Understanding Client Value
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Hearing that I am involved in organizational strategy and consulting, people often informally ask my opinion about a business, product, or service idea they or their company have in mind. I don’t mind this at all, since I enjoy learning about new ideas and innovations.
However, rarely do I offer a firm view on these ideas, since I am unlikely to have enough information to do so confidently in brief conversation. Instead, I more commonly ask and listen to the person’s often revealing response to the following two-part question: who are your planned clients, and what are the costs and benefits to them relative to their options today? More than once, this question has led others to think more deeply about their idea, the market space or landscape it would occupy, how the offering might fare against current and alterative offerings, and its needed essential features.
As my title suggests, the question appears aiding to people because it reliably drives greater probing and appreciation of the particulars of client value creation. With this term, I mean the natural or inevitable offering of specific benefits to one or more clients, at a cost and in one or more settings, that is part of all innovation and entrepreneurship. In practice, assessments of client value can be enormously important and powerful, and indeed even decisive for ventures and initiatives, large and small. Given this, I want to spend a few minutes outlining a simple model for understanding and approaching the topic of client value, and in turn for successful and self-sustaining endeavors of all kinds.
The Understanding Client Value infographic above begins with and emphasizes four crucial ideas for organizational or entrepreneurial success: 1) adequate and often progressive value creation – and thus sufficient ability and opportunity – are at the foundation of successful and enduring enterprises or endeavors of all kinds, 2) value is always in the eyes or experience of one or more clients, 3) value is well or helpfully understood in terms of client costs and benefits, whether real or imagined, and 4) offerings normally must be not only comparatively and compellingly valuable to a client, but also providable in ways that are both sustainable and improvable in time by a provider. Take away any of these ideas or features, and offerings and ventures of all kinds can be expected to fail or struggle. By contrast, the integrated and successful use of these concepts all but guarantees success, if always in degrees and given the particulars surrounding the initiative or venture.
Using these core ideas, my client value infographic goes on to encourage express identification of potential clients and at least a preliminary inventory of likely client costs and benefits – both in absolute terms and compared with current or waiting alternatives – when considering any initiative or endeavor. To use a simple but illustrative example, applicable from food carts and professional services to software applications and industrial technology, if a client must spend five units of a currency and take five minutes to use a product or service that almost immediately saves them ten units of currency and ten minutes of time, or perhaps instead provides ten units of benefit and takes no time (all relative to current conditions or offerings), the product or service would appear to offer substantial value, knowing nothing else about it.
As highlighted in the left portion of the infographic, client value assessments can and normally should be formatted, measured, and then used to drive value innovation either more simply in terms of net benefit (client benefits minus costs) or more subtly via the benefit-to-cost ratio (client benefits divided by costs – which notably allows easier comparison of different offerings or options with varying cost or price levels). In the right of the infographic, I have included lists of common categories of client costs and benefits to help you make both preliminary and increasingly complete or sophisticated assessments of current and potential client value.
In the bottom of the graphic, I make the fairly straightforward observations first that clients aidingly can be involved in value (cost and benefit) inventories, and second that sales or usage – and also favorability or enthusiasm ratings – are likely to track closely with value creation overall. Following on this last idea, but less plainly, the section also notes that aggregate sales, utilization, or favorability rates in themselves often provide only limited information on the specific areas of client cost and benefit driving use or purchase. This observation again recommends adequate probing and cataloging of these essential client features, and once more as an aid or prelude to progressive and sustainable client value creation over time.
Let me end this brief but important discussion of understanding client value by encouraging you to explore and use these ideas in theory and practice. As with the potential entrepreneurs and innovators that I meet informally, you quickly may realize considerable benefits by using this approach, and notably with only modest costs. In particular, you are likely to find that this set of ideas and model for offering or initiative analysis reliably gives you far better focus on current and prospective clients, their immediate circumstances and options, and your opportunities to provide new and then increasing value to them.
As always, I am happy to respond to your comments and questions in this often critical area for career, entrepreneurial, organizational, and leadership success.
Mark Lundegren is the founder of EconomicaNatura.
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