Value equals impact minus total cost of ownership
Value is what remains when you take the whole cost of having the solution from the impact the customer can bank.
Value, in the method, is one subtraction. Take the impact your offer has on the customer’s business, the money made, saved or protected, the risk removed, the capability gained. Take away the total cost of ownership, which is everything it costs them to buy, run and live with the solution across its life, not just the price. Value is what remains.
The equation is useful because both sides of it are numbers and both are the customer’s. It also explains why a discount is such a weak move: it reduces one line of one side, price, and leaves the impact untouched. Every one of the five sources of value works on the impact side, which is where the larger numbers are. A supplier who can only move the cost side is negotiating. A supplier who can move the impact side is creating value, and that is a different conversation with a different person.
Set out in full in: Creating Customer Value Propositions with AI (Kogan Page, 2027), chapter 7.
Related terms
Total cost of ownership
The whole burden of buying, running and living with a solution across its life. Used to change the subject from price before procurement raises it.
Price, cost and value
Three words treated as if they were the same. Price is what the customer pays; cost is what it takes you to produce; value is the only one the customer cares about.
The five sources of value
Bottom line, top line, reputation, strategy and organisation, and the end consumer. Everything above the discount, which is transfer, not creation.
Infinite and finite value
A discount is finite: value transferred, not created. Climb from saving money to making it to protecting the business, and the pie itself gets bigger.
See the method run on one real account in three days: the One Page Proposition.