Quantifying Value to Maximize Profit

Understanding value in quantifiable terms is key to unlocking desired outcomes for both providers and customers of sustainably profitable solutions.

In our previous blog post Profit is Sustainable Value, Part 3 we explored the three pillars of sustainability within the Software Profit Streams™ framework, developing a comprehensive understanding of what makes a solution truly profitable. The Profit Streams canvas ensures that we evaluate the benefits of a solution from the user's perspective, as well as the unit economics for providers of software-enabled solutions.

Value is the benefit customers receive less their total cost of ownership

While the equation "Value = Customer Benefits - Total Cost of Ownership" might seem straightforward, it requires a detailed quantification of the economic benefits for customers. This entails extensive user research and an in-depth understanding of the market and competitive landscape. The true strength of the Profit Streams framework lies in its interdisciplinary approach, where insights from Marketing, Sales, Product Operations, and other stakeholders converge to define and quantify customer benefits accurately. It's important to recognize that value perception varies among different user segments; some may highly value certain features as direct benefits, while others may see the same features as indirect benefits that have little impact on their purchasing decisions.

An often overlooked aspect in conducting a Customer Benefit Analysis with the Profit Streams canvas is the inclusion of intangible benefits. Although challenging to quantify the perceived value of certain solution aspects initially, it's imperative to fully capture the extent of the benefits enjoyed by end users. This should be reflected in the pricing and licensing strategies to ensure that they fully represent the value delivered.

As the upshot, a Profit Stream is achieved when this value equation is net beneficial for customers and the revenue monetized exceeds the provider’s cost to scale the solution over time to a mass audience of potential users.