How to Explain Your Value Proposition and ROI

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How to Explain Your Value Proposition and ROI

The next post is the latest in my series on value and pricing, and it explains how to place your company's value contribution in a way that encourages the most valuable exchange possible.

When asked about their product's value or return on investment, many business owners shrug and remark, "I can't really put a value on it." Imagine how challenging it is for potential buyers or users if you can't assign a monetary value. And how likely are they to buy it if they can't even put a price on it?

We'll show you an easy method for determining what makes your product or service valuable to clients and then communicating that value so that they can easily put a number on it. Considering the return on investment, customers would be irrational not to make a purchase from you.

The primary idea is to explain ROI by considering your value from the perspective of your customers. If they could put that money toward something else, why would they choose to do business with you instead?

Your clients are interested in knowing how long it will take to get a return on their money. Some fans might like to see a sequel.

"Make your product free" is an old marketing adage. When people believe that "it doesn't cost them anything," they are willing to pay more. To achieve this, you must ensure that the customer perceives no cost at all, even though you are actually charging them.

Adding Value to Your Offerings:

Create a list of all the ways in which you add value to your clients' lives.

Is it possible that your offering

Assist customers in generating more money. Does the use of your wares boost their revenue? Increase the number of potential customers. Raise their level of market competition. Get the sales cycle down. Grow your company through word-of-mouth.

Let them raise prices or keep them stable? Is your client able to charge more because of the value you've added to their product or service?

Lessen costs? Does it lower the price tag in the long run? Does it lower operating costs like rent, utilities, and carrying costs? Does it reduce the cost of resources, machinery, workers, and consultants? Does it offer a longer service life or a cheaper initial investment? Does the error rate go down?

Permit them to find a cheaper alternative to an existing expense.

Permit personnel cuts to be made? Can your client reduce the number of employees and support the people they need as a result?

Avoid predictable or looming costs. Does it allow one to completely sidestep costs?

raise people's estimations of the worth of their goods and services. Does it improve the product's value proposition for your client?

Raise efficiency? Does it boost your client's output or that of his employees? Does it result in higher output or production rates in the factory?

Allow them more say in matters? Does it allow your client to monitor important metrics like lead generation, sales, profitability, productivity, and more?

After that, go through the list and assign a monetary value to each of the value-creation channels you identified. This could be expressed as a fixed dollar amount, a percentage of income, or a cost savings target.

Construct supporting evidence for your claims about your values. Worksheets, testimonials, case studies, success stories, printed declarations, and poll findings are all acceptable forms of evidence.

Calculate the sum of all the value components by adding up all the money earned and saved. Again, the sum might be expressed as a dollar amount, such as $645,000. or as a percentage of revenue.

Finally, ROI can be determined by contrasting the overall value with the total cost of the product. You could calculate a return on investment (ROI) or a "payback period." In either case, the value of your product has been clearly articulated, the price has been adequately justified, and the purchasing decision for your potential customers has been made much simpler.

A Happy Ending

Enterprise software between $150,000 and $250,000 is what one of our clients sells. Their sales cycle began to lengthen after 9/11, eventually reaching eighteen months, with the majority of deals ultimately resulting in "no decision." Customers were aware that they needed to upgrade their software but couldn't see the value in doing so in the current economic context.

We used an ROI study with the exact same methods outlined above to speed up the sales process.

We began by enumerating all the ways in which the software would benefit the client financially. This included replacing expensively maintained software, cutting down on computer leases, cutting down on material waste, reducing the need for customer service representatives, cutting down on sales representatives' phone time, increasing the precision of their sales quotes, and ultimately increasing the prospect's sales and overall sales profitability.

Our customer demonstrated a payback period of about 9 months and a substantial positive return on investment thereafter by placing monetary values on each value factor and providing evidence for each.

The first two prospects to hear this value presentation both remarked, "We'd be fools not to buy this," which resulted in the two quickest sales cycles and the two highest individual sales in the company's history.