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Plutora Blog - Business Intelligence, Release Management, Value Stream Management

Business Value: A Guide to Delivering and Measuring It

Reading time 8 minutes

The goal of software development is ultimately to deliver business value. A company’s software supports many critical business operations. For software development companies in particular, IT services make up their most valuable asset.

This article discusses the following aspects related to measuring and delivering business value:

  • What is business value?
  • How do you measure business value?
  • How do you deliver business value?
  • What’s the relationship between customer-centricity and business value?
  • How do you define customer experience to increase business value?

Let’s first answer the question of what business value means.

What Is Business Value in IT?

It’s not straightforward to define “business value.” If you ask different business managers, they all have their respective answers when it comes to business value.

So what is business value exactly? Business value refers to the benefits a business generates for its stakeholders. A stakeholder can be anyone ranging from a client to product user to investor. Moreover, business value refers not only to a business’s ability to create long-term revenue, but also to the ability to create products, services, employment, and investment returns.

The physical assets a company owns are an example of business value. But your employees are also an example of business value. For example, a skilled workforce heavily contributes to the overall business value.

Even an organization’s network of social connections contributes to its business value. Having a strong network of connections is often very valuable for an organization. It allows them to connect with companies to sell more services as well as outsource non-core tasks for their business.

As you can see, business value can be defined quite broadly. Next, let’s learn how to measure business value.

Recommended reading: Business Value of a Release

How Do You Measure Business Value?

Business value is very dynamic, so it’s not an easy task to capture and compare business value. Here’s a list of elements that you can measure to determine your organization’s business value.

#1. Revenue

One of the main indicators for measuring business value is revenue. Revenue acts as a raw number that shows the total income generated by your organization, including all costs. When the total revenue for your organization rises, it’s often perceived as a positive sign.

#2. Profitability

Profitability is an accounting metric that you can use to determine the financial success of your company. However, it’s not exactly the same as profit. Profit refers to the revenue minus all costs. Whereas profitability comes with a small difference. Profitability takes into account the size of a business to come up with a relative profit ratio.

You can use the profitability metric to track changes in the company’s efficiency. For example, your company may grow in size and profit might increase. However, you might find out that your business value hasn’t improved as the profitability score is still the same. Therefore, it’s a very accurate metric for measuring the impact of process optimization on your total profit.

#3. Customer Loyalty

According to sendpulse.com, customer loyalty “is a measure of a customer’s likeliness to do repeat business with a company or brand. It is the result of customer satisfaction, positive customer experiences, and the overall value of the goods or services a customer receives from a business.”

You might wonder why customer loyalty matters. When a customer is loyal to your product, they often don’t care about your pricing. All they care about is receiving the same quality and value out of your IT products or services. Therefore, the more value you can create for your customers, the higher your customer loyalty becomes. Therefore, it’s a good metric for measuring business value.

#4. Customer Retention Rate

While customer loyalty measures the number of people who make repeated purchases with your organization, customer retention measures customer satisfaction in a similar way.

The customer retention rate measures the percentage of customers a company has kept over a given period. For a software company selling IT services, the customer retention rate is crucial for measuring user satisfaction. Unsatisfied users are more likely to look for alternatives that offer them more value.

Therefore, it’s a great metric for tracking the success of your product. Whenever the customer retention rate decreases, it’s a good sign something is wrong or a competitor offers an IT service that provides customers with more value.

customer retention rate formula

The customer retention rate can be calculated using the below formula. “EC” stands for the number of customers at the end of a period. Whereas “NC “represents new customers for this period, and “SC” is the number of customers at the start of a period.

Customer Retention Rate = ((EC-NC)/SC) * 100

To give an example, say you’ve released a new monitoring tool and started the month with 1,000 users. During this month, 200 clients didn’t extend their monthly plan, while 400 new clients have signed up for your monthly plan. Let’s put this into the formula:

((1200-400)/1000) * 100 = 80%

As you can see, we managed to retain 80% of our customers. For IT services, a retention rate to aim for is 81%. IT service providers often experience a higher IT rate as IT services are heavily focused on customer experience.

#5. Market Share

Lastly, market share matters for determining a company’s revenue as a percentage of an industry’s total revenue. When your organization gains market share and the customer retention rate increases, you can be pretty sure you are delivering the right value to your customers.

However, when your market share shrinks, it might be an indicator that a competitor delivers more or better value than your IT service.

So how do you deliver business value?

How Do You Deliver Business Value?

There’s no clear path to delivering business value. However, let’s discuss elements that influence your organization’s business value.

First of all, having a clear vision does matter. You need to understand as an organization what you’re trying to achieve. The question you must ask yourself is this: “How does my service add value for customers?”

Next, create business processes that support your vision and help you improve business value. Once you have defined processes, you can start measuring business value metrics. This allows you to measure business value progress.

If you want to deliver business value rapidly, take a look at Plutora’s value stream management solution for IT organizations.

Next, let’s discuss why customer-centricity is crucial for driving business value.

Why Customer-Centricity Matters to Drive Business Value

Customer-centricity focuses on providing a positive customer experience to drive profit. In other words, you develop IT services with the customers’ needs in mind.

For example, you can use a survey to better understand your customers’ needs. From here, you can tailor your IT services to meet your customers’ needs. It’s important for quickly gaining a competitive advantage over your competitors. Furthermore, customer-centricity helps you build loyalty, which is one of the key measures to deliver business value.

In conclusion, many organizations don’t realize that business value starts by understanding your customers’ needs. From here, you can start tailoring IT services to provide maximum value to your clients.

Defining Customer Experience With Forrester to Increase Business Value

forrester CX quality
(Source: Forrester.com CX Index)

According to Forrester, customer experience (CX) is made up of two aspects: customer experience quality and customer loyalty.

The first aspect, customer experience quality, consists of three elements. The effectiveness of your product is an important criterion for customers as they want to retrieve value quickly.

Furthermore, the ease of use of your product matters. Your IT product must be convenient to use. For example, offer API integrations so clients can export data, connect various services, or build tools on top of your product to increase value.

Lastly, emotions matter! How do your users feel about using your product? What’s their overall experience? A nice-looking interface will positively influence your customers’ emotions.

Furthermore, we can define the second point, customer loyalty, as an aggregation of retention, enrichment, and advocacy. Retention refers to the likelihood of existing users continuing to buy your services. Whereas enrichment refers to existing clients buying additional services or products you offer. Lastly, advocacy is an important element for a business’s success. It refers to the likelihood of a customer recommending your service to someone else. This type of word-of-mouth advertising is highly effective for attracting new clients.

Wrapping up

Delivering consistent business value isn’t an easy task. Luckily, many metrics help you with measuring business value, such as profitability, customer retention rate, or customer loyalty.

Customer-centricity is one of the key aspects to increasing business value. Start by analyzing your customers’ needs to design services they need and provide them with consistent value. Want to learn more about business value and how to streamline it? Take a look at Plutora’s value stream management platform. Feel free to request a personalized Plutora demo of the platform.

Michiel Mulders Michiel Mulders

Michiel is a passionate blockchain developer who loves writing technical content. Besides that, he loves learning about marketing, UX psychology, and entrepreneurship. When he's not writing, he's probably enjoying a Belgian beer!