Calculating Your Product’s Worth

This post focuses on strategies to dig into your prospective client’s organization to determine what your product is worth – how else will you know what to charge? The key to optimizing profits and sales is to put a proposal in front of your prospect that exactly reflects what they think you and your product are worth. If you over price, chances are that you’ll be pushed aside in favor of a cheaper product. If you under price, you run the risk of diluting your brand and looking like a second-rate operation. So why not just ask them what your product is worth…

You: “Do you want to buy my fabulous new gizmo?”
Prospect: “How much does it cost?”
You: “Well, what’s it worth to you?”
Prospect: “What the heck kind of question is that!!”

As can be seen from the above fictitious discussion, you usually can’t come right out and ask a prospect what your product/material/service is worth to them. It puts both parties immediately at odds and strains further discussions.

Propose Solution Layer

Better yet to get back to our engineering roots and follow a more scientific approach to uncover a product’s true worth or value. The first step in the process is to determine who the stakeholders are in your prospect’s company that will be affected by the purchase of your gizmo. Typical stakeholders include (1) the engineer you’re dealing with, (2) her manager, (3) a purchasing agent, (4) the chief financial officer (CFO), and possibly (5) the CEO.

All too often we, as salespeople, work with the engineer and never ask how the ultimate purchasing decision will be made – big mistake. You need to completely understand the prospect’s buying procedure to ensure that everyone in the chain understands the value that you’re bringing to the project. Not knowing this data could lead you down a six-month path selling to an engineer, only to have a purchasing agent strike down the deal as soon as he hears about it.

Once you know the players in the chain, you need to understand the motives of each player. The purchasing agent, for instance, may only be concerned with price, the CFO may focus on financing options or return on investment, the engineers are usually concerned with quality and service, and the CEO may have politics in play that are pushing him toward a particular supplier.

Of course all these individuals house a different amount of leverage, or pulling weight, at the prospect’s company. Would the engineer tell the CEO that he is wrong and ignore a direct order not to buy your product? Doubtful.

In order to track these different weights, a variable is assigned to each stakeholder’s view of the product’s worth and the relative weight each stakeholder carries in the purchasing decision (the total pulling weight, must sum to one).

Engineering Gobbledygook

The following table lists the needed input from the respective stakeholders.

Stakeholder

Perceived value

Relative pull

Engineer

ev

ep

Engineering Manager

emv

emp

Purchasing Agent

pav

pap

CFO

cfov

cfop

CEO

ceov

ce

 

Value, or better yet, perceived value, is the sum of the weighted values of the stakeholders. The specific Perceived Value (PV) for our situation follows; of course it can be generalized for any combination of stakeholders and relative weights.

PV = (ep*ev) + (emp*emv) + (pap*pav) + (cfop*cfov) + (ceop*ceov)

The prospect company is most likely to buy when the collective perceived value is greater than or equal to your product price (PP).

PV >= PP

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1 comment so far ↓

#1 Pricing a product or service | Engineers Can Sell on 03.25.08 at 2:16 am

[…] “Determining what a product or service is worth“, we eluded to an Excel tool that would automatically calculate what you should charge for […]

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