subject: How do You Sell to Health Systems in Today's Economy? [print this page] Capital budgeting has been the hardest hit by the economic downturn due to the nature of the investments associated with capital expenses; large one time investments. It is because of these large cash outlays that the capital budget has been reduced. The opportunity cost of spending money on large project is too high, and Health systems have determined that the money would be better spent in other ares of the business. This is due to the not only the large cash outlays necessary for capital investments, but also the high risk currently associated with these projects. Within the current economic climate the traditional projections of sales, interest rates, inflation, and other risk factors cannot be depended upon as in the past. Also the number of hurdle to get a capital expense approved is high because these expenses need to go through many levels of the business before getting a green light. Operational budgets have been decreased as well, but they need to maintain a certain level in order to maintain the business. The expenses in this budget are relatively small and incremental, and do not have as much of an impact as capital expenses. Thusly this is a lower opportunity cost for each project being that the money is spread over a period of time. While there have been reductions to this budget as well, Health systems are more open investing in projects that would fall under the operational expenses. There is also substantially less risk involved due to the small investment needed as well as a more streamlined approval system; meaning that a department head is able to approve operational projects as opposed to higher C level managers. After evaluating the opinions I have determined that the best way to sell to Health systems is to sell into the operational budget. This is due to the fact that it requires less sales cycles to sell a project that would fall under the operational budget because less time is spent selling to managers at different levels of the system, it requires less investment upfront form the Health system, it frees up the capital budget for other expenses, and the savings to the health system can be quantified. The easiest way to quantify the savings to the Health system is to show how the net present value of the investments life is less than making large cash outlays today. To illustrate this I will use the following example: Assuming an interest rate of 10% we can determine the NPV of the invest over 5 years: Year 1 $240,000 0.9091 $218,184 Year 2 $240,000 0.8264 $198,336 Year 3 $240,000 0.7513 $180,312 Year 4 $240,000 0.683 $163,920 Year 5 $240,000 0.6209 $149,016 Total Net Present Value $909,768 By spreading the cost of the investment over five years the Health system would save over $90,000 on this project even though the total cash spent over the five years is $1.2 Million. This is because the value of the money spent in the future is substantially less than the value of the money today. For these reasons I believe that the best way to sell to the Health systems in todays environment is to sell to the operational budget. If you do this you eliminate the need to spend extra cycles selling to multiple levels of the systems; saving both time and money. You are also able to show the health system how they can effectively save money today by spending more money in the future. No matter what it is a tough road to sell Health systems anything with the economy as it is, but hopefully this will shed some light on how best to approach a Health system when you want to sell them something.
How do You Sell to Health Systems in Today's Economy?
