Subjective P/V Ratio
If you are asking for money in return for a product or service, you must be able to demonstrate your P/V Ratio. There are three common ways you can do that. The first tends to be subjective in nature. You buy fire insurance, but only collect if there is a fire which almost never happens, yet just about everyone has fire insurance. What’s the value? It’s peace of mind.
Things like peace of mind, pride of ownership and security are forms of subjective value that people are willing to pay for, but it’s hard to give a quantifiable ROI. People line up to be the first one with the new smart phone or tablet and will pay a premium price to be first among their friends to have one. But that is merely subjective. You can sell the subjective value, but can’t put a measurable value on it. Hence the popular MasterCard commercials with the tag line… “Starting a new life together… PRICELESS!” (or variations of that theme)
Hybrid P/V Ratio
This is where you can demonstrate measurable returns but not guaranteed. For example, if you can show value in terms of believable increased opportunity or usable knowledge, that can give you a strong case. Take for example, the International Christian Business Institute… We teach Biblical sales strategies and business building models adapted from Scripture and nature’s laws.
It’s a demonstrable fact from hundreds of testimonies that people who go through the training and apply what they learn, experience HUGE surges in their business. Some are immediate. Others see their results trend upwards and remain in place for the rest of their career. As powerful as that is, the ROI is 100% dependent on their effort and therefore not guaranteed.
I was once being considered to do sales training for a company with about 80 sales reps. I was charging $900 per sales rep for the two-day training. It was a big investment for them and an account I wanted. I was brought into a management meeting to discuss and in their mind, negotiate my fee. I told them it was non-negotiable. They asked me what guarantees I could offer. I told them, “If you want a guarantee, buy a toaster!”
Why, would I say such a thing and jeopardize the sale? Because the result would depend on their effort. I would deliver my value proposition, but if they didn’t follow through on their end, the result could be dismal. They appreciated my candor, paid the full price and that year increased their sales by almost 40% after being stagnant for the previous three years!
One thing you can do to help establish the P/V Ratio is by demonstrating the likelihood of at least getting enough financial value to cover the cost of the product or service. In my business, it’s one thing to share countless testimonies of great success stories, but in reality, it doesn’t have to be that good to establish a strong P/V Ratio.
In most cases, adding just one more sale of their product or service in a year will more than cover their investment. For a lot of people, it’s easier to believe they can at least get one more listing or one more sale or one more contract in the next year than to believe they can actually double their income, as many have done. So, while it’s good to show what’s possible and even what others have done, be sure to also show the minimum result necessary to earn their money back through your product or service.
Mathematical P/V Ratio
But there’s another number people are looking for. Not only do they want to know if there’s a good P/V Ratio, but they also want to know if they are getting a “good deal”. This is easier to show but harder to do. For example, I could offer my school for $99, but the school could not stay open. So, I have tried to make it accessible for as small investment as possible while still returning a manageable return for the school and have offered a discounted price during our roll out phase that puts this within reach of lots of folks.