Value Capture Model

What is it?

The Value Capture Model explains how your innovation makes or saves money by answering three questions for each unique stream of revenue or savings. Following are details on the questions that your value capture model must answer followed by a couple of examples of what your value capture model might look like once documented:

The Three Questions Your Value Capture Model Must Answer

#1 Who Pays or Saves?

Is it the actual user of your product / service? Or is it someone else that has or seeks a relationship with the user such as:

The user’s employer?
An advertiser seeking to acquire or retain the user as a customer?
The user’s parent?
A philanthropic organization that seeks to support the user
The user’s government?
Etc.

#2 What Do They Pay For or Save On?

This one is tricker than it seems because there are two levels at which you can answer this question:

The concrete, and
The abstract.

Consider the following example:

A customer purchases a hammer at a hardware store.

What did they pay for?

At the concrete level, this is obvious - they paid for a hammer!

But what if they had rented the hammer instead? Did they pay for the same thing? This is where we enter the abstract dimension of this question, and it's important to understand because small variations in your answer can have a huge impact on your success. For example, personal injury law firms have been successful by charging for results (in the form of a contingency fee) rather than charging for usage of their services (in the form of an hourly service fee).

When it comes to the abstract dimension of this question, here are the options you should consider:

Ownership of the solution (e.g. when you buy a car)
A completed job (e.g. when you hire a painter to paint a room for a set price)
Access to the solution (e.g. a gym membership)
Usage of the solution (e.g. most utilities
A legally binding promise (e.g. an insurance policy, a stock option, Etc)
Results (e.g. a sales commission, a contingency legal fee, a bonus)
Demonstration of their values (e.g. a donation to a charitable cause)

#3 How Much Do They Pay or Save?

This final question is as obvious as it seems. E.g. "$10" or "$10/Mo," etc.

Value Capture Model Examples

Following are a couple of examples of how you might draw on these insights to document your value capture model:

Scenario A: A Manufacturing Process Improvement WHO SAVES = The VP of Operations WHAT ON = Labor usage HOW MUCH = $1 of labor per widget

Scenario B: LinkedIn Advertisements WHO PAYS = Advertisers seeking to acquire or retain LinkedIn users as customers WHAT FOR =

Option 1: Total clicks on the advertisement (note that this is a form of the "results" option)
Option 2: Total impressions of the advertisement that were displayed (note that this is a form of the "completed job" option)

HOW MUCH =

$8 / click
$0.75 / 1,000 impressions