The Value Equation: How to Objectively Measure your Business
If you could learn to objectively measure your value proposition, would you take the test?
Objectively gauging the value your business provides allows you to understand your position within the market, who’s ahead of you, and why.
Armed with this information, you’ll have everything at your disposal to turn the tides and become the apex of your market. Understanding where your value lies will also determine the prices you can charge, and keep charging, until the cows come home.
Have you ever wondered why two businesses that offer the same service frequently charge drastically different prices? Most markets are dominated by one or two main sellers, while everyone else enters a ‘race to the bottom’ i.e. offer the lowest possible price just to get a new sale.
Obviously, this is a horrendous tactic that slashes margins and ultimately destroys businesses.
So… what are we to do? How can you entice a customer to enter your business and purchase from you, instead of the countless others out there?
Well, thanks to Acquisition founder Alex Hormozi, there is a framework we can follow to identify our value.
Allow me to introduce, the value equation.
This concept is broken into 4 segments:
- Identify dream outcome
- Time delay
- Effort and sacrifice
- Perceived likelihood of achievement
Whatever your dream outcome is, there are things we must do and/or sacrifice to achieve this.
Let’s use the following case study:
Betty wants to lose weight. She is due to attend a friend’s wedding in 90 days from now and wants to fit into her favourite dress for the occasion.
What are her options?
There are a few things Betty can do:
- Go at it alone. Create an exercise routine and follow a diet that she Googled and settled on within 5 minutes
- Join the gym and hire a personal trainer to advise on workouts and diet structure
- Get surgery
Armed with these three options, lets run them through the value equation to assess which business can guarantee the sale.
Let’s cut to the chase. 95% of diets fail, so let’s assume Betty doesn’t try this on her own.
Which business is Betty giving money to? The personal trainer, or the doctor that can offer liposuction.
Given Betty’s unique circumstances, I’d bet on liposuction. Betty is in a rush to achieve her goal, and people will pay premium rates for quick results. If you can guarantee the results too, then you’re a force to be reckoned with.
Having said that, lets look at the pricing of these two offers:
A personal trainer may devise a 3x a week routine, and charge £50 a session. On top of that, you have your specialised diet to follow, which may cost an additional £100 a week.
£50 x 3 sessions = £150 a week
£100 food x 1 = £100 a week
Total week = £250
Typical month = £1,000
90 days (3 months) = £3,000
That’s a £3,000 commitment for results that require significant time to work towards, have no guarantee, rely on the consumer putting in the work – and the work itself is incredibly challenging.
Compare that to liposuction.
Liposuction costs around £5,000, plus an additional £1,000 for any additional area you want gobbled up.
Prices could very easily double or triple in comparison to hiring a personal trainer, yet the offer is much more appealing.
Why?
Results are guaranteed.
They are immediate.
There is no effort, nor sacrifice required from the consumer.
The professional you have hired does the work for you.
If you can learn to solve problems while looking through the lens of the value equation, your competition will become obsolete, your margins will soar and your business will sell faster than hot cakes.
