Q: What is the purpose of Multi-Year, and how do I use it?
A: For many B2B products, a standard representation of economic value (or “Basic” Value Model in LeveragePoint, as seen below) is more than enough to help make a variety of strategic decisions , and to provide powerful messaging for marketing and sales.
But unless the unit of measure in a standard value model explicitly indicates a time period, the time element is implicit, and the analysis is generally assumed to cover a single, short period of time.
When it is important to have a better understanding of the changing value of a product over time, and especially when the time value of money is a necessary consideration, we should switch to a multi-period framework to explicitly account for the timing of the various costs and benefits.
Below, notice the following information, which cannot be seen in the traditional economic value model:
- The price that we charge is structured differently from the way the competitor charges. We charge a relatively large fee up-front, but require a lower investment annually thereafter.
- Due to additional switching costs associated with our offering, the value to the customer actually decreases in the first year, beyond the additional up-front fee.
- Despite the high initial costs, the customer breaks even less than three years after switching. Though this chart only shows five years of data, one can reasonably assume that the value to customer will continue to increase.
- The Net Present Value of our offering is clear, and the discount rate is adjustable (both indicated at the top).
Further information can also be found from a detailed look at the time analysis in the table below.
In LeveragePoint, the main difference between a Basic Value Model and a Multi-Year Analysis is just the addition of the Schedule in the Price and Value Driver calculations, as seen below:
To get started with Multi-Year Analysis in LeveragePoint, it is often best to build a Basic Value Model first. Then, from the home page, select the Copy As Multi-Year option from the Actions menu.
To build a Multi-Year Analysis from scratch, select the Multi-Year option from the Create New menu near the top right of the home page.
If Multi-Year does not appear in this list (or the Copy as Multi-Year option in the Actions menu is disabled), please contact email@example.com to request access for your organization, which is included free with all subscriptions.