Sellers: How To Calculate Your Value? – The Value Equation
Communicating your value to today’s hard-nosed buyers can be a real challenge. You know that your marketing literature won’t do it. You know that your sales pitches and proposals must.
Price Versus Value
Many buyers have an almost single-minded obsession with price. That makes moving the conversation off price and onto value the seller’s priority. But it ain’t going to be easy.
With slashed budgets and changing priorities buyers are evaluating suppliers and their solutions more rigorously than ever before. They have their eyes on the sellers margins. In an environment of increased competition among suppliers they are demanding more and paying less. They want value, but won’t pay extra for it.
Buyers want value, but won’t pay extra for it.
Buyers often seem to be on a different wavelength. Their decision making criteria have changed. For the price obsessed buyer you must calculate your value before you can communicate it. If you can’t communicate your value – all your value – price is where you are going to get stuck.
Value And The Hard-Nosed Buyer
The challenge isn’t just to communicate value, but to calculate it too. In dealing with the hard-nosed economic buyer numbers go to the core of value. That means sellers must relate their message to the buyer’s key metrics of interest.
Sellers need to calculate value the same way buyers do. That means going beyond traditional features and benefits messages. It means getting to the very basis of the value for the buyer.
The new basis for competitive differentiation is the full value equation.
As far as most buyers are concerned features or benefits are not the store of value. Besides they are confusingly similar between different vendors. The new basis for competitive differentiation is the full value equation.
The Value Equation Revealed
There is an equation for calculating value – an E=mc2 of selling (and buying) as it were. Although you probably won’t have seen it before it is not a mystery.
Analyze thousands of buying decisions and the value equation becomes crystal clear. It is the very basis for decision-making among buyers – an inventory of the universal factors in every buying decision.
Your Value = (Costs – Benefits) * Risk * Strategic Fit * Compliance * Politics
The value equation is universal, but of course how it is applied and in particular the relative weight of different factors makes no two decisions the same. It is the logical rationale basis for buying, but of course it us not just rational. It can also be called the formula for building the business case for a purchase, or project.
The Value Equation For Sellers
What the equation make’s clear is that price or cost is only one factor in the decision. There are five in total. As a seller you have to distribute the weight of the sale evenly across all five. To do that means re-writing your pitches and proposals in terms of the value equation.
…re-writing your pitches and proposals in terms of the value equation.
Because the value equation is the basis for buying it is also the basis for selling. It is the new agenda for pitches and proposals and the ultimate test of your solution.
Take the Value Equation Test
Here is a test to help you measure your proposal in terms of how well it communicates your value:
- Take the binding off a recent proposal.
- Put the pages in bundles – one for each of the 5 elements of the value equation; costs-benefits, risk and so on.
- Count the pages in each bundle and express as a percentage of the total proposal (e.g. risk – .5 pages, or 2% of the proposal)
- Compare the breakdown of your proposal with the expected weighting of each factor of the value equation in the buyers decision criteria (e.g. risk is likely to have a 20% weighting for the buyer, but we only gave it 2% of our proposal)
- Rewrite the table of contents to address those areas of the value equation which are not being dealt with fully by your proposal/pitch – they could greatly add to your overall value.
By applying the value equation to our presentations/pitches and proposal we rebalance the price versus value conversation.