Analyze Business Value
Knowing the value you deliver to customers is important for shaping your go-to-market strategy and helping clients build an ROI case for purchase.
When selling any significant technology to business, it is essential to be able to quantify the magnitude of the return to the business, whether that return comes from reduced costs, increased sales, or some other quantifiable benefit measure. Conducting a business value analysis and building an ROI model can help growing companies:
Communicate value more effectively
Help buyers build the case for purchase
Develop value-based pricing
Tune pricing to growth or expansion objectives
Building the ROI case:
To know the value you deliver to customers, it’s helpful to conduct some deep analysis and develop a repeatable ROI model that produces a compelling value story. Timing of benefits and costs is also a key consideration for most potential clients. You may need to fit into established budgets, that in public companies have been predicted and committed “to the street” ahead of time. These are metered by quarter, so the cost and benefit impact of your solution value should also be modeled by quarter. In addition to helping you make a compelling value-based case for purchase, this approach provides a means by which to tune offers to accommodate your client’s prior budget commitments.
I’ve talked to many business leaders who have felt their solution offered client benefits that they could not quantify. If that is true, the buyer is not likely to value these benefits either. The likely truth is that you can find a way to quantify business value, and doing so will not only help your client but also enable faster growth of your business.
In building a financial ROI model, predicting added revenue can be harder than calculating cost reduction contributions. But beware of fractions of an FTE reduction; it is usually easier for clients to digest if the FTE gains come in the form of added capacity, other than not replacing staff lost through attrition. What works best with estimates of gains and reductions is if the estimates come from your client with a stated level of uncertainty, a range of what is expected, due to your proposed solution. Also this is much more palatable in a growth scenario, so the savings come with added productivity and capacity, avoiding adding and training new headcount. When a client’s sales are in decline there is a much more difficult set of cultural issues to deal with if the ROI savings from adopting your solution come in the form of a forced FTE reduction.
Pricing strategies based on value:
When you’re trying to break into new market regions or new industry segments, it’s especially important to know the value you bring and to use that knowledge as a lever in pricing strategy.
Two key considerations when shaping pricing are:
Documentable ROI
Competition
If there is competition in the market, you may want to be aggressive on pricing relative to documentable ROI but you should also prioritize customer experience. Keep customer experience high, use that as a differentiator and focus on continually improving customer experience.
When entering a new market or launching a new product offering, the first 12 to 24 months are the most crucial for building solid cost justification with customers and building reputation for both value and customer experience.
If your value analysis shows a high value for your customers, your pricing should reflect that expected value, especially if you are able to offer ROI analysis for clients. You may, however, want to tune your pricing strategy to optimize early-stage growth or to accelerate payback for clients. Achieving payback in under a year, for example, is one way to deliver high value quickly for clients and accelerate new client acquisition. As your business matures, you might tune pricing to a longer payback period.
Minimum savings guarantees can be another way to break into new logo accounts, by derisking the commitment for the sponsor managers involved.
Business value analysis pays off:
Analyzing your business value to customers is a key foundation for positioning, selling, pricing. It also forms the foundation of your business growth and go-to-market planning. This is an area I have specialized in over decades and found critical to translating complex technology offerings into terms that the CFO and COO could relate to in client accounts. I’ve also found it’s an excellent tool for ensuring a solid foundation for go-to-market planning and ensuring your own business leadership and all your go-to-market teams are on the same page.
