Swiss Army Knives are cool. They can do anything. Well...almost.
And for companies with differentiated solutions, products, or services selling to other Businesses, Value Calculators are equally powerful tool. I was reminded of this over the last couple of days when two of my startup clients started to develop them.
What is a Value Calculator?
Simply put, they estimate the value a customer will receive from your solution, versus the Next Best Alternative (either a competing, inferior solution, or the current approach).
Note they are NOT price calculators.
Tips for building a Value Calculator
First, you really need to understand your customer's business (or a good reason to find out). And you need to be adding quantifiable value.
The steps I recommend to build your calculator:
- Start by brainstorming all the drivers of value you deliver (cost savings, revenue and profit uplift, risk reduction) that can be quantified.
- Next, identify the use cases for your solution that can deliver these benefits. Note keep these first two items distinct: use cases can deliver more than one value, and value drivers can have multiple sources.
- Work out the calculations of value (e.g. less time to check the quality of a supplied material)
- Identify what numbers you need to estimate the value (e.g. time for receiving each shipment, # shipments per month, cost of an employee per month). If you don't know, guess, then ask.
- Estimate the likely improvements to be expected : What's the highest likely improvement enabled by your solution What's the lowest likely improvement? (these first two frame the improvements for the prospect). What value will be applied in this case. The customer can pick a different value.
- Estimate the benefits for the full solution, given the assumptions. Good to break these out by both the use-case and the value drivers.
- Calculate out the Return on Investment (RoI) and Cash Flow for the customer, but estimating the full costs (including deployment, training, etc. costs), and how long it will take for the benefits to be realized.
Voilà! A value calculator that is also a business case.
How you use your shiny, new Value Calculator
Oh so many ways! Let's count 'em.
- Estimate the value your solution will bring to a specific customer (natch). This should justify a higher price.
- Demonstrates your expertise of the industry to the customer.
- Help them sell the project internally, but giving them the core of their own business case.
- Gives a structured way to deepen your partnership with prospects and customers. Get them to critique and improve your calculator
- Establishes which KPI's you and your customers should track to see the value of your solution.
- Helps to weed out less attractive customers: if they won't share at least directional information with you, and/or want to minimize the value of your solution sufficiently, then why would you spend lots of time trying to convince them. By their own words, they can manage without!
- Helps to prioritize your own product development. Focus on the highest-value, easiest to realize opportunities.
- Use it to justify your value claims on your website (not just pulling numbers out of thin air).
- Put a simplified version online, so customer's can estimate their own value from your solution.
- Justify your value to your sales team: if sales is not convinced of the value, you have a huge problem.
What are great examples of Value Calculators you have seen?
Growth Strategy Consultant; Advisor to Technology, Private Equity and Venture Capital Companies.
3 个月Good post! Consider avoiding ROI in a competitive scenario. Use ROII instead—the return in incremental investment. If your offering is $10K more estimate the benefit divided by $10K. If ROII is close to the buyer’s cost of capital don’t present it. If their economic hurdle rate in investments is 20% minimum and your ROII is 50% or higher than spending the extra money is well worth it. Sell and validate the difference and when you see ROII >100% and payback >1 yr raise prices!