We define customer value as the tangible and/or experiential (emotional) net improvements (benefits minus costs) to customer outcomes resulting from using or owning the supplier’s products and/or services, compared to all alternatives.
What Value Does Your Service Business Deliver?
If we agree that value is the difference between a customer’s evaluation of benefits and costs, what value does your business deliver? This is a really difficult question. The answer will not only shape the future of your service business, it will shape the future of the total business!
When we think about the value we deliver, we may list some, or all of these perceived benefits:
- Maximize equipment
- Control costs
- No hassle
- Peace of mind
- Factory trained field engineers
- Original factory produced parts
- Software upgrades
- Easy escalation into Engineering
In some cases, we may be correct but who cares? Why? Because it’s not your opinion that matters! The only characterization of value that matters is your customer’s. They know what they need, what is important to their organization, how much you charge, and how much it is worth. They know how big the ROI must be to make the buying decision. This means the benefits must be expressed in dollars and cents because the customer has to subtract cost from benefits to get the value in a form that can be used to calculate ROI.
How Do You Find Out How The Customer Will Calculate Value
As I’ve said in the past; “You have questions and your customer or prospect has most of the answers.” With that having been said, here are the steps to take to identify and quantify value for each prospect. This is because each prospect has a different internal cost structure, different cost drivers, and different operating requirements. Once you get the answer for a single prospect, you can use that as a starting point for additional conversations with new prospects. Here are the steps:
- Establish a professional relationship based upon mutual trust. This is something you should be doing anyway so let’s tick off that box. (In my experience, this is a big assumption.)
- Meet with the prospect. Bring your list of the items you think will be valuable to the prospect. Discuss each item and determine how important each one is. Use a simple scale like critical, so-so, and who cares?
- For the top few items, describe how each will add value and, if the prospect agrees, then either present your value calculation or, better yet, ask the prospect to work with you to quantify the benefits in his business’s terms.
- Stop when the value defined above exceeds the cost of the proposed solution.
Here is an example:
Your proposal of providing a 4-hour on-site response contract will mean a maximum equipment downtime of 6 hours. Without the contract, it could be 24 hours. You then probe until you hear her say, “We use a loss estimate of $250,000 for every hour of downtime of equipment like yours. (This is not unusual for a semiconductor fab or other high volume manufacturing operations.) Your proposed contract will save 18 hours downtime at $250k per hour for a total cost of $4.5 million. If your annual contract costs less than $4.0 million, and your equipment is likely to fail at least once during a year of 24×7 operation, just stop talking and let the number close the deal! If it is not that easy then keep going down your list until you exceed the break-even point. Sometimes you have to get very creative and sometimes your value proposition does not resonate with the prospect. If you have not yet been shown the door, you can continue probing about what is important until you identify new ways to add enough value to get the business.
Warning: Make sure you can deliver everything you offer and/or sell. Failure to meet expectations will mean this customer tells at least 10 close friends, who each tell a bunch more, until your company’s reputation is worth zero.
It is better to lose an order than to over-promise and under-deliver – the B2B communities are small and everyone loves hearing about a bad experience that someone else had!
Good selling and remember that Value sells and BS smells!