Who is responsible for value documentation?
Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.
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Value documentation has emerged as a critical part of the value cycle. For business models based on subscription or repurchase, the ability to document value delivered to buyers and users is an important competitive advantage and will drive long term renewals and growth. Subscription models really only work when there is a high level of customer retention and value documentation is one of the best ways to improve retention.
The value cycle has five spokes, turning on the axis of value understanding.
Value creation - is the job of product and services development (and service delivery for professional services). Value has economic, emotional and community aspects and is relative to the alternative. Although product development is responsible for value creation, it relies on strategic marketing (which includes pricing) to understand what value to create.
Value communication - one can do a great job of creating value and fail to communicate it properly. Look at your own company’s offers and ask …
Do people in product and service development, marketing, sales and customer success all understand value in the same way?
Does the business buyer understand the value we will create for them?
Does procurement understand (or even care) about the value being created?
Do the users experience the value? Value is part of User Experience UX.
Value delivery - one can create the potential for value with the product or service, and communicate that value, but when it comes to implementation and ongoing support is that value actually being delivered?
Value documentation - you may be doing a great job in actually delivering value, but are you documenting this so that it can be communicated back to the business buyer and procurement? Most companies do not do a great job documenting the value they deliver and this can undermine everything else.
Value capture (or pricing) - value-based pricing, where the price is based on value, is the most effective way to capture your fair share of the value you create; in value-based pricing the pricing metric (the unit of consumption for which the buyer pays) should track the value metric (the unit of consumption by which the buyer gets value).
Before we go on, let’s take a quick look at the impact of retention on Customer Lifetime Value and revenue growth. At a renewal rate of 50% a $100 subscription has a lifetime value of $250. At 95% this goes up to $2,000. An eightfold difference.
This has a big impact on revenue. Over five years, a company that adds $100,000 in new subscriptions each year will see revenue of $452,438 in year five at a 95% retention rate and $211,038 at a 55% retention rate.
Who in the organization should be responsible for value documentation?
Collecting the data needed for value documentation is a big gap at most companies. A few companies do a good job building value models and collecting the data needed to bring these models to life in their marketing and sales process. These companies generally have some form of formal data model, a value calculator, and a process for asking the questions to get the data to inform that mode. This is an excellent foundation. If you don’t already do this then start.
It is not enough. The assumptions made by buyer and seller during the sales process are often quite different from the facts on the ground. Any implementation team can confirm this. It is critical to take the value model developed by marketing and pricing (the general value model for the segment) and the assumptions input during the sales process, and make sure that they are what is happening as the solution plays our over time.
Who should be responsible for doing this?
There are two answers.
The person responsible for upsell, cross sell and renewals.
The person responsible for delivering the value.
In some companies these will be the same person. When they are not, they need to work as a team. Delivering value is the central job of customer success. Documenting value delivered is central to the customer success job description.
