Return on Investment for Projects

The fastest way to kill cash flow? Invest in EBITDA the wrong way. I've seen so many companies chase new equipment or expansion projects without asking the fundamental questions that separate smart investments from cash flow disasters. A business doesn't fail because of low EBITDA. It fails because it runs out of cash. Thriving or surviving often comes down to three critical metrics that most leadership teams either ignore or misunderstand. The Three-Pillar Framework for CAPEX Success 1.) CAPEX Payback Period — How fast do we recover the investment? This isn't just about dividing investment by annual cash flow. Smart operators dig deeper: What's the risk-adjusted timeline? How does seasonality affect recovery? Are we accounting for implementation delays? If you're not stress-testing assumptions, a 2-year payback often become 3+ years in reality. 2.) EBITDA Lift — What's the incremental operating profit? Here's where many get trapped. They see the gross revenue increase but forget about the hidden costs: additional maintenance, training, insurance, utilities, and working capital requirements. True EBITDA lift = New Revenue - Variable Costs - Incremental Fixed Costs - Hidden Operating Expenses. Be honest about what incremental means. 3.) Free Cash Flow — When does the project stop draining cash? This is the metric that keeps CFOs awake at night. It's not when you hit payback, it's when the cumulative cash drain finally turns positive. This point is almost always later than the payback period suggests. Real-World Example: The $5M Decision Investment: $5M CAPEX for new production line Projected Payback: 2 years ($2.5M annual benefit) EBITDA Lift: +$1.5M annually (after all true costs) Cash Flow Neutrality: 18 months Why the discrepancy? The initial $2.5M benefit included gross margin improvements that got eaten up by higher labor, maintenance, and working capital needs. The actual EBITDA lift of $1.5M, combined with depreciation tax shields and careful cash management, achieved neutrality faster than the simple payback calculation suggested. The Questions Every Leader Should Ask: • What's our worst-case scenario timeline? • How much additional working capital will this really require? • What operational risks could extend our payback period? • Do we have the talent & systems to maximize this investment? Smart companies don't just invest in assets, They invest in cash-generating systems. They understand that EBITDA improvements mean nothing if they come at the expense of cash flow timing and operational flexibility. ---------- Please share your thoughts in the comments. Repost if you feel this will benefit your network. Follow me, Beverly Davis, for more strategic finance insights.

Free calculator: product team cost and expected ROI 𝗪𝗵𝘆? A lot of product work is innovation. If you stopped it tomorrow the business would still function (for a time). So to some degree it's optional. Your CEO could also do other things with the money they spend on your team. e.g.: • Spend it on marketing • Pay out as dividend • Hire more sales reps • ... If you're a PM then you want investing in product to be a fantastic deal for your CEO. That means you need to generate a high return on investment (ROI). How much value do you need to generate? This calculator helps you figure it out. 𝗛𝗼𝘄 𝗶𝘁 𝘄𝗼𝗿𝗸𝘀 The calculator is fairly simple. It helps you work out the annual cost of the product team. It then converts this into a monthly / weekly / daily figure. It then calculates the value you need to generate to deliver an X% ROI. You can set what X is. 🟨 All the yellow boxes are inputs - you set them to whatever makes sense in your company. 🟨 The figures you see now are illustrative - don't complain they are wrong, just make a copy of the calculator and put in your own figures. 𝗛𝗼𝘄 𝘁𝗼 𝘂𝘀𝗲 𝗶𝘁 You're thinking of building a feature. Use the calculator to convert time to build into cost. Estimate the impact your feature will have. Is the expected impact greater than the required return in the calculator? If YES -> Crack on. Build something wonderful! If NO -> Stop. There's probably something higher impact you could do with your time. 𝗕𝗼𝗻𝘂𝘀 𝗥𝗼𝘂𝗻𝗱 This is a basic calculator. You can push the thinking further by: • Discussing what time period the value needs to be delivered in (e.g. 1 year vs. 3 years) • Discussing how you measure "value". Is this revenue / gross profit / GMV / ARR / something else • Factoring in the non-human operating costs. e.g. servers, SaaS tools, operations. Get the calculator here: https://lnkd.in/emP9FEAb ❤️ Like this post? ❤️ Check out Hustle Badger for more practical advice for product leaders and get the support you deserve. Wiki + Courses + Community + Events

47 projects. 3 days. 1 decisive outcome. $50M saved. A client brought us in to evaluate their entire development pipeline. The challenge: Limited resources, unlimited ideas, and no clear way to choose winners. The process: - Evaluated each project against underserved customer outcomes - Scored initiatives on their ability to deliver customer value - Identified projects addressing overserved or irrelevant outcomes - Optimized high-priority initiatives for cost, effort, and risk The results: - 12 projects immediately accelerated with additional resources - 23 projects reconsidered or abandoned - 12 projects optimized to deliver more customer value - Estimated $50M saved in misdirected development costs The transformation: From a scattered approach, hoping something would work, to a focused strategy targeting known opportunities. When you know precisely which customer outcomes are underserved, resource allocation becomes strategic instead of political. How much development effort could your organization redirect toward higher-value opportunities?

Maximizing ROI: The Key to Sustainable Growth In today’s competitive landscape, focusing on projects that increase Return on Investment (ROI) is crucial for long-term success. Every project we undertake should be aligned with strategic objectives that drive measurable value. Here are some ways to assess how your project contributes to ROI: 🚀 Revenue Enhancement: - Does your project open doors to new markets or customer segments? - Is it helping position your product or service for premium pricing? - Are you driving demand through innovation and unique value propositions? 💰 Cost Reduction: - Are you streamlining processes or negotiating better terms with suppliers? - Does your project introduce automation or optimize workflows to reduce waste? - Are you improving efficiency through technology investments or sustainability practices? 📉 Asset Intensity Reduction: - Are you making better use of working capital, inventory, or fixed assets? - Does your project enable asset sharing or improve asset utilization? - Have you explored opportunities to lease vs. own to enhance agility and reduce financial burden? By systematically analyzing these areas, you can align your project with the core drivers of ROI—Revenue Growth, Cost Reduction, and Asset Efficiency. This not only ensures that your work contributes to the bottom line but also enhances your organization’s ability to compete and thrive. 💡 Call to Action: Take a moment to evaluate your current projects. Which of these ROI levers are you pulling? How can you amplify their impact? Let’s make every project a step toward a stronger, more sustainable future. #ROI #BusinessGrowth #Efficiency #Innovation #Leadership