,628 $863,865Accumulated cashflow ($403,417) ($396,833) ($302,050) ($106,719) $203,237 $863,865
Payback 735.34 50.24 18.56 4.13 - 3.69
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 51
Net Present Value (NPV) – Phase 4Today’s value of all cash flows after taking into account the time value of money
Now positive!
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 52
Internal Rate of Return (IRR) – Phase 4Discount Rate used to arrive at an NPV of 0
IRR = 32.65% - Makes it!
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 53
Case Study – Phase 4
You have now WON THE DEAL by leveraging the power of financing and Cisco Capital!
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 54
The Power of Cisco CapitalHelping you sell more
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 uses58%
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 55
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.
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 56
A 2008 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• Means to balance project cost with benefits• Faster approval process• Budget flexibility and equipment
disposal/decommissioning services
Don’t Take Our Word for it…
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 57
Enhance YOUR Selling PowerWhat’s in it for YOU?
Act and Bain Findings for Cisco Capital
Close Ratio: +12.4%Deal Size: +25 – 30%Sales Cycle: Close 5X FasterProfit Margin +.5%
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 58
Looking for Clues• Project Delays: Technical or Financial?
• Unique Features of Business: cycles/seasonality
• Are they planning for an event? Going public/capital infusion, downsizing or expanding
• Obsolete equipment they can’t get rid of?
• Financial Challenges: Cash flow, profitability
• Budget Restraints: Is a project delayed because of something financial?
• Can we fix it?
• This isn’t going to be solved from a brochure
• Be Creative: Build the Financial Solution
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 59
Cisco Capital FY14 Offershttp://www.cisco.com/web/ordering/ciscocapital/channel_partners/offers.html
z
Cisco Mid-Market
Collaboration Customer Financing
Cisco collaboration solutions based on the Business Edition 6000 with attractive rates as low as: 0% for 2 yrs.; 1% for 3 yrs.; 2% for 4 yrs.; 3% for 5 yrs.
Expires: January 25, 2014
Cisco Collaboration
Breakaway PLUS
FinancingCisco collaboration solutions via competitive replacement with attractive rates as low as: 0% for 2 yrs.; 1% for 3 yrs.; 2% for 4 yrs.; 3% for 5 yrs.
Expires: January 25, 2014
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
Expires:July 26, 2014
Three Month Deferral
3-month, interest-free payment deferral for all Cisco hardware, software, and bundled services
Expires: July 26, 2014
US SMBGame
Changer
3-year Fair Market Value (FMV) lease. up to $250K per customer – U.S, SMB. For all Cisco, hardware, software and bundled services
Expires: July 26, 2014
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 60
IRS Section 179
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 61
What Is Depreciation?• When a business buys certain items of equipment, it can write
them off a little at a time through depreciation.
• Example: Company spends $50,000 on a machine, it gets to write off $10,000 a year for five years (your situation may vary)
• Section 179 allows for a faster write off and more immediate tax savings
• The goal is to motivate the American businesses to invest in themselves, grow and generate more profits.
• Learn more at: http://www.section179.org/section_179_deduction.html
IRS Section 179
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 62
IRS Section 179
What Is the IRS Section 179?• Section 179 allows businesses to:
• Deduct the 100% of the FULL PURCHASE PRICE of qualifying equipment and/or software purchased or financed during the tax year on their CURRENT YEAR TAXES!
• Customers can SIGNIFICANTLY LOWER their tax bill and generate positive cash savings
• Equipment CAN BE LEASED
• The 2013 limit is $500,000. The 2014 limit? Only $25,000
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 63
So if a customer is looking to make a capital purchase within the next year, educate them on Sec. 179 and encourage them to DO IT NOW
IRS Section 179
Purchase Cost of Equipment, Vehicles, and/or Software: $650,000Section 179 Deduction: $500,000
50% Bonus Depreciation Deduction: (on remaining amount above $500,000) $75,000
Normal 1st Year Depreciation: $15,000
Total First Year Deduction: $590,000
Cash Savings on your Purchase: (assuming a 35% tax bracket) ($206,500)Lowered Cost of Equipment, Vehicles, and/or Software after Tax Savings: $443,500
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 64
IRS Section 179Recap
1. Deduct the FULL purchase price of qualifying equipment and/or software purchased or financed during the tax year
2. A customer can purchase up to $500,000 and write off 100% of it in the current tax year instead of depreciating it over 3-7 years
3. Can be combined with Cisco Capital financing, making for net positive cash flow in the first year!
4. In 2014, the total Section 179 allowable deduction will be reduced from $500,000 to only $25,000
5. So if a customer is looking to make a capital purchase within the next year, encourage them to DO IT NOW
6. Visit http://cs.co/sec179/ for more information
Cisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 65
Tools and Calculators
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 66
Financial Calculator App• iTunes App Store
• Google Play Store
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 67
NPV CalculatorNPV Calculator
• http://office.microsoft.com/en-us/templates/net-present-value-calculator-TC010015268.aspx
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 68
Cisco Capital
• http://www.cisco.com/web/ordering/ciscocapital/docs/quote_calculator_tool.xls
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 69
@onceFinance• Online credit application and approval tool
• @oncefinance is directly linked to automated credit scoring, enabling:
submission of applications onlinemanagement of pipeline businessvirtual review of portfolios
• Contact Cisco Capital to request access(800) CISCO-80
• www.oncefinance.com
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 70
Cisco Capital 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 quoteSave Time - calculate a finance quote 24/7
• Request access - [email protected]
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 71
Call To Action, Next Steps
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 72
• 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
1 2 3 4
www.cisco.com/go/growit/ Call To Action
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 73
Cisco Capital Engagement
Cisco Capital Finance helps you expand customer relationships, accelerate and grow deals, create account control, and enhance cash flow.
• Include finance quotes with your proposals – use financing to overcome budget and cost barriers up-front!
• If you have any questions, please contact your Cisco Capital:
Financial Solutions Manageror Alice Cullison @ [email protected]
• Great resources available via Cisco Capital partner portal - www.ciscocapital.com/partner/us
© 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 74
For Your Reading Pleasure
• Corporate Finance For Dummies By Michael Taillard
• http://www.barnesandnoble.com/w/corporate-finance-for-dummies-michael-taillard/1111631814?ean=9781118412794
Cisco ConfidentialCisco Confidential© 2012 Cisco and/or its affiliates. All rights reserved. 75
Join Us Next Week!
Next Quick Hit BriefingCloud Opportunities for Cisco Partners Thursday January 9th, 2013 at 9:30 ET
Check http://cs.co/quickhit for registration links and replays
Thank You!