Question

Topic: Research/Metrics

How To Value A Service, & Where To Get Numbers?

Posted by Anonymous on9/22/2004 at 8:42 PM ET 250 Points
Our organization has traditionally priced our services using "seat-of-the-pants" or "that seems about right" methods. Having learned much from this site, we are now trying to assess the economic value of a new B2B service, and price it accordingly.

Not having done this before, I have two questions.

1) Hypothetically, lets say that the new service will produce 100 new leads for the client, valued at $10 each. As an alternative, the client could do the work in-house, which will cost them 5 hours of labor at $40 per hour, and $75 in postal costs.

What is the "value"? Is it $1,000 (the leads our service delivers)? Or is it $1,275 (the leads plus the in-house costs we saved them?

2) Second question: do you every feel a bit silly assigning dollar values to things? Here is an example I saw on another site: an article "planted" in a magazine with 50,000 readers was valued at $5,000 for having "increased the CEO's position as an Known Opinion Leader". How would a value like that be determined: did they really say to themselves "hmm, I'm sure everyone read it, and it had an average impact of $0.1 per person"? Or, for things like this, do we go back to "seat-of-the-pants" methods?

As an indication of just how unfamiliar I am in this new territory: I felt about odd saying that each lead was worth $10 in my example above - even though it was hypothetical! Our clients sell big ticket items with very long sales cycles. Most leads never pan out, those that do are worth millions - in a few years time. How can one possibly value them?
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RESPONSES

  • Posted byPeter (henna gaijin)on9/22/2004 at 9:10 PM Member
    On #1, the price should be something relative to the alternate ways the customer has achieving the same end (getting a lead). So, $75 is your upper end. Why? If you priced your service at greater than $75, they would obvioulsy do it themselves.

    在# 2,有许多事情分配一个value which really shouldn't be, because they are just WAGs (Wild *ss Guesses). Your #2 example is likely one, as it is very hard to show that someone affected a brand by writing the article, and even if you can show that, it is hard to show the value of the brand.

    Leads can be quantified, in my mind. What is the value of an average sale? How many leads does it take on average to get a sale? By knowing these two (which come over time), you can get the value of a lead. A good salesperson evenm goes a step further - how many cold calls does it take to get a lead? This way they can put a value on their phone calls.

    Of course, there are lots of variables, but it can be a baseline, which can be used judicously to make decisions (for example, you wouldn't want to use this info to say more leads of any typer are better, and start getting unqualified leads, as they won't be worth the same).
  • Posted byPeter (henna gaijin)on9/22/2004 at 9:19 PM Member
    Oops, my mistake. the comparative cost for #1 is the cost to do it themselves (5 hours at $40/hr. plus $75 fixed cost). $275 is your upper. I missed the hourly cost in my post above. My apologies.
  • Posted byReadCopyon9/23/2004 at 5:34 AM Member
    Q1: Remember that if your clients takes the work in house, they need someone employed to do that job, pay them for a full year, provide sick leave, annual leave, pension?, insurance? and other benefits.
    A key reason why businesses outsource, the true value is the savings that you produce for them.
    I have a small article on Value here that may be of interest! [inactive link removed])

    Q2: I love models and trying to prove ROI, the problem I have found is that a financial figure associated with ROI is very personal and EXTREMELY difficult to prove.
    I have used financial ROI models for things like hospitality, and I have complete faith in them, but it can be difficult to convince others.
    Placing an ad in a magazine, I have only ever added a financial ROI if I think that the ad will generate sales calls, and made assumptions about, the amount to interest, number of calls in, number of conversions and average order value. You can end up with a financial figure, but they are often based on very shaky foundations.

    The bottom line is that more and more marketers MUST prove a return, I guess few of us actually do that in reality!

    [Moderator: Inactive link removed from post. 2/22/2011]
  • Posted byChris Blackmanon9/26/2004 at 10:53 PM Accepted
    Marie

    I would value the leads at their revenue generation or profit contribution amounts if you can make that estimate or measure the actual amounts involved.

    The value is not revenue plus saving. You are mixing measures if you try that.

    What you need is the comparison of cost to value.

    Your outsourced service produces leads worth $1000. Client does the same using internal resources at a cost of $275. So what do you charge? Less or more than $275? If less, clearly you have a lower cost for the same benefit (value).

    But you could charge more and still be better value than an internal client solution. If the client reassigned the labour to more value-adding activities, they just made more out of their 5 x $40 per hour. That is part of the value of outsourcing.

    Moving on to your $5,000 value for media placement of a PR article. Very difficult to measure the value of "increased the CEO's position as an Known Opinion Leader" - whatever that means!

    公关公司经常看情况专栏ated and if the article is strongly positive, value the add like they bought the space at advertising rates. So if the article was two pages with a colour photo of the CEO, and a fpc ad costs $2,500, they might value it at $5,000.

    But you can see it's really difficult to say that an improvement in perception of the CEO is with five grand. However, if you keep getting positive articles featured in the trade press, and someone influential reads them and decides"I want to award a multi-million contract to this company", and part of their decision comes from the long-term residual effects of the PR, then is does have some value.

    But it's an inexact science. Unlike lead generation, where you get an order at the end of a discussion with someone.

    Hope this helps.

    ChrisB

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