We all need to justify spending money. Whether it’s $1000 or $1m. It doesn’t matter whether the expenditure is in the budget or not in the budget. Trust me, what drives the spending of money is the efficiency of capital. The Return on Investment. The ROI %. Using a version of the model below you can build your case for spending money. I teach sales teams how to deploy this inside their sales process. It has a high success rate. Using a worked example of someone spending $35,000 on a piece of capital equipment to replace an older machine, this spreadsheet drives you to articulate the benefits of spending the money.
The Logic
The spreadsheet builds out the logic based on a new machine being faster than the old machine.
- Line 2 – sets out the time for each event that the machine performs
- Line 3 – sets out the new time using the new machine
- Line 4 estimates the number of tests/events performed by the machine per day
- Line 5 is (line 2 less line 3) times line 4.
- Line 6 – assumes no weekend shifts
- Line 7 is line 5 times line 6.
- Line 8 is line 7 divided by 60
- Line 9 is an estimate an operator cost per hour
- Line 10 is line 8 times line 9, total cost of labor savings to do the 24 tests assumed
- Line 11 is your estimate of the money value of shipments of the product affected by the investment.
- Line 12 is the same as line 8.
- Line 13 is line 12 divided by 24.
- Line 14 is the number of working days in a year, I’ve chosen 240 to be conservative.
- Line 15 is line 13 divided by line 14.
- Line 16 is line 11 times line 15.
- Line 17 totals all benefits’
- Line 18 is the estimated investment.
- Line 19 is the expected annual first year return.
I hope it helps. For a clean working spreadsheet, email me at ian.smith@portfoliopartnership.com and I’ll ping one your way.
