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Value Drivers: Definition and Examples

Published: 05/24/2022

By: Idaho Trust Bank Staff

Value Drivers: Definition and Examples

Value Drivers: Definition and Examples

Value drivers are defined as activities or capabilities that add worth to a product, service, or brand. A business’ value drivers have a major role in determining its overall success. By analyzing their business’ major value drivers, managers can identify new growth opportunities, mitigate risks, and obtain key insights to guide strategic planning.

A company’s exact value drivers can vary depending on its industry, market share, customer base, and several other factors. Managers must carefully study their business’ strengths, weaknesses, and goals to identify their main value drivers and determine the best value-boosting strategies. There are several different types of value drivers in a business, each with its unique benefits.

Employee Satisfaction

A company’s employee satisfaction rates can boost its value in a few distinct ways. Companies that maintain a good reputation among their current and former employees often become more desirable destinations for prospective new hires. Additionally, prioritizing employee satisfaction can help managers establish a positive culture in the workplace. 

Employee satisfaction can be an important value driver.

There are several notable benefits of a positive work culture that can increase a business's value, including increased productivity, reduced employee turnover, fewer workplace accidents, and lower rates of absenteeism. Company leaders who want to enjoy these benefits can utilize the following strategies to help improve employee satisfaction:

  • Solicit employee feedback: Demonstrating openness to employees’ suggestions regarding operations, policies, etc. can make your staff feel valued and help you identify any areas that need improvement. 
  • Reward good work: Making a point to recognize and reward strong work by your employees can help increase their morale and inspire them to continue performing well. 
  • Monitor onboarding: Studying how new employees adjust at your company (how quickly they learn workflows, how they interact with the rest of your staff, etc.) can provide you with a new perspective on your company culture and policies. 

Over time, consistently high employee satisfaction rates can help your business perform better by attracting the best possible talent, and enable you to lower your operating costs by improving retention.

Solid Customer Base

A strong customer base can increase the value of nearly any business. Maintaining a loyal customer base can help you ensure steady revenue and continued growth. To maximize the long-term value of your customer base, it is important to avoid catering to any one customer or group of customers exclusively. 

If your business relies too heavily on one customer or group of customers, it can lead to a problem known as high customer concentration, which can increase your risk of sudden and extreme revenue loss.

You can reduce this risk and add new sources of revenue by maintaining a diverse customer base. If you’re unsure about your business’ level of concentration risk, answering the following questions can help you determine how your customers and revenue are allocated: 

  • What portion of revenue comes from your top 5 customers? If this percentage is too large, it can leave you more vulnerable to loss, and hinder your ability to serve new clientele.
  • How much revenue is recurring? In business, recurring revenue is revenue that is expected to continue at regular intervals in the future. Common examples of recurring revenue sources include standard subscriptions and predetermined service charges. Evaluating your recurring revenue can help you better manage your expenses, and strong recurring revenue projections can make your business more attractive to investors. 
  • What is the economic useful life of your customer base? The useful life of your customer base is the number of years it is likely to provide revenue. This can be calculated using metrics like average age and purchasing patterns. Comparing the economic useful life of your largest customers with the average of your entire base can help you proactively identify potential concentration issues.

By staying in touch with your customer base, you can get gain a better understanding of their needs and determine more effective strategies for expansion. This can help you increase your business's cash flow and build your brand reputation among consumers and investors alike.

Financial Performance

Financial performance is one of the most commonly used ways to measure the value of a business. Understanding how your company is performing financially can help you gauge your current market value and determine the best way to grow.

There are several types of data that you can use to analyze your company’s financial situation, such as profit margins, cash flow, and revenue growth. Businesses can use financial data to track their performance and grow their value in a variety of ways:

  • Invest in growth: Businesses that appear invested in growth are often more attractive to prospective employees and investors. Some common ways that businesses can invest in their growth include launching marketing campaigns that target new customers, or offering free professional development programs for employees. 
  • Partner with a trusted lender: A business loan from the right lender can help you fund your expansion efforts and give you the tools to increase your revenue in the long term. There are a variety of loan types available to businesses, including commercial real estate loans for financing new facilities, and government-backed Small Business Administration loans that can be used to cover a range of different costs. 
  • Maintain good credit: Good business credit is essential for securing loans and acquiring assets like real estate and insurance. Poor business credit can limit your access to these resources and make growth more difficult. Avoiding purchases you can’t afford and paying off debts (credit card balances, loan interest, etc.) as soon as possible can help you establish and maintain a good credit score.  

Strong financials are another value driver in business.

By studying your financial data, and utilizing the right strategies when borrowing and spending money; you can avoid risk, protect your assets, and identify new ways to increase your business’ value.

Unique Value Proposition  

In business, a unique value proposition (UVP) is a statement that defines the benefits you offer to your customers. A strong UVP can increase the value of your business by building brand recognition and attracting new clientele. Unlike a tagline, a value proposition should convey specific information about what your business does and how it improves customers’ lives. For example, Airbnb’s value proposition is extra income for hosts and a more immersive local experience for guests. 

A business’ exact UVP depends on several factors, and crafting the optimal statement is not always an easy process. There are several different ways that you can identify your UVP and use it to increase your business’ value:

  • Focus on your product’s benefits: When developing a UVP, it is often helpful to list the ways that your product or service can benefit customers, and describe how it can do so differently than competing products/services in your industry.    
  • Determine your ideal customer: Create a buyer persona profile of the customer you’re targeting with your product or service. This should include the interests, goals, needs, and values of your ideal customer. 
  • Prioritize clarity: A value proposition is only effective if people understand it. To ensure a clear statement, you should avoid technical jargon, minimize fluff, and describe the value of your product/service in straightforward terms. 
  • Test your ideas: When brainstorming a UVP, it is often helpful to test your proposed ideas with an unbiased focus group. This can help you refine your statement and ensure that it communicates the right message about the value, benefits, and uniqueness of your product.

Understanding your business’ unique value can help you create an engaging statement that will resonate with your target audience. A well-crafted UVP allows you to clearly define your brand and distinguish yourself from your competitors. 

Technology & Innovation 

Technology can increase the value of your business in several ways. One of the most notable examples of this is the reduction of operating costs. If your operating costs are too high, they can eat into your revenue can have a major impact on your business's overall value.

Innovative technologies like cloud-based communication tools can help you streamline your operations and create more efficient workflows, allowing you to reduce expenses without sacrificing revenue streams. 

In the digital age, there is a wide range of technologies designed for different aspects of a business — from sales, to human resources, to budgeting. However, the choice of which technology to use may vary depending on several factors, such as your industry and the size of your business. Here are some additional steps you should consider when incorporating technology into your business: 

  • Analyze your practices: Study your operations (HR, accounting, database management, etc.) and determine which areas need improvement.  
  • Define your needs: Different businesses use technology in different ways. For example, a large department store may utilize inventory management solutions, while an architectural firm uses computer-assisted design software. It’s critical to carefully consider your business's most pressing needs, and look for technology that fits these needs.
  • Study industry trends: Observing how major competitors in your industry use technology can help you discover new tools and identify new solutions for integrating technology into your operations.  

If used properly, technology can help you decrease your business’ operating costs and improve the quality of your products. By studying your unique needs and the current trends in your industry, you can determine the best way to increase your business’ value with technology.

How Value Drivers Can Improve Business Performance

Value drivers can enable your business to perform better in several ways. They can help you increase your revenue, decrease your expenses, protect your assets against risk, introduce your brand to new groups of consumers, attract talented employees, and identify better approaches to investing

To accurately identify your value drivers and maximize their potential benefits, it’s critical to study your business and develop a customized growth strategy with the help of a trusted financial partner. Consulting with an experienced professional can help you ensure that your assets are managed responsibly.