By Dave Sobel, The Business Of Tech Podcast
Every business aims to deliver business value to end customers. Often, companies use the tagline “delivering business value” to convince customers to buy their services. But the truth about delivering business value is that it’s not easy.
Wikipedia defines business value as “an informal term that includes all forms of value that determine the health and well-being of the firm in the long run.” It later states, “there is no consensus, either in academic circles or among management professionals, on its meaning or its role in effective decision making. The term could even be described as a "buzz word" used by various consultants, analyst firms, executives, authors, and academics.”
Using a difficult-to-define buzzword to prove the worth and value of your services is difficult. However, it is possible to explain the value of your services. This article will break down the good, better, best model and explain how to use it to engage customers and demonstrate the value of tech consulting services.
Breaking Down The Model
Let’s briefly break down the model.
- Some services are “good” enough to keep things running. In this category, actions are tied to Selling, General, and Administrative Expenses (SG&A).
- Services that focus on reducing costs, connecting IT spending to the Cost of Goods Sold, and bringing operational costs down fall into the “better” category.
- When tech consulting services can tie directly to the revenue numbers and drive growth, then the services fall into the “best” category.
Why Are These Categories Important?
Businesses are powered by the money they bring in – that’s the revenue. They spend some money to drive that revenue directly, which is the cost of goods sold (COGS). Then, you have the expenses necessary to be in business, which is the operating expenses. These expenses are also called SG&A – Selling, General, and Administrative Expenses.
It’s a simple math formula. Revenue at the top, minus the COGS, is Gross Profit. Then, you pull out the SG&A and get the Net Profit.
Now that you understand these categories and why they matter, let’s look at each in detail.
Businesses that view technology as an expense will categorize your services as an administrative expense or operating cost, putting you in the SG&A bucket and the “good” category of this model. Other line items surrounding you include insurance, utilities, rent, office supplies, etc. Business owners know they need this stuff but are generally not excited to spend money on it.
You’re delivering and can certainly exist here, but you may feel a lot more price pressure here. However, it’s also not hard to justify your existence in this category. The vast majority of business owners know they need computers. They know they must have the technology, and just like having the lights work at the office, they know they need your services to operate.
You most likely want to escape price pressure, which is where the “better” category comes into play.
Investopedia states that the cost of goods sold “includes the cost of the materials and labor directly used to create the good.”
In the strict services businesses, certain kinds of labor aren’t in this bucket. However, for this discussion, this cost is included in the COGS. This is important because most service providers provide services to service companies.
Ask yourself these questions:
- Can my services reduce the cost of materials and labor?
- Can my services reduce the staff required for the client to deliver their product or service?
- Can technology reduce the costs or amount of materials used?
- Can I measure that impact?
If you can do that, you’re “better.”
The trick is measuring it, which is unique for industries, customers, and their businesses. However, learning how to measure your impact will make you and your offering “better,” and it will deliver better margins for both you and your customer.
It’s also important to note that you can charge more here. If you can document to your customer how spending a dollar reduces their expenses by 20%, they will be happy to spend that dollar.
Now you may be asking how to maximize your value to your customers. How can you be “best?”
The answer is to impact their revenue.
Here are a few questions to ask yourself:
- Can your technology solutions directly add more revenue?
- Can you directly tie the investment in the technology you implement for them to the money they bring in?
Revenue is important to every business, nonprofit, or organization. Every business owner will spend a dollar when it goes directly to driving more dollars. If you can move to that level, where the technology is driving revenue and show it via data, you are truly providing the “best” business value to your customers.
Putting It All Together: An Example
Let’s put this all together and look at an example of this model in a nonprofit organization.
- It’s “good” to keep the association working and ensure their email works.
- It’s “better” to help their staff reach 10% more potential members by leveraging their Microsoft 365 investments, showing this increase in reach each month.
- It’s “best” to use technology to drive more membership, leverage e-commerce and integrate that into their association management software, and show 15% growth each year.
Conclusion: Use The Good, Better, Best Model To Prove Your Value
The gap between buying the technology and seeing data-backed results, ideally translating into business outcomes, is a lost opportunity. So, if you’re a service provider, take advantage of this. Using the good, better, best model and measurable data to explain the benefits and outcomes of your services will attract clients eager to spend money and take advantage of what you have to offer.
About The Author
Dave Sobel is the host of The Business Of Tech and a leading expert in the delivery of technology services with broad experience in both technology and business. He owned and operated an IT Solution Provider and MSP for over a decade, both acquiring other organizations and eventually being acquired.