I had that mentality... Until I learned about two separate things, and how they work together.
1. DCF valuations and commercial credit.
2. Perceived Value.
1. Discounted cash flow is when you project how much revenue will come in, in the future (P.O.'s, A.R.'s and subscription income) minus historically budgeted subscription churn, then discount that amount based on the time value of money, current LIBOR, your credit etc... which hopefully brings you to a pretty accurate valuation of that income, if you had it today... "how much would you take today, to forgo that money in the future?"... Then use your DCF as collateral to secure revolving or installment debt. (just like PO and AR financing). I use these credit facilities from specific future earnings to grow other future earnings at a rate that exceeds the financed discount & interest. boom
2. Perceived value, on the other hand, is a customer-centric metric. When used in conjunction with the time value of money, you can sell a lot more dollar volume based on perceived value and time while delivering the same amount of product.
Say you sell widgets... You will make a widget for someone for $400. Thats your price, but you need that money before you start. As soon as you said $400.00, you set a value and term... $400, and now. The customer either acknowledges the value and buys, or doesn't. Now, does the customer have a higher perceived value for the widget over time? YEP. EVERY TIME.
When making the value proposition, creativity is what increases value to YOU (and possibly the customer). you could demand $600, or $1,600 or whatever, just hoping to get your $400. But do you want big money corporate clients? Better have NET30. Now then, how many widgets will you not be able to sell simply because the prospect only has $300? $200? What is it worth to the customer for you to be willing to take $300 or $200 today, and more in the future? What is the future value of the $300 widget to the customer? The "Time-Value perception"?. Like $20 per month for a year? (that's $540 total) Or a widget that you would sell for $400, selling it for $50.00 per month for a year? You just eliminated every customer who had a price objection to your widget. No one counts the cost, they only want the value in perpetuity.
For instance:
If you were able to sell 100 widgets at $50 per month for a year, today, I personally would give you $45,000 in exchange for the cash-flow. Now, I don't know about you, but anyone willing to pay $400 today, is willing to pay $50 a month for a year. And for those that are willing to pay cash today, so be it.
As long as your deliverable's perceived value over time exceeds the intrinsic time value of money, you win.. And you've created a cash-flow vehicle to lever as needed.
EX. Netflix streaming is $9.00 per month. What cash price would you pay today to have Netflix for the next five years? $540? Well, anyone who has Netflix today, will probably have it in five years via 9.00+/month so its a good question... And the answer is, not a soul, even those who could afford it, noone would shell out $540.00, $400, or even $200... The point is, they have a product that's not worth $400 today to anyone, but its worth 9.00/month (forever) to most. Do you know what kind of discount they give to cash customers who buy a year out? Zilch. And we at this forum know the dollar value of a subscriber, or at least should.
lol, I kind of got out of the way here, moral is.... Offering terms can allow you to generate more Dollar value while delivering the same value proposition to the same customer. Your $400 widget could be sold for $800. $400 down and $20/month for 20 months. Then sell that $400 in future earnings to me for $200 on the same day lol
I'm Out,
3PM
On the contract comments I just read before submitting....
If you can't get a contract or signature on a PO or order form, Then get a Legible view of their ID card. Also, have in your Disclaimer page on your website that any Legal disputes are settled in YOUR state/territory/county/district or whatever... Done and done. Small claims, they won't show, summary judgment for principle+cost's+interest, sell the judgment, get profit.
