Building Value

Building value

Value = Benefit ÷ Cost

Building value, as demonstrated in the equation above, is a combination of 2 functions. The benefit of the goods or service and the cost to be paid.

In very simple terms:

if the benefit = 1, and the cost = 1 therefore the  Value =1

if the benefit is 5, and the cost = 1, therefore the Value = 5 which is great for the customer, but not so great for the supplier as the cost is still only = 1. (win-lose)

If, however, we have a benefit = 5, we can easily justify a cost = 2, and therefore the Value = 2.5 (more than twice the Value to the customer, but giving the business twice the revenue, win-win)

In order for this to be true we have to understand what aspects of the product are valuable to the customer and more importantly, how valuable, This knowledge is gained through qualification, which is aided by active listening and then demonstrated through the features, functions and benefits of the product.

To be able to build value you have to use all the tools at your disposal (qualification, listening etc…) combined with the raw materials (features, functions and benefits) and then the higher the value of the proposition becomes, the higher the cost/profitability can be maintained while the customer gets a positive benefit. You may understand how fantastic your product is, but do you know, and can you quantify how fantastic it will be for your customer?

The benefit to the customer is the only thing that is relevant!!

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