Net Present Value (NPV)
Quick answer
The value today of all an investment's future cash flows, minus the initial cost, discounted at a chosen rate.
Key takeaways
- NPV > 0 - the project adds value, worth investing
- NPV = 0 - breakeven against the discount rate
- NPV < 0 - destroys value at the chosen rate
What NPV is
Net Present Value (NPV) brings all of a project's future cash flows to their value today (using a discount rate) and subtracts the initial investment. A positive NPV means the project creates value.
Why it matters to the board
NPV is the gold standard for evaluating long-term investments because it accounts for the time value of money. A euro saved in 3 years is worth less than one today - NPV captures exactly that.
How to read it
- NPV > 0 - the project adds value, worth investing
- NPV = 0 - breakeven against the discount rate
- NPV < 0 - destroys value at the chosen rate
How CRMconnect helps
For a 3-year operational project, NPV is usually strongly positive: low entry cost (no rip-and-replace) and recurring savings flows from automated processing and avoided errors.
Real-world example
A project with €48,000 investment and €100,000/year savings over 3 years, at a 10% discount rate, has an NPV above €200,000 - clearly value-creating.
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Frequently asked
NPV vs ROI?+
ROI is a simple percentage ratio; NPV expresses value created in today's money, accounting for time and the discount rate. NPV is more rigorous for multi-year decisions.
What discount rate should I use?+
Usually the company's weighted average cost of capital (WACC) or the return rate required by the board.
Where CRMconnect fits
Related terms
ROI (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.
FinanceInternal Rate of Return (IRR)
The discount rate at which an investment's net present value (NPV) becomes zero - the project's intrinsic return.
FinanceTotal Cost of Ownership (TCO)
The sum of all costs of a solution over its full life: acquisition, implementation, operation, maintenance and replacement.