Communicating Value Proposition and Return on Investment
Windowofworld.com – As part of my follow-up series on value proposition and return on investment, the following article shows you how to position your company’s value contribution to support the highest value-for-value exchange.
Too many business owners, when asked about the value or ROI of their product or service, shrug and say, “I can’t really value it.” If you can’t judge it, think how hard it will be for your prospects and customers! And if they can’t put a value on it, how likely are they to buy it?
We’ll give you a simple way to identify all the elements of value to your product or service and articulate them in such a way that your customers will actually know in measurable terms what your value is to them. They will see so much ROI that they will be stupid not to buy from you.
The key idea here is that you communicate Return on Investment by seeing your value proposition through the eyes of your customers. In other words, why should they spend their scarce money with you, instead of using the funds in any other way?
Your customers want to know how long it will take for them to get their investment back or make a profit. Many want to see repeated returns.
There is an old marketing adage: “Make your product free.” People will pay more if they think that “it doesn’t burden them.” You do this by building so much intrinsic value into your offering that it far exceeds the cost to the customer; do this right and according to their perception, it’s free.
Creating Value with Your Product or Service:
First, list all the ways you create value for your customers.
Is your product or service …
-Help clients increase their income? Did your product / service increase their sales? Create more leads? Increase their competitiveness in their market? Shorten the sales cycle? Get more repeat and referral business?
–Allows them to raise prices, or at least hold price levels? Does the value you create allow your customers to charge a higher price for their offering?
–Reducing costs? Does it reduce initial or ongoing costs? Does it reduce overhead costs like utilities and rent or carrier costs? Does it save money on outside materials, equipment, staff and services? Does it provide a more economical installation or a longer life? Does that reduce the error rate?
–Allows them to reimburse some of the existing costs at a lower cost?
-Enable staff reduction? Does this allow your customers to make a reduction in the number of staff or support personnel?
-Avoid future or predictable costs? Does that help avoid spending altogether?
-Improve the perceived value of their products and services. Does it increase the perceived value of your customer offering?
-Improve productivity? Does it increase the productivity of your customer or the productivity of his staff? Does it increase manufacturing production or throughput?
– Give them more control? Does it offer a way for your customers to track results, lead generation, sales, profitability, productivity, or other key success factors?
Next, review the list and for each way you created the values, find out how much each one was worth. This can be in the form of an absolute amount of money, several percentages of revenue, or some percentage reduction in expenses.
Create evidence for each of your value statements. Proof can be in the form of worksheets, testimonials, case studies, success stories, printed statements, and even survey results.
Add each value element to create a total value, combining income and savings into one number. Again, the total value can be an absolute cash number, such as $ 645,000, or it can be a percentage of sales.
Finally, calculate your return on investment by comparing the total value to the cost of your product. You may get an ROI (return on investment) or a “payback period”. After all, you’ve measured the value of your product concretely, justified your price, and made it much, much easier for your prospect to make a buying decision.
One of our clients sells company software in the $ 150,000 to $ 250,000 zone. After 9/11, their sales cycle started getting longer and lasted up to eighteen months, with most prospective deals ending in “no decision.” Prospects know they need to replace their old software, but they can’t justify spending in an economic climate without growth.
To speed up the sales process, we implement a return on investment analysis using the precise steps described above.
First, we detail every way the software saves or makes clients money, including replacing old software with high maintenance costs, reducing computer rental costs, reducing material waste, reducing the number of customer service staff needed, shortening their salesperson’s calls. time, improve the accuracy of sales quotes, increase sales prospects and increase overall sales profitability.
By assigning a dollar value to each value element, and offering evidence for each element, our clients can demonstrate a payback period of around 9 months, and a significant positive return on investment thereafter.
The first two prospects to hear this value presentation said the same thing: “It’s stupid not to buy this,” resulting in the two shortest sales cycles, and coincidentally, the two biggest individual sales in company history.