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The Value Equation: How to Objectively Measure your Business

The Value Equation: How to Objectively Measure your Business

If you could learn to objectively measure your value proposition, would you take the test?

Objectively gauging the value that your business provides allows you to understand your position within the market, who’s ahead of you, and why.

Armed with this information, you’ll have everything you need at your disposal to turn the tides and become the apex of your market. Understanding where your value lies will also determine the prices you can charge, and keep charging, so long as you’re at the top.

Have you ever wondered why two businesses that offer the same service frequently charge drastically different prices? Most markets are dominated by one or two main sellers, while everyone else enters a ‘race to the bottom’ i.e. offer the lowest possible price just to get a new sale.

Obviously, this is a horrendous tactic that slashes margins and ultimately destroys businesses.

So… what are we to do? How can you entice a customer to enter your business and purchase from you, instead of the countless others out there?

Well, thanks to Acquisition founder Alex Hormozi, there is a framework we can follow to identify our value.

Allow me to introduce, the value equation.

This concept is broken into 4 segments:

  1. Identify dream outcome
  2. Assess time delay
  3. Effort and sacrifice required
  4. Perceived likelihood of achievement
 
Whatever your dream outcome is, there are things we must do and/or sacrifice to achieve this.
 
Let’s use the following case study:
 
Sarah wants to lose weight. She is due to attend a friend’s wedding in 90 days from now and wants to fit into her favourite dress for the occasion.
 
What are her options?
 

There are a few things Sarah can do:

  1. Try on her own. Create a meal plan and exercise routine, and try to stick to it 
  2. Join the gym and hire a personal trainer and/or nutritionist
  3. Get surgery
 

Let’s put these three options through the value equation, and see what business is more than likely to get her sale. 

Most diets fail, so let’s immediately exclude option one. That leaves hiring a personal trainer, or getting some form of surgery.

Which business is Sarah giving money to? The personal trainer, or the surgeon?

Given Sarah’s unique circumstances, I’d put my money on surgery, and here’s why.

Sarah is in a rush to achieve her goal, and people will pay premium rates for quick results. If those results can be guaranteed too, then there is little reason not to go ahead with that decision. Sabri Suby tells us about ‘power guarantees’, the concept of utterly reversing the risk associated with a purchasing decision. 

Having said that, lets look at the pricing these two services may offer:

A personal trainer may devise a 3 x weekly exercise routine, charging £50 a session. On top of that, you have a specialised meal plan to follow, which costs an additional £100 a week, not to mention the time in the gym and meal-prepping.

£50 x 3 sessions = £150 a week

£100 food x 1 = £100 a week

Total week = £250
Typical month = £1,000

90 days (3 months) = £3,000

That’s a £3,000 commitment for results that require significant time and sacrifice to achieve, have no guarantee of working (especially if like most of us, Sarah has a history of failing previous diets) – and worst of all, Sarah does all of the work.

Lets take a look at liposuction as the alternative.

Liposuction costs around £5,000, plus an additional £1,000 for any additional, more stubborn areas.

Prices can easy double or triple the cost of a personal trainer, yet the offer seems more appealing.

Why?

Results are guaranteed.

They are immediate.

There is no effort, nor sacrifice required.

The surgeon does all the work.

If you can learn to solve problems while looking through the lens of the value equation, your competition will become obsolete, your margins will soar and you’ll have more customers than you know what to do with.

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