Introduction
I recently met Joe Barkai, a well-respected Strategist, Keynote Speaker, and Author of The Outcome Economy and the Internet of Things. We had a wonderful 90-minute discussion where we covered many topics, asked and answered many questions, and generally challenged each other to think about things we had never thought about.
At one point in our conversation, I explained to Joe that my research shows that people generally purchase capital equipment service contracts for one of these four reasons:
- Maximize equipment uptime
- Control operating expenses
- Avoid time-wasting hassles
- Achieve peace of mind
Joe said something like “I know how to monetize the first three, but how do you monetize peace of mind?” I replied, “I have never thought of that and so I have to think about it.” And Joe said, “Sounds like an interesting blog topic.”
How to monetize peace of mind?
During the recent holiday break, I spent some time thinking about the challenge, and here is my answer to Joe (and everyone else).
Suppose people are willing to spend company money on a service contract to achieve peace of mind. In that case, they expect to improve some business outcomes where the monetized benefits will exceed the cost of the contract. And the challenge for the seller is to identify the outcome(s) and how much they will be worthwhile if the contract is in force.
Let’s discuss the monetization process.
Step 1 – Identify the outcomes that will be in jeopardy without the peace of mind from the contract
Having peace of mind means not having stress, anxiety, fear, or panic. And symptoms of severe stress include low energy, headaches, stomach issues, and an overall desire to avoid decision-making. Even a relatively low level of stress can cause the individual to procrastinate about decision-making and actually doing work. If it gets bad, stressed-out people want to go off the grid, hide in the woods, or bury themselves in bed under a pile of covers.
Suppose you manage a capital equipment-intensive operation such as a data center, manufacturing plant, laboratory, or fleet of trucks. In that case, being stressed out makes us avoid making decisions, leaves our employees feeling abandoned yet afraid to make decisions, or be non-communicative with our peers and managers. These can be 1) a career-limiting situation and 2) lead to operational losses because important decisions will not be taken.
Step 2 – Find the hourly loss rate from not doing something
As part of any selling situation, it is a good idea to find out approximately how much money will be lost or not gained if your proposal is not accepted. For example, if your company sells production machines, you may be able to identify the incremental sales resulting from replacing an existing product with your new design. If you have that number, you can estimate the total revenue per hour that will be missed (lost) when the equipment is not working or the manager fails to make a decision that impacts production.
Step 3 – Justify the benefits of peace of mind
Conservatively combine steps 1 and 2. From my experience, when you show the cost of stress or any other intangible, focus on the minimum loss you can. For example, if your service contract sells for $25,000 and the lost revenue rate is $10,000 per hour, I would tell the customer that if the service contract saves a key manager at least 3 hours per year of high stress and the resulting difficult behavior, then that alone makes the contract a good buy. Add in the cost of parts, time, travel, and additional lost production from even one unscheduled outage and you can see that the ROI is huge.
Was Joe’s question the right question?
I think it caused me to think about quantifying intangible benefits. This was not a unique situation because many situations and solutions improve employee or customer experiences or create peace of mind.
For example, think about wellness. What if you found a new skin growth on your neck? Would you think it might be Myeloma? Possibly or probably. Would you make an appointment with a Dermatologist? I would. And if she said it was a harmless mole, would you complain about when you took off from work or the co-pay? No! You would get back into your car and feel relieved that there was no issue. You would probably even pat yourself on the back for taking quick action.
Wellness is intangible and usually priceless!
Conclusion
Quantifying intangibles is necessary more often than you think. The way to proceed is to tie the intangible benefit to quantifiable outcomes and use this new information to help support your business case. As long as you are not greedy, your case should stand up to detailed scrutiny.
About Middlesex Consulting
Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing, Customer Experience, and Engineering. If you want to learn more about how we can help your organization create customers’ peace of mind, please contact us or check out some of our free articles and white papers here.