Calculating Value: Numbers You Should Know

 

Value calculations rely on a number (pun intended!) of constants that every customer-facing vendor player should learn and memorize! Here are a few:

 

·      Working Days per Year: About 238 for the average U.S. company (that’s 365 days minus weekends, holidays, two weeks of vacation, additional personal time off, sick leave, etc.). The specific numbers will vary depending on industry and region. For example, in France the number is about 216 and in Germany it is about 230. Of course, people at start-ups work about 400 days per year!

 

·      Working Hours per Year: This is dependent on the number of working days per year, and the number of hours worked each day. Someone who works 238 x 8-hour days per year spends about 1900 hours laboring annually; those who have a bit more time off and work 220 x 8-hour days invest about 1760 hours in their firms each year. 1800 hours is a reasonable average, but again you should investigate the specific numbers for your prospects’ situations.

 

·      FTE Rates: FTE is “Full Time Equivalent”, which translates to the full cost of an employee. This includes salary and other compensation, benefits, and the portion of the business’ overhead that is attributed to that employee. This last component might include office space, office equipment, and associated services. 

 

In simple terms this can be broken into two components: compensation and burden (or “overhead”). Knowing typical rates for both enables the kinds of calculations we’ve enjoyed (ahem) earlier in this series of posts. Burden rates generally range from about ¼ to ½ of the employee’s salary for office-based businesses but can go up much higher for industries that have more equipment or supplies required, such as in manufacturing and healthcare.

 

So, once you know the average compensation for your prospects’ employees and their typical burden, you can quickly calculate their FTE rates. For example, someone who makes $100,000 annually and has a 1.5x burden has an FTE rate of $150,000. Simple arithmancy!

 

Are there other numbers or “constants” you should know? Yes, most likely, and these will depend on the nature of your offerings and your prospects’ industries and locations. In the world of chemistry (my background), one can expect that a typical traditional bench chemist can complete about one experiment per working day (depending on the type of chemistry, of course!). You can probably find these constants for your situation in a few web searches. 

 

For more, see "Let's Talk About Value" starting on page 156 in Doing Discovery:

https://www.amazon.com/Doing-Discovery-Important-Enablement-Processes/dp/B0B8RJK4C2/