August 4, 2022

How much value you create

One of my favourite stories from business school was this one:

A sheet steel manufacturer was looking to sell their steel at a premium.

They looked carefully at who their customers were, and the process they went through to get their job done.

Their main customers were white goods manufacturers.  Now, steel doesn’t come out of the mill white, so these customers needed a paint shop where they sprayed the shaped steel casings of their products white.   There’s a reason they’re called ‘white goods’.  Offering other colours would mean adding another paint shop or creating an expensive change-over process for your single paint shop.

The steel manufacturer worked out that by adding a small cost to their own production process, they could save their customers a large cost and enable them to offer their goods at a premium.   It’s easier to paint sheet steel when it’s flat, at the end of your production process.   So that’s what the steel manufacturer did.

“Buy steel from us and you can have any colour you like.  And de-commoditise your products to boot”.

You don’t have to ask your clients intrusive questions about their finances to measure – or at least estimate – the value you create for them.  You just have to understand something about how their business works.

Some things to think about:

  • If you save them money, how much?  What does that add up to over time?
  • If you save them time, how much?   What was that time costing them before you?    What does it cost them now?
  • If you save them effort, how much?  What was that costing them before you?  What does it cost them now?
  • If you enable them to get more from the same level of resources, how much?  How much does that add up to over time?
  • Does any of this enable them to sell more, or to sell at a higher price?  How much more?  How much higher?  That’s part of the value you add too.

Measuring how much value you create for clients isn’t easy.   It is possible.

If you put your mind to understanding your clients first.