Value Pricing 101: Build a Customer Value Model

Any business can benefit from building a model that quantifies the amount of value they create for their customers. A value model helps sharpen market focus, provides guidance on pricing, and inspires more effective marketing messages. This is particularly important for HealthTech SaaS companies who are looking to sell into the life sciences industry. The cumulative impacts of an uncertain economy and a maturing B2B SaaS marketplace means that life science customers will be a harder sell, so positioning on value is key.

To do that you need to be able to describe exactly how your solution improves the customer’s business model (ie, makes them more money). A good understanding of your customer’s business model is an essential first step.

The second step is to describe where and how your solution improves the model. Generally speaking, model improvement falls into two buckets: 1) increase revenue or 2) reduce cost. The challenge is that there are literally hundreds of different ways of doing both of those things. Brainstorming all the different ways and then choosing the few most powerful improvements that your solution legitimately delivers represents the bulk of the heavy lifting in this work.

For example, assume your solution can somehow help a pharma company bring their new drug to market faster.  What does that value model look like?

An obvious place to begin is to figure out how much revenue the company stands to make. In the industry, there is a common adage about new drugs being worth, “a million dollars a day.” This, of course, doesn’t apply to every new drug. Many sell for far less than that, although a few blockbuster treatments can go higher. Regardless, if you can estimate how many days your solution can really reduce go-to-market time, then it’s just a simple matter of multiplying that by the potential revenue per day. From this perspective, your solution’s price will look like a bargain to the customer. 

Estimating reduced costs uses the same logic.

Figure out how much your customer spends in a cost area and estimate how much your solution improves it. Often an innovative solution can eliminate a lot of “hidden costs.”  For example, many healthcare providers have manual billing processes that often result in errors. Improving quality can significantly reduce the amount of time for payment. Every day saved here directly translates into lower financing costs for the healthcare practice.

The last step - after you identify and estimate your solution’s value - is to communicate it effectively. Here you’ll need to create marketing and sales collateral that show credible examples of the business results you deliver. It’s important that the sales team is adequately trained so they can confidently present these value claims.