Calculating Value: Some Numbers to 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 (ahem) enjoyed in previous 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 bench chemist can complete about one experiment per working day (depending on the type of chemistry, of course!). 

 

You can find these constants for your situation in a few web searches. (The average magic trick takes about five minutes, for example!)

 

 

Resources:

 

Communicating Value? Annualize!

https://greatdemo.com/communicating-value-annualize/ 

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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

Communicating Value? Annualize!

How does 1 day equal 2 FTE?

 

When communicating value, we need to present the largest reasonable figures. One simple way to accomplish this is to annualize our calculations.

 

Let’s say that during a discovery conversation, we learn that our prospect can save 1 day each week by implementing our software. We could leave it at that, but it isn’t very compelling!

 

On the other hand, if we annualize our finding, it amounts to about 50 days per year. That’s much more interesting: That’s nearly a quarter of an FTE (Full Time Equivalent)!

 

But wait: The prospect was simply describing 1 individual on a team, and it turns out that there are 10 people all suffering the same issue. On a weekly basis this amounts to saving 10 days for the team but annualizing the calculation we find that our prospect can recover 500 days annually. That’s a lot more! (Flick your magic wand and say, “Engorgio!”)

 

We glance at our prospect, a middle manager, and realize that they can’t really visualize what 500 days saved can mean. We say, “500 days – that’s a bit over 2 FTEs, so that’s like freeing up 2 members of your team to focus on other, more valuable activities.” Our prospect immediately “gets it” and starts thinking about other neglected tasks that now could be addressed.

 

Annualizing value numbers makes the business case compelling!

 

 

Resources:

 

Value Numbers Need to Align with Job Title: Why?

https://greatdemo.com/value-numbers-need-to-align-with-job-title-why/ 

 

How Does 3 Minutes Equal $24 Million?  

https://greatdemo.com/how-does-3-minutes-equal-24-million/

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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

  

Visualizing Value: Aligning Numbers with Budget Levels

How are budget awareness and value perception connected?

 

While staff-level folks typically never deal with budget questions (other than asking for a raise!), managers are expected to be budget aware and, at minimum, work within their budget limitations. As you ascend the management hierarchy you are expected to propose budgets for your team, as well. Executives often define budgets for their organizations and, in many cases, may be required to create budgets for entirely new departments or programs.

 

And while middle managers may approve compensation changes for their team members, they may not actually be responsible for the actual cost of their employees in their budgeting process. For example, a marketing manager might control the spend for advertising, tradeshows, lead generation, and associated travel, but those numbers won’t include the full cost of the marketing team. Those people expenses roll up to the head of marketing.

 

Why is this important? 

 

Because it gives us understanding of various management levels with respect to comprehending large monetary numbers. A SaaS company generating $40 million in revenues might allocate $4 million to marketing overall. For the head of marketing, this number includes the marketing team in addition to marketing programs and associated expenses. $4 million is a meaningful amount to that head of marketing; it is a number that can be visualized in terms of the team and their activities.

 

A product marketing manager, on the other hand, is given a portion of this overall budget to promote their product(s), which might amount to a few hundred thousand dollars for content creation, placement, lead generation, and related costs. This person can comprehend $250,000 accordingly but may have difficulty picturing what $4 million represents.

 

At one point in my career, I was responsible for managing a team of over one hundred individuals to generate $30 million in revenues. My budget was about $20 million which included all the costs and activities required to deliver $10 million of profit (pretty good ratio!). $20 million was a meaningful number for me, as a result.

 

Executives are often a special case with respect to their ability to picture the value of large monetary numbers.

 

Resources:

 

Value Numbers Need to Align with Job Title: Why?

https://greatdemo.com/value-numbers-need-to-align-with-job-title-why/ 

 

How Does 3 Minutes Equal $24 Million?  

https://greatdemo.com/how-does-3-minutes-equal-24-million/

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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

 

“These stories get straight to the point and are threaded throughout with his humor and humanity.”

Thank you, Wolf Brown, for your insightful Amazon review!

(The most recent of 42 Amazon reviews)

 

 

“Suspending Disbelief is a collection of stories from Peter Cohan's long career in PreSales, and it works because of how he uses them.

 

Coming from a writing background, I know how much a well-told story can make a message land in a way that facts and frameworks (or features) simply don't. Peter uses that to his advantage here. These stories get straight to the point and are threaded throughout with his humor and humanity.

 

As someone still breaking into the role, the overarching message I took away is deceptively simple: do proper discovery, make the vision easy for your buyer to see, run a POC with clear success metrics, and enable your champion by giving them what they need to make a strong business case internally.

 

None of that is revolutionary, but the final story in the book shows just how badly things go when you skip any of it, and how well they go when you don't.

 

Simple lessons that are hard to execute consistently, which is exactly what makes them worth internalizing.

 

PreSales is difficult, unpredictable, and a ton of fun if you let it be, and this book captures all three.”

 

 

And you can find “Suspending Disbelief: A Collection of Sales, Presales, and Marketing Stories (and Lessons Learned)” on Amazon here!

https://tinyurl.com/yc7rsrmy

Value Numbers Need to Align with Job Title: Why?

 

I was on a sales call supporting one of our less experienced salespeople and I was watching the prospect’s reaction to some of his statements. It wasn’t going well!

 

He said, “So, it looks like you’ll gain about $24 million each year by implementing our software.”

 

The prospect players’ response was silence. No excitement, no discernable interest. What was going on?

 

The prospect participants consisted of hospital department managers and their staff members, all doctors. I heard one doctor lean over to a colleague and mutter, “24 million? We won’t see any of that!”

 

Even though sufficient discovery had been completed and the numbers had come from the prospect, this group remained unconvinced.

 

Why? Because value statements need to align with job title!

 

There are three interchangeable measures of value: time, people, and money. Each needs to align with the corresponding job title, or job title level to be more precise.

 

What are high-level prospect players interested in saving or gaining? Money! When speaking to high-ranking prospect representatives such as C-level, senior VPs, and VPs, their metric of interest is money. For these folks, gaining $24 million each year resonates strongly.

 

What about middle managers and department heads? What are the numbers that motivate them? (Your turn to guess…) If you said “people,” you are correct! Yes, money is of some interest, and time savings as well, but what do middle managers always request when it is time to plan budgets for the next year? People! “We need more resources…!” is their ongoing cry.

 

The salesperson realized this and tried again: “It looks you’ll gain the equivalent of 12 more doctors by implementing our software…”

 

This time, we see positive engaged head nods from the department heads on the prospect’s team. They can visualize 12 additional headcount contributing to their team.

 

What about the staff, the doctors? What motivates them?

 

One motivation is intangible, which is improved patient care. The other is time. By seeing more patients each day, they can visualize improved patient care and (hopefully) improved outcomes. And by saving 3 minutes recording in their notes with each interaction, they recover 45 minutes each day that were previously consumed by laborious manual documentation (to say nothing about readability, transcription errors, etc.!). 

 

45 minutes is a quantity of time that is easy to picture, and it resonates with the doctors.

 

So, when communicating value, we need to align to prospect job title and level:

 

-   Executives are interested in gaining or saving money.

-   Middle managers want more people resources.

-   Staffers want to save time (and go home on time!).

 

 

Resources:

 

How Does 3 Minutes Equal $24 Million?  

https://greatdemo.com/how-does-3-minutes-equal-24-million/

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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

Making Monetary Numbers Tangible

 

How much can $100 buy? $1000? $25,000? 

 

It is often hard to associate an amount with a tangible deliverable, and it gets more difficult as the numbers grow larger:

 

-       In the U.S., $1 buys a pound of fresh vegetables, on average (453 grams).

-       A typical book costs about $16.

-       The average cost of dinner in a restaurant for two in the U.S. today ranges from $50 (two seniors, sharing a burger with fries and two beers, including tax and tip) to $150 or more (highly dependent, of course, on location, appetite, and selection!).

-       $2,000 buys you the average combination of washer and dryer in the U.S. (installation not included).

-       The typical lower-end compact car costs $23,000 (registration, insurance, taxes, fuel, and maintenance not included!).

-       $419,000 is the price for the average house in the U.S. (I won’t even begin to list what is not included in this amount, so be prepared!). For most people, this is the most expensive item they buy in their lives.

 

Above this amount, it gets harder and harder to comprehend:

 

-       What can you buy for $1 million? A really nice house? (Or a garage in the heart of Silicon Valley?)

-       What can you do with $10 million? A penthouse in New York?

-       $100 million? That’s a typical cost for a new freeway interchange in California (of course, the original estimate was that the job could be done for $35 million…!).

-       A billion? I have no idea…!

-       A trillion? I’m not even sure how many zeros to use!

 

So, when communicating value, especially with large numbers, we need to tie them to things that are concrete. In our healthcare example, the three minutes saved with each interaction translated into the equivalent of gaining twelve additional doctors: That’s something that most of us can visualize.

 

To give you an example that might be close to home, a successful SaaS company generating $24 million annually could be your company, if you have about 120 employees (based on a good ratio of $200,000 of revenue per employee). You can use this ratio to scale up or down: A smaller successful company of 60 employees would generate $12 million, etc.

 

Here’s another: I am sad to report that I have flown over 3 million miles on United Airlines. How far is that? It’s like circling the earth 120 times at the equator or traveling to the moon and back six times! (“Aaaaaagh!” was my quiet scream when I realized this!)

 

How are you making your monetary numbers tangible?

 

 

Resources:

 

How Does 3 Minutes Equal $24 Million?  

https://greatdemo.com/how-does-3-minutes-equal-24-million/

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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

How Does 3 Minutes Equal $24 Million?

Arithmancy: the magic of numbers!

 

Some years ago, there was an explosion of interest in electronic health record (EHR) software, driven partly by government regulation and incentives. EHR software is what you see on your physician’s computer screen that lists your medical history, medications, test results, and similar information.

 

During discovery conversations, doctors confirmed that by using these EHR systems they could easily trim a few minutes from writing-up and entering their notes after each patient visit. A Delta of three minutes was often the agreed-upon amount of improvement. Amazingly, many (many!) EHR sales were based on saving these three minutes per doctor-patient interaction.

 

Just three minutes: That can’t yield significant gains, can it?

 

Oh yes, it can!

 

In the U.S., a typical doctor might see fifteen patients a day. If three minutes are saved with each interaction, that amounts to recovering 45 minutes each working day. At 220 working days per year, that’s 165 hours per year, per doctor.

 

The average U.S. hospital has about 135 doctors, so 135 doctors x 165 hours/doctor = 22,275 hours saved per year for that hospital. There are about 1875 working hours per year, giving us 22,275/1875 = ~12 doctors. That’s like getting twelve “free” doctors without any additional hires!

 

The average doctor’s salary in the U.S. is ~$200,000. Assuming a (very low) burden of 50%, each doctor costs the hospital $300,000 annually. So, the ability to gain 12 “free” doctors amounts to avoiding spending $3.6 million annually.

 

That’s right: 3 minutes saves the hospital $3.6 million through avoiding the need to hire 12 additional physicians!

 

That’s a cost-avoidance approach. A second, incremental revenue approach is even more compelling: Each doctor generates about $2 million annually. So, the equivalent of twelve additional doctors generates $24 million in incremental revenue, without adding a single new physician.

 

Abracadabra: the magic of numbers!

 

The 3 minutes saved with each doctor-patient interaction generates an additional $24 million annually! 

(That’s a big rabbit you just pulled out of your hat!)

 

Resources:

 

Let’s Talk About Value – Uncovering the Delta

https://greatdemo.com/lets-talk-about-value-uncovering-the-delta/ 

 

Doing Discovery:

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