Don’t Make this Mistake When Value Pricing

price setting

“Can I use a value calculator to set my price for my customer?”

I hear this question a little bit less frequently than I used to. But at times people still come to me and say, “I want a value calculator so I can figure out how much to charge the customer.” I then ask, “Why?” and they say, “Well, because we are implementing a value pricing strategy and we want to know how much value the customer receives so that we can charge as close to that value as we can.” Because I know this isn’t going to end well for them, and despite the fact that I am in the business of selling value calculators and ROI tools, we never do these deals.

Here’s what’s wrong with that mindset. Customers will see through the ruse and resent you for not being forthcoming. And even if it worked one time with one customer, it’s not going to work a second time with that same customer. So now you have customers that don’t trust you and won’t spend another penny with you. (By the way, this ugliness then gets reflected back on us and is why we don’t do these deals.)

How to Set Your Price

We all want to maximize our pricing. However, pricing has to be done within the constraints of marketplace competition and competing alternatives, which include the customer doing nothing. Ideally, before you go to market you would perform a strategic analysis of your offering’s value and take into account the constraints just mentioned. However, you can conduct this exercise at any point during the product’s lifecycle. What you are trying to uncover is 1) where your offering’s value is unique, and 2) at what point your offering’s net value exceeds the net value delivered by your competition and competing alternatives. For more detail, read my earlier post The Value Lifecycle: Establishing Your Value in the Market.

When a Value Calculator Can Help You Set Price

If the customer answered my “Why?” question above with, “Well, we want to implement gain-sharing contracts and share the risk and reward with our customers,” that’s a different story. In this case, a value calculator or ROI tool can be very helpful in establishing the value of the shared risk and pricing. A gain-sharing contract can’t even get off the ground if the value dimensions and measurements can’t even be agreed upon. This is where a value calculator can come in handy – to define what’s being measured and how it’s being measured. An ROI calculator can be used to model various pricing scenarios. In general, the greater the price agreed to by both parties, the less the vendor’s upside is.

How do you set your price? What challenges do you face? Are you using gain-sharing agreements?

Related Posts

Why Having an ROI Calculator Is Good for Sales

The Value Lifecycle: Justifying the Cost of Your Offering

The Value Lifecycle: Establishing Your Value in the Market

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Avoid Low Close Rates

Learn More about ROI Tools

See an Example ROI Tool

[Image via Flickr / JD Hancock]

Is the ROI of Your Offering “Too Good to Be True?”

ROI believability

Do you ever downplay the value of your offering because you’re afraid prospects or customers won’t find the estimated ROI believable?

I’ve had many discussions with B2B salespeople who say they tone down value as soon as ROI calculations start to become “too high.” For example, let’s say a salesperson’s solution costs $1,000, and their ROI calculations show that the prospect will receive $100,000 worth of value. Feeling that the resulting 9,900% ROI is unbelievable, the salesperson will say, “We don’t really deliver $100,000 of value. We actually deliver $10,000 of value.” The salesperson believes that a 900% ROI sounds more believable to the prospect.

To me, that’s ridiculous. If you charge $1,000 for an offering that delivers $100,000 of value, yes, the ROI is certainly huge … but that doesn’t mean the ROI is wrong or unbelievable.

There is no such thing as “too high” of an ROI. If you’re delivering very high value for very little price, there are one or more factors at play.

  1. Your solution is underpriced (and you should be charging more).
  2. Pressure from competitors keeps you from charging more.
  3. Competing alternatives (other than direct competitors) keep your price down.

For example, in our business of selling ROI tools, we often promise a very, very high ROI. But one of the limiting factors in setting our price is that prospects believe that they can always build a spreadsheet of their own. In other words, a homegrown spreadsheet is usually their next-best alternative to investing in a professional ROI tool. Of course, we know their homegrown solutions won’t be as good, but that’s typically something our price will be compared against. So even though the ROI on our offering is extremely high, we can’t set our price based on ROI alone, because that likely will drive customers to pursue cheaper alternatives.

If you’re truly worried about the believability of your ROI, remember that ROI is simply a calculated number, which means that you can and should show your math to the customer. Walk the customer through the numbers, step by step, using a good ROI tool. At each step, you can ask the customer, “Does this look realistic? Is this value real and do you believe that it can be achieved?” That way, the customer can see exactly how you arrived at such a seemingly “unbelievable” number. Bear in mind that this is the customer’s business case — not yours. You’ll be more persuasive if use the customer’s own numbers (not generic numbers or examples). Also, make sure customers believe in their own numbers; that way, they’ll also believe in the value you’re estimating.

Remember, too, that your ultimate decision maker is very likely the CFO (or another individual with fiscal responsibilities). If you downplay the value of your offering to make it seem “believable” to one stakeholder, you still might get shot down when your proposal reaches the CFO’s desk, because he or she will be looking at the larger picture. Specifically, the CFO will be comparing the business case (including ROI, net-present value, and payback period) to that of other projects and making a decision on which projects to fund. If there are other projects with stronger business cases, your project may not get funding approval.

If you believe in the value of your solution, you should be selling that all day long. Don’t discount based on what you think the customer’s reaction will be. Don’t even discount if the customer comes back to you and actually says, “That’s too high of an ROI.” Do the analysis with the customer and then let the customer tell you whether or not the value is realistic.

Has your ROI ever seemed “too high?” If so, how did you deal with it?

Related Posts

Why Having an ROI Calculator Is Good for Sales

Five Reasons Hosted ROI Calculators Trump Excel Spreadsheets

The Value Lifecycle: Justifying the Cost of Your Offering

Related Stratavant Pages

Avoid Low Close Rates

Learn More about ROI Tools

See an Example ROI Tool

[Image via hywards at FreeDigitalPhotos.net]

Reimagine Your Sales Process and Become Visible to Buyers

It’s commonly accepted that the large majority of today’s B2B buying process is completed before vendors are even aware that there is an opportunity. Imagine that! Or better, reimagine what you can do about it.Buying Process Visibility

The challenge facing vendors is how to increase their visibility earlier in the buying process. We all learned the typical sales process in Sales 101. However, that’s what’s hindering success in today’s marketplace. Throw it out!

Think in the terms of your buyers. What’s on their mind? I bet they’re asking questions like these:

Is there a better way?”

“How much is what we’re doing today costing us?”

“How do I justify asking for such a large expenditure?”

Buyers are doing research and answering these questions alone; meanwhile, they are invisible to vendors. With the right approach, though, you can help answer these questions and identify prospective buyers.

Step 1: Help prospects identify their own performance gaps.

The buying cycle begins when prospects start to question their status quo. By making assessment tools available to your target market, you can help buyers identify their performance gaps and, at the same time, position yourself as a resource to help buyers solve their problems. Read how one of my clients, Halogen Software, uses this approach for demand generation and lead capture purposes.

Step 2: Help prospects understand the value of your offering.

The next step in the buying process is for buyers to ask themselves if the problem is worth solving. At this stage, buyers are starting to educate themselves about solutions and the financial impact a given solution can have on their organization. Giving prospects access to a value calculator through your website (or through a targeted campaign) is a great way to help them understand the value of your offering as it relates to their unique circumstances. Not only does this position you as an industry leader but you will receive leads that are often better qualified than those you receive from your other lead-generation activities. Another one of my clients, Nuance, uses a value calculator to raise awareness and capture leads by asking users to calculate their “hidden costs.”

Step 3: Show financial metrics that spur prospects to action.

Once buyers are convinced they have a problem and the problem is worth solving, the next logical question is, “But at what cost?” By now, prospects have narrowed their vendor evaluation to a meaningful few. To stand out, vendors must build upon the approaches advocated above and now show buyers their offering’s net value. An ROI calculator is a great way to illustrate your offering’s net value and move buyers to action. I’d guess two-thirds of my clients use this method: 1) create demand and capture leads via an assessment tool and/or value calculator and 2) close deals using an ROI calculator. Tribute is a representative example of how to use this one-two combination.

Vendors late to the party are often being played without realizing it. They see a lead come in and check the box for step one in their sales process, then check the box for step two, etc. What a waste of time! Vendors with the insurmountable advantage are those that identify buyers early and engage in meaningful exchanges around business value. It might take some imagination to accomplish this but I hope the ideas advocated above get you started.

How do you see your sales process? Is it aligned with established internal procedures created long ago? Or has it evolved to match how today’s buyers educate themselves? Share your thoughts in the comments section.

Value-Based Content Marketing Improves Lead Conversion Rates

the best

Why do B2B marketers invest in producing blog posts, white papers, reports, articles, and videos? The general aim is to attract an audience to their website so they can engage them and (hopefully) turn them into customers over time.

As I wrote last week, I believe that marketers often don’t consider ROI tools and value calculators when planning their content marketing mix, and I think this is a missed opportunity. If marketers want a high volumes of well-qualified leads, then my view is that value calculators and ROI tools can often pack a much bigger punch than other forms of digital content.

I’m not saying that traditional modes of content marketing aren’t important. But I don’t believe blogs, articles, and white papers have the power to deliver well-qualified leads in the same way that a targeted value calculator can. Someone who engages with a value calculator is demonstrating an interest in understanding the problem that you can solve for them and evaluating the economics of your solution to their business. To me, that indicates a serious buyer. Someone who wants to read a white paper might be a serious buyer — on the other hand she might just be looking for general information about that topic.

When you make a value calculator available on your site, you typically want to allow them to use it to evaluate the economics of your offering in an open fashion (not gated). In order to download the business value report generated by the calculator, though, you typically want to capture their contact information before providing the report. Someone who is interested enough in the analysis to provide their contact information to get the report is more likely to be thinking about how your offering will impact his or her business and is a more serious prospect. By definition, this person is probably a better and more qualified lead for you than someone who downloads a white paper or visits your site to read general content.

Of course value calculators are just one piece of an overall content marketing strategy. Blog posts, articles, and white papers, etc. help establish your brand and position you as an authority. (Those assets are also likely to drive more general traffic to your site.) However, I do think ROI tools and value calculators can help companies capture better-qualified leads than other types of content. If you can deliver better qualified leads to sales, then salespeople naturally spend less time chasing leads who have little or no intention of actually making a purchase. The more time salespeople can spend in conversations with serious prospects, the more likely they are to close more deals. Who wouldn’t want that?

What types of content do you include in your marketing mix? Do you use value calculators or ROI tools? Share your thoughts in the comments section.

[Image via Stuart Miles / FreeDigitalPhotos.net]

Is There Value in Your B2B Content Marketing?

Content marketing is a term that gets a lot of buzz these days, but the basic concept of capturing prospects and buyers through stories has been around for generations.

This video put together by Content Marketing World shows a full timeline of the history of content marketing, including examples. According to the video, the term “content marketing” emerged only around 2001, but the concept itself started over a century ago. The earliest example they cite is John Deere’s magazine, The Furrow, launched in 1895. (This magazine is still around, with a circulation of 1.5 million in 40 countries and 12 different languages.) The video also calls out “The Michelin Guides” put forth by tire manufacturer Michelin back in 1900 to help drivers maintain their cars and find good inns and hotels while traveling.

What is the ultimate aim of content marketing? Broadly speaking the goal is to get prospects and buyers to connect with what you have to offer through storytelling and education. The Content Marketing Institute is even more specific in its definition of content marketing:

The technique of creating and distributing relevant and valuable content to attract, acquire and engage a clearly defined target audience in order to drive profitable customer action.”

If the purpose of content marketing is not only to attract prospects but also to turn them into customers, then it only makes sense in a B2B context to focus closely on your value proposition. In other words, B2B marketers need to remember that there’s generally a big difference between the ways B2C marketers approach content in contrast to their B2B counterparts. In a previous post, “Why Branding Doesn’t Work on B2B Customers,” we made clear distinction between the “rational” world of the B2B customer and the “irrational” world of the B2C customer.

“B2C marketing efforts are frequently driven by such irrational factors as image, self-satisfaction, fashion, the need to be cool, sex appeal, etc. That’s why consumer marketing generally lives and dies by advertising. Very few consumer products or services can survive without it. Consumer ads, promotions and other image projections often establish the product’s value and create the demand for it.

The B2B world, by contrast, is rooted in the rational. Branding that appeals to irrational or perceived needs just isn’t going to work, because in the end businesses will not buy nor continue to buy things that don’t actually help their business.”

In other words, the B2B decision-maker looks for economic value when investing in a solution. While a great story might be appealing to B2B prospects, they won’t become customers unless that story can illustrate how you can help them save or make money.

Although many B2B marketers think of content marketing in terms of articles, blog posts, PDFs, white papers, video, and infographics — all great and valid forms of content that can engage prospects and customers — I don’t often hear about assets that can help a prospective customer understand the value that an offering can deliver as part of the discussion. These assets include such things as value calculators and ROI tools and I believe that they’re a critical component of a content marketing strategy if the offering is more than a standard transactional decision and constitutes a significant investment. Considering the interest the B2B buyer has in financial metrics, I think that is a missed opportunity.

What kinds of content marketing do you rely on to attract prospects and turn them into customers? Do you use ROI tools or value calculators as part of your content marketing strategy?  Please share your thoughts in the comments section.

What’s Your Level of B2B Marketing Expertise?

expert

After 15 years of working with B2B marketers, I’ve found the most expert ones understand how to formulate and communicate the value of their offering, and then deliver on it. These levels of expertise are evident in four stages of the B2B marketing cycle: two in the pre-sale phase and two in the post-sale phase. Here’s a closer look at each stage, including tips on how you can improve in each one.

Stage One (Pre-Sale): Appeal to the Buyer’s Bottom Line
All B2B marketers are responsible for speaking a language that will attract buyers. However, many marketers make the mistake of thinking about their value proposition in terms of features, functions, and benefits — and that’s not how business decision makers think.

Think about how your offering will impact your customer’s ability to save money or grow revenue. Ask yourself, “What are the direct revenue enhancing, cost reducing, and strategic business benefits associated with our offering?” Providing your customers with a business value framework is an excellent way to capture business decision makers’ attention and interest.

Stage Two (Pre-Sale): Help Sales Show ROI
Good marketers empower the sales team in a variety of ways. If you want to become a valuable asset to sales, help them find ways to measure and illustrate the buyer’s return on investment (ROI) in purchasing your solution. The ability to show ROI reduces the amount of time the buyer takes to make a decision, and can also help the buyer get budget approval to purchase your offering.

Stage Three (Post-Sale): Explore Opportunities to Improve
Part of your value proposition is providing customers with support and insight to help them achieve business results after they sign on the dotted line. Great marketers work with customers to measure the business impact you’ve forecasted, identify where value isn’t being captured, and take corrective action. This can be an incredible way to build customer loyalty and drive associated services and follow-on sales opportunities.

Stage Four (Post-Sale): Create Shared Value
At this stage, your company has entered into shared risk, reward, and gain sharing arrangements with the customer. Most marketers ultimately want to do business at this level when they are confident of the value being delivered to their customers, and want to maximize the amount of money earned from any client.

Inherently every offering has a value proposition. It’s just a matter of how well you define your value proposition and how effectively you can convey your value to customers. If your sales are suffering, it could be due to an ineffective or poorly articulated value proposition.

Are you not getting enough qualified leads? Suffering from poor buyer awareness? Click here to see our solutions to these common marketing problems and more.

[Image: Flickr / Derek Dysart]

Remove “ity” Words from Your B2B Value Proposition

By Jeff Bennett and Darrin Fleming

value messaging b2b marketing

When building relationships with buyers, it’s important to choose your words carefully. We’re not just referring to small talk or the language of negotiation. We’re talking about the specific words you use to describe your offering and what differentiates it.

A lot of sellers and marketers make the mistake of using what we call “ity” words when attempting to convey the value of their offering. For example:

  • Reliability
  • Quality
  • Durability
  • Flexibility
  • Elasticity
  • Viscosity

We’re not down on these words in general. In fact, depending on who you’re talking to, they can be important descriptors. Although the words above might describe your offering, the problem is that they fail to convey the value of your offering.

For example, let’s say your product increases elasticity by five percent. That’s a fine statement for your messaging. It describes to engineers and technical experts what your product actually does. But it means almost nothing to the people in charge of giving up a budget to purchase your product. Unless you can describe exactly how that five percent increase in elasticity will advance your customer’s business, you’re not going to make the sale based on that statement alone.

The other problem with “ity” words is that they’re relative. Context is everything. For example, some would say that Energizer batteries have a high degree of reliability. But the assumption is that you’ll use that Energizer battery in a toy. If you tried to use it in a space shuttle, would you still be able to say the product is highly reliable?

“Ity” words can also be so vague as to become meaningless. For example, for years, Ford’s slogan was “Quality is Job 1.” But what does that mean? Say you’re in India manufacturing cars, and you call them “high quality” because they last for three years, and that conforms to consumer needs and expectations. If you want to expand to a U.S. market, the claim that you make the “highest quality” cars in India suddenly means something very different, because American consumers have a different expectation about the length of time a car should last.

Similarly, a person buying a Porsche isn’t looking for the same definition of quality as a person buying a four-door sedan. In those cases, quality means different things to different consumers. To translate product features into value, be specific. For example, does quality mean “lasts longer,” “uses the most advanced technologies,” or “requires fewer trips to the service garage”? (For more insight on this topic read “How Does Quality Relate to Value?”.)

Most words that end in “ity” are either so vague or so relative that they fail to usefully convey your value to customers. It’s essential to convey to the customer how your product will impact his or her financial statement. Adjectives might describe your product accurately, but for the purposes of your value proposition, you need to push beyond “ity” words. When you come across these words, ask “why?” several times to understand how this adjective conveys to the customer how your offering will impact his or her business.

Again, we wouldn’t advise removing “ity” words from your messaging, because if you make a material with a high viscosity, that’s something the customer should know. Just remember that you need to be able to push past features and benefits when talking to buyers (and particularly financial buyers) if you want to close the sale.

What adjectives do you use to describe your product when talking to customers? Share your thoughts in the comments section.

[Image: Flickr / Martha Soukup]