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 lots of questions, and generally challenged each other to think about things we never thought about before.
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.”
During the recent holiday break, I spent some time thinking about the challenge and here is my answer to Joe (and everyone else).
If people are willing to spend company money for a service contract to achieve peace of mind, they obviously expect to improve some business outcome where the monetized benefits will exceed the cost of the contract. And the challenge of the seller is to identify the outcome(s) and how much they will be worth while 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, etc. include low energy, headaches, stomach issues, and an overall desire to avoid decision-making. Even a relatively low level of stress, etc. 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.
If you manage a capital equipment intensive operation such as a data center, manufacturing plant, laboratory, or a fleet of trucks, then being stressed-out makes us avoid making decisions, leave our employees feeling abandoned yet afraid to make decisions, or being non-communicative with our peers and managers. All of these can be 1) a career-limiting situation and 2) lead to operational loses 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 was because 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 that it was a harmless mole, would you complain about the time you took off from work or the co-pay? Absolutely not! 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!
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.