Understand Present Value Versus Future Value

In this article, we will continue the financial investing series with the discussion of financial market structures known Present value and future value in macroeconomics.

The concept of present value versus future value is like the concept that a dollar today is worth more than a dollar. In fact, a dollar invested today earning interest will grow in value when the interest is paid and if the dollar plus interest is automatically reinvested for a further period of time, new interest will be earned on both the dollar of original investment and on the interest already earned. As this is repeated over a period of time, we call the result of compounding interest. It is possible to determine the future value of money by using

1. Financial tables.

a) Present value represents the original investment that we have in hand today.
b) Future value represents what that investment will grow to when interest is earned on a sequential renewal of investment, where the original investment plus all interest earned, keeps being reinvested for subsequent periods until maturity.

Here is the formula

FV = PV (1+I) where
FV is future value
PV is present value
I is annual interest rate
n is number of compounding periods

2. Present value of a single sum
In order to determine the present value, we must take the final sum and discount it by the interest factor working backwards from our known single sum. Here is a formula:
PV= FV/ (1+I)
The definitions for PV, FV, I, n are the same as 1. above.

3. Present value and the amount of the annuity payment of an annuity
There are two types of annuities
*Deferred Annuity:
Receipts on payments are made at the end of the period.
*Annuity Due:
Receipts or payments occur at the beginning of the period.
Future value of an annuity helps to calculate how much money needs to be invested today, in order to receive a certain payment in the future.

a) The present value of an annuity is calculated by the formula below
PV = (PMT/i) ยท [1 - (1 / (1 + i)n)]
Where
PV= Present value
PMT= The amount of the annuity payment
i =The annual rate of interest
n =The number of discounting periods

b) The amount of the annuity payment is calculated by this formula below
Where
PV= Present value
PMT= The amount of the annuity payment
i =The annual rate of interest
n =The number of discounting periods

I hope this information will help. If you want more information of the above subject, you can find this series of articles at my home page:

You Don’t Have to Make Negotiation a Part of Every Sale

I often get requests by sales mangers for negotiation skills training for their sales people when in fact upon further investigation their people usually need consultative selling skills training first. You cannot negotiate effectively if you cannot sell effectively first. Both are processes which need to be learned and applied in the correct order. However over 90% of sales people follow no logical process when selling or negotiating leaving their sales at risk.

Everybody negotiates all the time, at work, at home, and as a consumer and as a sales person. For some people it seems easy, but others view the process of negotiation as a source of conflict to be resisted and avoided if possible.

Negotiation is a process and a skill that can be developed. Negotiation can be described as a process that involves two or more people dealing with each other with the intention of forming an agreement and a commitment to a course of action. In a sales environment, negotiation often involves a series of communications between two parties to form an agreement about the details of a sales solution.

In many cases, it is possible for a proposal to be generated that satisfies the needs of both parties. However, sometimes one or more parties may have to accept less than they had hoped for when they entered the negotiation process. And finally, in other situations, the fulfillment of one party’s wishes may come entirely at the expense of the other party’s.

Therefore, negotiation is the process of navigating your way through each of these alternatives, ideally aiming to come to an agreement that is complimentary to both parties’ needs.

Possible outcomes

There are five possible outcomes of negotiation:

  1. Compete = Win:Lose
  2. Avoid = Lose:Lose
  3. Accommodate = Lose:Win
  4. Compromise = neutral
  5. Collaborate = Win:Win

In my experience when I negotiate I aim for #5 and get either #5 or #4. I know that I do not want #’s 1-3 to happen. However too often I see sales people end up with #’s 2 or 3. This is no good for anyone and can train clients to expect things they do not deserve like unnecessary discounts.

Rule of thumb for negotiation in sales:

  • Unless you have the power or authority to change or modify terms, create new product solutions, you cannot negotiate.
  • Negotiation should never be a substitute for selling. You need to be able to sell well first and foremost.
  • Negotiation is an effective strategic tool that you use ONLY when you need it.
  • The earlier you give away concessions in the sales process the less impact they will have.
  • Be aware of giving sales people the authority to discount. All too often this is a licence to give away your margins too soon and too often. We see this when people ‘cave in’ on price too soon for fear having to deal with potential conflict which usually doesn’t eventuate if the sale is done effectively. However they never let the sale run its course to find out.
  • Discounting is a negotiation tool that should only be applied as a last resort and should have a trade off in it for your business so can you benefit from the deal as well. This is different from volume pricing which rewards people for buying bulk from you.
  • If you postpone tough negotiations whenever possible you will miss learning about new things, getting new ideas, new ways of pulling your offer together as well as creating potential conflict down the track.

You sell when you:

  • Identify clients’ real needs and priorities, create viable solutions that are of value to the client and outweigh the cost of purchase and gain agreement to move forward to close the deal and do the work.
  • Can’t vary the terms. If you can’t vary terms and negotiate and the client won’t agree to move forward with you on the current plan then it is a ‘no sale’. Move on rather than give it away. Giving it away is not negotiating it is just giving something of value away which costs you.

You negotiate when you:

  • Both parties can vary the terms
  • Resources are scarce
  • Agreement and conflict exit simultaneously

Value versus Cost

To help you avoid unnecessary negotiations when selling first of all find out what people really value and what is most important to them.

If you and your sales people are having trouble doing this then you need to improve your and your sales teams’ ability to have quality business discussions with clients and prospects, in particular, their ability to thoroughly understand their customers priorities and business needs and how your products and service can be crafted into relevant solutions that will address specific requirements and create value for the client.

This would include developing their questioning, creative problem solving, up selling/cross selling and solution selling skills.

Effective negotiation in a sales situation requires people being able to:

  • Be Assertive
  • Challenge every assertion
  • Get the real facts before offering up anything
  • Uncover real needs and issues
  • Negotiate late and negotiate little
  • Manage conflict and not take it personally
  • Analyse the situation and the demands and weigh them up appropriately
  • Keep the customers’ needs in mind at all times as well as your own
  • Aim high
  • Respond to demands for concession
  • Develop a proposal with guide-lines and trade-offs (if necessary)
  • Prevent the customer from ‘fragmenting’ your proposal
  • Present a total proposal that ‘adds up’ to a win/win solution
  • Focus on achieving satisfaction for both parties
  • Don’t make the 1st move
  • Don’t’ accept the 1st offer
  • Are willing to walk away
  • Use all their most effective communication skills (listening, paraphrasing, questioning, problem solving, etc.)
  • Apply a process
  • Don’t avoid negotiations
  • Have a ‘negotiation consciousness’

When do you need to negotiate instead of sell?

  • When a client demands an arrangement which is different from what you are able to offer
  • When you are dealing with a tough client who wants to ‘win’
  • When a client and you disagree on some aspect of the proposal
  • When the client will not agree to your initial offer (find out why because some people just like to win and want to bargain as part of the process. This is quite common is some cultures as part of the ritual of the sale)
  • When we are unable to reach agreement, even after many discussions
  • When you can’t move forward unless you change your approach some way
  • When you can’t deliver from you current suite of resources or you need to step outside of what you normally do to win the business (take care as this can be very costly)

I hope this helps put some perspective to selling and negotiation.

Remember everybody lives by selling something.

The Importance of an Effective Homepage – How to Present Dynamic Website Content

Looking for a way to attract more attention to your website? Offer a fresh face and new content on a regular basis and you’ll find people will check back to see what’s new and you’ll have a tool to measure what attracts and what doesn’t. Here’s how to do it.

Your website homepage is your front door through which online browsers come to visit your business. Static, never-changing content is no more interesting to a returning visitor than a book they have already read. To keep your audience captivated and coming back you need to make your home on the web inviting and interesting.

Present a Dynamic Home Page

One way that you can present changing home page content is to design ten to twelve unique pages with different content and then rotate them every month. Take a couple of weeks to design different ideas and images. Create page promotions that include a message that is timeless or that has a seasonal or timely announcement such as “Holiday Specials.” When you consider different features for your home page and when it should be placed you’re forced to look closely at at your marketing strategy over a one year period. This will save you a lot of time since you then won’t have to think about your content through the year. It also allows you to plan your offers and gather the necessary content.

A web developer can put your home pages on a rotating script or use an automatic timer. You can then rotate your home pages to highlight a new tip every month or to promote a featured product. The home page of your website is much like the front cover of a magazine. People want to see a home page that has different photos and content at least every month, preferably every week. You won’t want all of the content of your website to be featured on the page as this will overwhelm your website visitors. So choose one or two features to highlight each month. The rest of your website content should be well organized within the rest of the pages of your site. When you’re ready to update your home page you simply grab content from your internal pages. This way you’re not having to create new content. You’re just reorganizing your existing content so that it feels new to your visitors.

Don’t Change Your Home Page Too Often:

Even though you want your website to be new and dynamic you also don’t want to change it too often. People take comfort from their favorite websites and want them to be familiar. If you change your home page too often or too much you may create confusion or give people the feel that someone else has taken over your site. You could also compromise your positioning in search engines. So maintain some consistency.

When you make changes to graphics or content it shouldn’t make a major change to the way your website looks and feels. Regular visitors should be able to find the same information that they’ve always found on your home page and in the same place. As a rule, the headers and navigation tools on your page shouldn’t ever change without a complete redesign and announcing that to your visitors. Change content and images with other content and images while maintaining the sites original functionality. Home pages that are consistent lend a feeling of comfort to users. If your customers learn to expect consistency they’ll also learn to rely on your quality customer service. If you’re a small online business, gaining your customer’s trust is your most important step to success.

The Benefits of a Flexible Home Page

A flexible home page lets you test your off line marketing efforts. Before you spend money on a magazine or newspaper ad you can test it out on your website. You’ll be able to see how people react to the ad. It will let you determine which featured products attract the most interest. You can also determine which graphics generate the most attraction. Web analytics software (Google Analytics is great and free to use) can provide you with this type of information. It will help you obtain marketing data that is detailed and precise. You can see which graphics people have clicked on as well as what web page they were on just before they left your website.

Once you’ve mastered the technique of updating your home page, while at the same time keeping the core content the same, you’ll be well on your way to recognizing the benefits of a flexible home page.