The Magic of Numbers in Communicating Value

The Magic of Numbers in Communicating Value

A Never Stop Learning! Article

“Measure what is measurable, and make measurable what is not so.”

– Galileo Galilei

Which of the following vendor statements has more impact?

“If you buy our software, you’ll save time and money…!”

“If you implement our software, it looks like you will reduce your project completion time by 20%, you can redeploy 4 FTE to other more valuable tasks, and you will save over $750,000 annually, based on the numbers you provided.”

The difference between these two approaches is striking and has a huge impact on your prospects’ perceptions of value!

What’s in This Article for You?

Words vs numbers
How can three minutes be worth $24 million?
Building a compelling business case
Comprehending numbers and making them tangible
Aligning value communication with job title
The power of annualizing!
Some numbers you should memorize
A bit less about numbers
When should value be communicated?

Words vs Numbers

Sales, presales, and other customer-facing staff are repeatedly urged by their managers to “communicate value.” Some players fail completely and only present features: “We have this fabulous Biframulator function!” This is representative of a far-too-large population of customer-facing staff.

Others try to communicate value, but their statements are vague and meaningless. For example, “With our Biframulator feature, you’ll save time and money!” While slightly superior to the first group, these statements are useless in enabling prospects to buy your offerings.

A smaller, wiser population of vendor staff offers benefits statements that match capabilities to prospect needs. For example, “And you told us that this Biframulator capability is an important part of the solution you need.” This type of communication is better because it shows that some amount of discovery was completed and acknowledged. However, this value statement is still insufficient to support buyers’ internal cost justification requirements.

Solution Selling, CustomerCentric Selling, and other sales methodologies define the differences between features, advantages, and benefits as:

Features are descriptions of the capabilities offered in a product or service.
Advantages are the gains or improvements that a customer might enjoy but are communicated without any confirmation of need on the part of the prospect (they are pre-discovery statements, accordingly).
Benefits represent the value a product or service can provide and include the prospect’s confirmation of the need or desire (post-discovery).

With this in mind, here are three examples of communicating value following these definitions:

Feature Approach: “If you buy our software, you’ll save time and money…!”
Advantage Approach: “Some of our other customers have saved thousands of dollars with our solution.”
Benefit Approach: “It looks like you’ll save over $750,000 annually, based on the numbers we discussed.”

Question for you: Whose numbers are most believable?

Feature Approach: Nope, it’s just an empty claim from the vendor.
Advantage Approach: Better, since the numbers (in theory) came from another customer and are therefore a bit more believable.
Benefit Approach: Best, without question, because the numbers came from the prospect!

Newly minted vendor customer-facing folks tend to start with feature statements. Vendor staff who are still junior, but developing, seek to avoid feature statements and focus on advantages and benefits. Seasoned veterans know that benefit statements have the most influence and guide their conversations accordingly!

Now let’s return to our initial question about the impact and revisit the second value statement, “If you implement our software, it looks like you will reduce your project completion time by 20%, you can redeploy 4 FTE to other more valuable tasks, and you will save over $750,000 annually, based on the numbers you provided.” (FTE = Full Time Equivalent.) This is a benefit statement since it is clear that a discovery dialogue uncovered both the need and the associated quantified value for this prospect. Best of all, these numbers came from the prospect’s lips as opposed to the vendor’s.

The best benefit statements communicate tangible value in the form of specific prospect-derived numbers. These quantities enable the buyer to build and present their internal cost-justification materials with a reasonable expectation of success. This is the most effective, most compelling, and most useful way to communicate value!

Next, how do you uncover prospect value elements like these above? Through discovery, with a specific objective to capture meaningful value metrics. And how do small improvements (Deltas) combine into large payoffs like the example above? Is it magic?

A Little Goes a Long Way

Nope. It’s math!

Some years ago, there was an explosion of interest in electronic health record (EHR) software, driven partly by government regulation and incentives. EHR software is what you see on your physician’s computer screen that lists your medical history, medications, test results, and similar information.

During discovery conversations, doctors confirmed that by using these EHR systems they could easily trim a few minutes from writing up and entering their notes after each patient visit. A Delta of three minutes was often the agreed-upon amount of improvement. Amazingly, many (many!) EHR sales were based on saving these three minutes per doctor-patient interaction.

Just three minutes: That can’t yield significant gains, can it?

Ahhhh, arithmancy: The magic of numbers!

In the U.S., a typical doctor might see fifteen patients a day. If three minutes are saved with each interaction, that amounts to recovering forty-five minutes each working day. At 220 working days per year, that’s 165 hours per year, per doctor.

The average U.S. hospital has about 135 doctors, so 135 doctors x 165 hours/doctor = 22,275 hours saved per year for that hospital. There are about 1875 working hours per year, giving us 22,275/1875 = ~12 doctors. That’s like getting twelve “free” doctors without any additional hires!

The average doctor’s salary in the U.S. is ~$200,000. Assuming a (very low) burden of 50%, each doctor costs the hospital $300,000 annually. So, the ability to gain twelve “free” doctors amounts to avoiding spending $3.6 million annually.

That’s right: three minutes save the hospital $3.6 million by avoiding the need to hire twelve additional physicians!

That’s a cost-avoidance approach. A second, incremental revenue approach is even more compelling: Each doctor generates about $2 million annually. So, the equivalent of twelve additional doctors generates $24 million in incremental revenue, without adding a single new physician.

Abracadabra!

The magic of numbers: The three minutes saved with each doctor-patient interaction generates an additional $24 million annually! (That’s a big rabbit you just pulled out of your hat!)

Your prospect is delighted to see how much they stand to gain, but they need help building their internal cost-justification materials. Let’s help!

Building the Business Case

For our simple example, we’ll subtract the costs of the new EHR system from the expected gains.

To start, what is the typical cost for the EHR system? The average number is $1200 per user annually. 135 doctors at $1200 per year = $162,000. Let’s add another $100,000 for implementation, giving a total first-year cost of $262,000. The average implementation time is about six months before full use can be expected.

First-year Costs:               $262,000
First-year Gross Gains:    Half of $24 million = $12 million
First-year Net Gains:       $12 million – $262,000 = $11,738,000

Second-year Costs:                         $162,000
Second-year Gross Gains:             $24 million
Second-year Net Gains:                 $23.8 million (rounded down)

That’s a net gain of $11.7 million in the first year and $23.8 million in each year thereafter. (And yes, dear student, there are indeed other costs and other gains associated with this purchase and implementation, and the astute sales team and prospect buying committee would include these in their analysis. However, the enormous, expected gain likely outweighs many of the smaller factors…!)

All because of saving just three minutes per interaction. A little does indeed go a long way and that’s no hocus-pocus!

$24 million. Hmmm… How many of us can comprehend that amount of money? I know I wish I had $24 million, but I don’t have a good idea of how much that really is!

Comprehending Numbers

Most of us can easily visualize a room with a dozen people in it: That’s a moderate-size conference room. Thirty people fill a typical classroom. But as the number of people grows larger, most of us struggle to comprehend the actual amount. Consider:

You are at a U.S. high school assembly: How many students are present? (The average U.S. high school has 750 students.)
You are in a large music auditorium: How many people does it hold? (Davies Symphony Hall in San Francisco has 2,743 seats.)
You are at a football game (U.S.) / football match (everywhere else): How many fans can the typical stadium hold? (Allegiant Stadium in Las Vegas holds 65,000 screaming fans; Wembley Stadium in the UK has seats for 90,000 potentially unruly devotees.)

It gets even harder to imagine larger groups:

There are about 136,000 people living in Humboldt County, California, spread out over ~4,000 square miles. Hmmm: That’s about the same number of people as two Allegiant Stadiums but compacted into ~0.21 square miles. (Easily done through prestidigitation and legerdemain!)
California has a population of 39 million people. Frankly, I can’t find a way to visualize that number at all!
The Earth today holds over 8 billion people. Mind-boggling!

Our ability to comprehend large numbers is limited and this can impact our ability to communicate value to our prospects and customers. While we’ve just seen how three minutes can yield $24 million in potential gains, very few of us can visualize what $24 million really means!

What can we do to help?

Making Monetary Numbers Tangible

How much can $100 buy? $1000? $25,000? It is often hard to associate an amount with a tangible deliverable, and it gets more difficult as the numbers get larger:

In the U.S., $1 buys a pound of fresh vegetables, on average (453 grams).
A typical book costs about $16.
The average cost of dinner in a restaurant for two in the U.S. today ranges from $45 (two seniors, sharing a burger with fries and two beers, including tax and tip) to $150 or more (highly dependent, of course, on location, appetite, and selection!).
$1,250 buys you the average washer/dryer in the U.S. (installation not included).
The typical compact car costs $25,000 (registration, insurance, taxes, fuel, and maintenance are also not included!).
$390,000 is the price for the average house in the U.S. (I won’t even begin to list what is not included in this amount, so be prepared!). For most people, this is the most expensive item they buy in their lives.

Above this amount, it gets harder and harder to comprehend:

What can you buy for $1 million? A really nice house? (Or a garage in the heart of Silicon Valley?)
What can you do with $10 million? A penthouse in New York?
$100 million? That’s a typical cost for a new freeway interchange in California (of course, the original estimate was that the job could be done for $35 million…!).
A billion? I have no idea…!
A trillion? I’m not even sure how many zeros to use!

So, when communicating value, especially with large numbers, we need to tie them to things that are concrete. In our healthcare example, the three minutes saved with each interaction translated into the equivalent of gaining twelve additional doctors: That’s something that most of us can visualize.

To give you an example that might be close to home, a successful SaaS company generating $24 million annually could be your company if you have about 120 employees (based on a good ratio of $200,000 of revenue per employee). You can use this ratio to scale up or down: A smaller successful company of 60 employees would generate $12 million, etc.

Here’s another: I am sad to report that I have flown over 3 million miles on United Airlines. How far is that? It’s like circling the Earth 120 times at the equator or traveling to the moon and back six times! (“Aaaaaagh!” was my quiet scream when I realized this!)

The challenge when communicating value is to find tangible examples that your prospect players can comprehend. But, even with concrete examples, will they resonate with all prospect players?

Numbers Need to Align with Job Title

I was on a sales call supporting one of our less experienced salespeople and I was watching the prospect’s reaction to some of his statements. It wasn’t going well!

He said, “So, it looks like you’ll gain about $2 million each year by implementing our software.”

The prospect players’ response was silence. No excitement, no discernable interest. What was going on?

The prospect participants consisted of front-line managers and their staff members. I heard one staffer lean over to a colleague and mutter, “Two million? We won’t see any of that!”

Even though sufficient discovery had been completed and the numbers had come from the prospect, this group remained unconvinced.

Why? Because value statements need to align with the job title!

There are three interchangeable measures of value: time, people, and money. Each needs to align with the corresponding job title, or job title level to be more precise.

What are high-level prospect players interested in saving or gaining? Money! When speaking to high-ranking prospect representatives such as C-level, senior VPs, and VPs, their metric of interest is money. For these folks, gaining $24 million each year resonates strongly.

What about middle managers? What are the numbers that motivate them? (Your turn to guess…!) If you said “people,” you are correct! Yes, money is of some interest, and time savings as well, but what do middle managers always request when it is time to plan budgets for the next year? People! “We need more resources…!” is the ongoing cry.

So, we need our salesperson to translate $24 million into people resources, and we already have that number for our hospital example: twelve additional doctors. Our salesperson rephrases, accordingly, when addressing the department heads, “It looks like you’ll gain the equivalent of twelve more doctors by implementing our software…”

This time, we see positive engaged head nods from the middle managers on the prospect team. They can visualize twelve additional headcounts contributing to their team.

OK, the executives are now looking forward to an incremental $24 million in revenues and the department managers are already updating their doctors’ schedules in their minds to accommodate the additional doctor-patient interactions represented by twelve additional doctors.

What about the balance of the staff, what about the doctors themselves? What motivates them?

One motivation is intangible, which is improved patient care. The other is time. By seeing more patients each day, they can visualize improved patient care and (hopefully) improved outcomes. And by saving three minutes recording in their notes with each interaction, they recover forty-five minutes each day that were previously consumed by laborious manual documentation (to say nothing about readability, transcription errors, etc.!). Forty-five minutes is a quantity of time that is easy to picture, and it resonates with the doctors.

Summarizing, when communicating value, we need to align with prospect job title and level:

Executives are interested in gaining or saving money.
Middle managers want more people
Staffers want to save time (and go home on time!).

At the same time, we need to make the numbers we present as comprehensible as possible. Forty-five minutes is a unit of time most everyone can grasp. Twelve people, similarly.

But what about $24 million? There is, in fact, one group of prospect players that are often very good at understanding large monetary quantities: Executives!

Aligning Numbers with Budget Levels

While staff-level folks typically never deal with budget questions (other than asking for a raise!), managers are expected to be budget-aware and, at minimum, work within their budget limitations. As you ascend the management hierarchy you are expected to propose budgets for your team, as well. Executives often define budgets for their organizations and, in many cases, may be required to create budgets for entirely new departments or programs. (This last case is a lot like pulling a rabbit out of a hat!)

And while middle managers may approve compensation changes for their team members, they may not actually be responsible for the actual cost of their employees in their budgeting process. For example, a marketing manager might control the spending for advertising, tradeshows, lead generation, and associated travel, but those numbers won’t include the full cost of the marketing team. Those people expenses roll up to the head of marketing.

Why is this important? Because it gives us an understanding of various management levels with respect to comprehending large monetary numbers. A SaaS company generating $40 million in revenues might allocate $4 million to marketing overall. For the head of marketing, this number includes the marketing team in addition to marketing programs and associated expenses. $4 million is a meaningful amount to that head of marketing; it is a number that can be visualized in terms of the team and their activities.

A product marketing manager, on the other hand, is given a portion of this overall budget to promote their product(s), which might amount to a few hundred thousand dollars for content creation, placement, lead generation, and related costs. This person can comprehend $250,000 accordingly but may have difficulty picturing what $4 million represents.

At one point in my career, I was responsible for managing a team of over one hundred individuals to generate $30 million in revenues. My budget was about $20 million, accordingly, which included all the costs and activities required to deliver $10 million of profit (pretty good ratio!). $20 million was a meaningful number for me, as a result.

Executives are often a special case with respect to their ability to picture the utility of large monetary numbers. (This also makes them a poor choice when a magician looks for volunteers to “Pick a number, any number…!”)

Now, let’s return to our three minutes saved per interaction example. Why did we work through so many calculations to arrive at the $24 million number?

Annualize

When communicating value, we need to present the largest reasonable figures. One simple way to accomplish this is to annualize our calculations.

Let’s say that during a discovery conversation, we learn that our prospect can save one day each week by implementing our software. We could leave it at that, but it isn’t very compelling!

On the other hand, if we annualize our findings, it amounts to about fifty days per year. That’s much more interesting: That’s nearly a quarter of an FTE (Full Time Equivalent)!

But wait: The prospect was simply describing one individual on a team, and it turns out that there are ten people all suffering the same issue. On a weekly basis, this amounts to saving ten days for the team, but annualizing the calculation we find that our prospect can recover 500 days annually. That’s a lot more! (Flick your wand and say, “Engorgio!”)

We glance at our prospect, a middle manager, and realize that they can’t really visualize what 500 days saved can mean. We say, “500 days – that’s a bit over two FTEs, so that’s like freeing up two members of your team to focus on other, more valuable activities.” Our prospect immediately “gets it” and starts thinking about other neglected tasks that now could be addressed.

“Wait a moment…,” I hear you cry. “Where did you get ‘two FTEs’? Where did that number come from?”

Some Numbers to Know

Value calculations rely on a number (pun intended!) of constants that every customer-facing vendor player should learn and memorize! Here are a few:

Working Days per Year: About 238 for the average U.S. company (that’s 365 days minus weekends, holidays, two weeks of vacation, additional personal time off, sick leave, etc.). The specific numbers will vary depending on industry and region. For example, in France, the number is about 216 and in Germany, it is about 230. Of course, people at start-ups work about 400 days per year!
Working Hours per Year: This is dependent on the number of working days per year and the number of hours worked each day. Someone who works 238 x 8-hour days per year spends about 1900 hours laboring annually; those who have a bit more time off and work 220 x 8-hour days invest about 1760 hours in their firms each year. 1800 hours is a reasonable average, but again you should investigate the specific numbers for your prospects’ situations.
FTE Rates: FTE is “Full Time Equivalent”, which translates to the full cost of an employee. This includes salary and other compensation, benefits, and the portion of the business’ overhead that is attributed to that employee. This last component might include office space, office equipment, and associated services.

In simple terms this can be broken into two components: compensation and burden (or “overhead”). Knowing typical rates for both enables the kinds of calculations we’ve (ahem) enjoyed earlier in this article. Burden rates generally range from about ¼ to ½ of the employee’s salary for office-based businesses, but can go up much higher for industries that require more equipment or supplies, such as manufacturing and healthcare.

So, once you know the average compensation for your prospects’ employees and their typical burden, you can quickly calculate their FTE rates. For example, someone who makes $100,000 annually and has a 1.5x burden has an FTE rate of $150,000. Simple arithmancy!

Are there other numbers or “constants” you should know? Yes, most likely, and these will depend on the nature of your offerings and your prospects’ industries and locations. In the world of chemistry (my background), one can expect that a typical bench chemist can complete about one experiment per working day (depending on the type of chemistry, of course!). You can probably find these constants for your situation in a few web searches. (The average magic trick takes about five minutes, for example!)

Question: Why did I use 220 working days per year in my calculation as opposed to 238?

A Bit Less About Numbers

The math constant π (Pi) has an approximate value of: 3.141592653589793238462643383279502884197… For many calculations, we round this down to 3.14, but for a quick estimate of a circle’s circumference or area, we simply use 3. Why? Because the single digit is much easier to remember and use!

In our doctor-patient interactions example, the actual first-year net gain was $11,738,000. This is the correct number, but it is hard to remember (try saying it rapidly several times…!). $11.7 million is quite a bit easier and saying ~$12 million is even more so.

Along similar lines, if you found that your prospect could redeploy 5.23 FTE to other, more productive tasks, you have several choices of what to communicate:

23 is the exact number and is generally what you should use in detailed cost-benefit calculations.
25 (or 5¼) is easier to articulate and grasp.
Rounding down to 5 is the simplest form and represents a safe, conservative approach.

In most situations, simple numbers are the recommended approach. However, there may be situations where the impact of a very specific number is particularly memorable and effective. For example, in a study of demo effectiveness, the authors analyzed 67,149 demo recordings. When presenting the results of the study, saying the precise number of 67,149 appeared to have more impact than rounding it down to “about sixty-seven thousand.”

Bonus: For a terrific book on communicating numbers, read Making Numbers Count by Chip Heath and Karl Starr. Many of the ideas in this article are drawn from their work. Double Bonus: Chip and his brother Dan also wrote that seminal book on storytelling, Made to Stick, which should be required reading for all customer-facing folks!

When Should Value Be Communicated?

When should you communicate tangible, specific value in your demos? Frequently!

In Great Demo! methodology, our guidance includes:

Right at the beginning of the demo, when presenting your Situation Slide(s).
When you describe Illustrations (which should include What the audience is seeing, How it helps to solve their problems, and the tangible Value associated with making the change).
In interim summaries.
In your Final Summary.

In comparison with mere words, crisp communication of value using numbers elevates your prospects’ understanding and dramatically increases the utility of the information. Numbers enable a magic that words alone cannot achieve!

OK, now pick a card, any card…

To learn the methods introduced above, consider enrolling in a Great Demo! Doing Discovery or Demonstration Skills Workshop. For more demo and discovery tips, best practices, tools and techniques, explore our books, blog and articles on the Resources pages of our website at https://GreatDemo.com and join the Great Demo! & Doing Discovery LinkedIn Group to learn from others and share your experiences.