Internal Rate of Return (IRR)
Quick answer
The discount rate at which an investment's net present value (NPV) becomes zero - the project's intrinsic return.
Key takeaways
- IRR > hurdle rate - project creates value, accept
- IRR ≈ hurdle rate - borderline, assess risk
- IRR < hurdle rate - reject at this cost of capital
What IRR is
Internal Rate of Return (IRR) is the discount rate at which a project's NPV is exactly zero. In practice, it is the annual percentage return the investment generates.
Why it matters to the board
IRR lets you compare projects with each other and with the cost of capital: if IRR > cost of capital (or the required hurdle rate), the project is worthwhile. A high IRR signals an efficient investment.
How to read it
- IRR > hurdle rate - project creates value, accept
- IRR ≈ hurdle rate - borderline, assess risk
- IRR < hurdle rate - reject at this cost of capital
How CRMconnect helps
Layer-type operational investments (low entry cost, fast recurring savings) generate very high IRRs, often triple digits annually, because benefits begin in days, not months.
Real-world example
A €48,000 project returning €100,000/year in savings has an annual IRR above 100% - far above any realistic cost of capital.
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Frequently asked
IRR vs NPV?+
NPV gives value created in money; IRR gives the percentage return. NPV is more reliable when comparing projects of very different sizes.
Is a very high IRR always real?+
For short projects with fast gains, IRR can look huge. Check it alongside NPV and payback for the full picture.
Where CRMconnect fits
Related terms
Net Present Value (NPV)
The value today of all an investment's future cash flows, minus the initial cost, discounted at a chosen rate.
FinanceROI (Return on Investment)
The metric measuring the net gain of an investment relative to its cost: (benefit - cost) / cost.
FinancePayback period
The time it takes for the savings or gains from an investment to cover its initial cost.
FinanceTotal Cost of Ownership (TCO)
The sum of all costs of a solution over its full life: acquisition, implementation, operation, maintenance and replacement.