How To Communicate Value Proposition And Return On Investment
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How to Effectively Communicate Value Proposition and ROI
Introduction
This guide, part of my series on Value and Pricing, aims to help you position your company's value proposition to achieve the best value-for-value exchange.
Too often, business owners struggle to define the value or ROI of their product or service. If you can’t clearly articulate this value, imagine how difficult it is for your prospects and customers! Without a clear value, sales are far less likely.
Identifying and Communicating Value
We'll discuss a straightforward way to identify your product's value elements and convey them so your customers clearly understand the benefits in quantifiable terms. This approach showcases a compelling ROI, making your offering irresistible.
Understanding Customer Perspective
To communicate ROI effectively, consider your value proposition from the customer's viewpoint. Why should they invest in your product rather than spend their money elsewhere? Customers are interested in knowing how quickly they will recoup their investment or see a profit, with many looking for recurring returns.
A classic marketing principle suggests making your product feel like it’s free. By building significant intrinsic value into your offering, its perceived worth far exceeds the cost, making it seem costless to the customer.
Creating Value with Your Product or Service
Start by listing all the ways your product or service creates value:
- Increase Revenue: Does it boost sales, generate more leads, increase market competitiveness, shorten sales cycles, or enhance repeat and referral business?
- Price Advantage: Can it help your customers raise or maintain their prices?
- Expense Reduction: Does it cut initial or ongoing costs, reduce overhead, save on materials, equipment, staff, or services? Does it provide cost-effective installation or longevity, or reduce error rates?
- Cost Replacement: Can it replace existing expenses at a lower cost?
- Staff Efficiency: Does it enable staff reductions without compromising service?
- Expense Avoidance: Does it help avoid future expenses altogether?
- Perceived Value: Does it enhance the perceived value of your customer’s offerings?
- Productivity Boost: Does it improve productivity for the customer or their staff, or enhance manufacturing throughput?
- Increased Control: Does it offer better tracking of key success factors like results, lead generation, sales, profitability, or productivity?
Quantifying and Proving Value
Review and assign a monetary or percentage value to each benefit. Provide proof for each claim using worksheets, testimonials, case studies, success stories, printed statements, or survey results.
Combine these value elements into a total value figure, whether monetary or percentage-based. Finally, calculate the ROI by comparing this total value to the product's cost, providing either a clear ROI or a "payback period." This quantification supports your pricing and simplifies the buying decision.
Success Story
Consider a client who sold enterprise software costing $150,000 to $250,000. Post-9/11, their sales cycle stretched up to eighteen months, often ending in "no decision" due to economic stagnation.
To address this, we conducted an ROI analysis using the steps outlined above. We detailed how the software saved or earned money, including minimizing maintenance costs, cutting computer lease expenses, reducing material waste, decreasing required customer service staff, shortening phone time, and enhancing quote accuracy, ultimately improving sales profitability.
By assigning a dollar value to each element and providing evidence, we demonstrated a payback period of about nine months, with substantial positive ROI thereafter. The first two prospects who saw this presentation remarked, "We’d be fools not to buy this," resulting in the shortest sales cycles and largest deals in the company's history.
Effective communication of value and ROI can drastically improve sales outcomes. By focusing on the customer's perspective and quantifying your offering's benefits, you position your product as a must-have purchase.
You can find the original non-AI version of this article here: How To Communicate Value Proposition And Return On Investment.
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