MaRS Library Revenue models: High-value transactions—capital equipment, medical devices
High-value (or “big-ticket”) transactional revenue occurs when a large, one-off payment is made to transfer ownership of a physical good such as capital equipment or medical devices.
High-value transactional revenues are very common in the cleantech and medical devices markets. Big-ticket transactions occur frequently with the exchange of capital equipment, complex medical systems or large physical infrastructure items.
The seller must build trust and credibility with the buyer as a prerequisite for big-ticket transactions. Such a relationship is commonly associated with long sales cycles and guarantees of ongoing service availability.
Marketing issues related to high-value transactional revenue
Because purchase decisions for high-value items rely on a long sales process, sellers must incorporate sufficient margin in the sales price to cover lengthy sales negotiations. These sales cycles often require the involvement of technical staff, either in support of the sales staff or as appropriately trained salespeople. After closing a sale, the seller must deliver the product without incurring expenses not already reflected in the price.
There are several different approaches to pricing high-value items. One method is to attempt to assess a buyer’s “pain,” that is, how much not having your solution costs them. For example, pricing at 70% of a buyer’s pain means that buying your product will make them 30% better off. Another common pricing method is to take your per-unit production costs and then add a reasonable margin. This is known as the “cost plus” method.
Operational implications of high-value transactions
Operationally, sellers of high-value goods must focus on customer satisfaction and gross profits as well as on training and supporting an outstanding sales team.
Financial and strategic implications
Receiving full payment for a high-value good decreases the need for financing and allows companies to bank any profits from the sale. Even if the sale is a one-off event, high-value transactions can generate follow-up sales based on the strength of the relationship developed during the original sale.
Costs and benefits of high-value transactions
High-value transactions cement customer relationships, and can prove highly profitable for the seller. Unfortunately certain customers may not be able to afford the cost of the item up-front. In this case, it may fall to the seller to offer credit or enter into a leasing arrangement.
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