There are certain tools that can help your brand outperform, outearn and outlast your competitors. One is value chain mapping, which we explored in a recent Insights article.
But there is another instrument; one that can identify the areas of your client’s business that are impacted by your product or service.
It’s called a financial impact analysis (FIA) model, which allows you to demonstrate the worth of your offering, justify price points and more. You assign a value to each area, action or deliverable as it relates to your client’s goals.
Let’s say your prospective buyer is a retailer and you are a lighting manufacturer. Your buyer regularly installs fixtures from your competitor of lesser quality but some of them subsequently don’t work. As a result, the retailer shoulders additional costs and requires more time to reinstall the fixtures.
But if you, the manufacturer, have a strong quality assurance process in place, then it’s a different story. The retailer won’t need to reinstall or return fixtures, reschedule work orders or go without safely lit spaces.
You can build a value for each benefit to justify the price points of your fixtures. These financial impacts provide added value as to why you are the better alternative than your buyer’s current supplier.
With an FIA model, you can attribute the price of installation as a saving to your client’s product. Not to mention the uptime of space and the liability of reduced events associated with fewer installations.
You might even be able to identify the compounding effects in your buyer’s operations and the benefits you drive to its own customers. All these factors add up to financially justify your higher price and reason to switch.
The Distinctive Quality of an FIA Model
Markets and business strategies differ from company to company. And financial impact analysis models can be custom-built to the specific circumstances of each organization.
Take the example of a construction contractor that has to convince a small business of the value of its services. In this case, to remodel, restore or build a space.
The contractor isn’t cheap, but it offers an assurance that it will be the first responder for repairs in the event of a disaster.
To demonstrate the cumulative impact of its promise, the contractor can use an FIA model. It can calculate the small business’s potential revenue loss in securing a repair contractor.
Say that a city-wide flood occurs, and there are a million properties that suddenly need contractors for repair and restoration. But only a few hundred operate in the city.
If the small business is second in line for restoration and repairs, it might take up to 20 additional days. That’s 20 days of lost revenue for the business to get back up and running.
Maybe another factor was the initial construction method that drove up the price, where expansion or repairs were built into the project strategy. In effect, costing a bit more up front but saving potentially much more on the back end.
In an FIA model, the contractor can calculate the financial impact of this downtime on many factors – let’s call this value “X.”
The contractor doesn’t know “X” yet because it needs the small business to provide some of its own financial information. If the business says it earns “$Y” annually and operates “Z” number of days each year, the contractor will divide “$Y” by “Z” days.
In the FIA model, the resulting figure is multiplied by the average number of days that the small business would be back in action.
This subsequently leads to “X” as the estimated loss of revenue. But there might be other factors that could be added
- The cost of temporary spaces
- The cost of securing temporary spaces
- The cost of moving to temporary spaces
- The agent commission on leasing temporary spaces
- The cost of moving IT or phone systems to temporary spaces
- The cost of notifying customers of a temporary move
Now, the small business might not believe every factor to the calculation at first. But the contractor can easily point out that “X” is based on the business’ own financial data.
Even if “X” was considered the worst-case scenario, the contractor could still shave that number in half and show significant revenue impacts.
FIA models are highly configurable, and this example illustrates only some of the many possible impact measurements that you can define.
Using an FIA Model with Input from Value Chain Mapping
You can develop an FIA model without a documented value chain. But from past experience, we’ve found that mapping the delivery cycle of your client’s product or service will reveal more impact opportunities.
For example, we worked with a medical manufacturing client whose value chain we had mapped. This company developed monitoring sensor systems.
While it had some basic financial impact calculations around these sensors, it didn’t factor in key attributes. Such as the construction cycle savings and failure rates of customers attempting to perform stubbing and wiring.
Without these attributes, the manufacturer couldn’t capture the full impact value of a completed sensor system.
The initial FIA model was based exclusively on a final delivery product. This limited the manufacturer’s ability to land prospects who weren’t going to buy the full product in the first place.
In short, the manufacturer was unknowingly preventing users from buying the product at different stages of the sensor completion process. Not to mention devaluing the total system pricing and limiting the upsell.
When you make additional financial arguments around your product or service, you and your customers can achieve strong business results. FIA models are powerful validation tools that collapse sales cycles, protect price points, raise profits and prevent commoditization. They open avenues for your brand to carve a distinct position and grow in the marketplace.
Let us know if you have any questions about branding and how we can help your organization create, transform and grow.