Good value, bad value
Monday, 10 March 2008
How many of you have heard about value propositions? No doubt, most of you.
When I’m working with entrepreneurs and we get into all the detail, I find that people are having trouble coming up with powerful statements of value. I can understand that. It’s not easy to do and often entrepreneurs don’t have a clear idea of their own value proposition themselves.
The last thing you talk about when it comes to value propositions is something like this: “We provide the best service in the sector.”
That’s fuzzy. It’s important but it’s not a value proposition.
Your value proposition must be quantifiable and clearly measurable – it needs to have numbers in it that clearly show using your product/service will save time or money.
Here are four elements that you can use to work out your value proposition:
- Well defined business opportunity.
- A benefit or value that’s measurable in dollars.
- A favourable price/benefit ratio.
- A short payback period.
As I said, not many entrepreneurs get this right. The main reason is that it takes time and it is difficult. But, get it right, and the VCs will love you.
If your product/service saves customers money, then say exactly how much they save on a per month or per year basis. How much does it cost against what it saves? What is the payback period? If it saves time then state how much time and what is that worth to them.
Here are a couple of examples…
My client offered an “outsourced mailing service” to companies. His customers simply sent their letter/statement/invoice to his server and the article was posted within 24 hours.
We worked on his value proposition and came up with this...
“The average cost for a company to send one letter is $1.27. My company can do this for you for just $0.72. That’s a saving on your mail costs of 43%. If you send out 5000 items per month that’s a saving of $33,000 per year.”
Now, is that attractive?
I helped a software company that offered software to the travel industry to develop this value proposition. We decided to work out how much was saved in staff time based on what other clients were achieving. It went something like this.
“Based on a travel agency that has a turnover of $XX, our software will enable you to reduce your travel consultant staff by one person. That’s an annual saving of $55,000. And you’ll pay just $27,000 per year to use our software. That’s an annual saving of $28,000.”
Stay away from the truly ugly value propositions. These are the ones where you can’t get a fix on the finances. It does take time, but it will be worth it.
I learnt lots from Rob Ryan when it comes to value propositions. Check out his website and get your hands on his book, Smartups.
Good luck with your value proposition.
Till next week…
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