The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

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What Is 'Value Capture'?

Value Capture is the process of retaining some percentage of the value provided in every Transaction. The more value you capture, the less attractive your offer becomes.

There are two major approaches to Value Capture:

  1. Maximization. An organization should try to capture as much value as possible.
  2. Minimization. An organization should capture as little value as possible, as long as it remains Sufficient.

As long as you bring enough to cover your needs, there's no need to capture every cent. Create as much value as you can, so your captured value is worth it.

Josh Kaufman Explains 'Value Capture'

Every business must capture some percentage of the value it creates in the form of revenue as Profit. If it doesn't, the business will have a difficult time generating enough resources over time to continue operation.

Value Capture is the process of retaining some percentage of the value provided in every Transaction.

If you're able to offer another business something that will allow them to bring in $1 million of additional revenue and you charge $100,000, you're capturing 10% of the value created by the transaction.

Value Capture is tricky. In order to be successful, you need to capture enough value to make your investment of time and energy worthwhile, but not so much that there's no reason for your customers to do business with you.

People buy because they believe they're getting more value in the Transaction than they're spending. The more value you capture, the less attractive your offer becomes. Capture too much, and your prospects won't bother purchasing from you. Movies are great, but would you pay $5,000 for two hours of entertainment?

There are two dominant philosophies behind value capture: maximization and minimization.

Maximization (the approach taught in most business schools) means that business should attempt to capture as much value as possible. Accordingly, the business should attempt to capture as much revenue in each transaction as possible-capturing less than the maximum amount of value possible is unacceptable.

In the short run, it's easy to see the appeal of maximization-more profit is a good thing for the owners of a company. Unfortunately, the maximization approach tends to erode the reason customers purchase from a business in the first place.

Would you spend $999,999 in order to make a million? It may be rational (after all, you'd be $1 ahead), but most people won't bother. Customers purchase from you because they're receiving more value than they're giving up in the purchase. The less they receive, the less they'll want to buy from you.

The Minimization approach means that businesses should capture as little value as possible, as long as the business remains Sufficient.

While this approach may not bring in as much short-term revenue than maximization, it preserves the value customers see in doing business with the company, which is necessary for the business' long-term success. When something is a "good deal," customers tend to continue to patronize the business and spread the word to other potential customers.

When a business tries to maximize revenue by "nickel-and-diming" their customers or trying to capture too much value, customers flee.

As long as you're bringing in enough to keep doing what you're doing, there's no need to fight for every last penny. Create as much value as you possibly can, then capture enough of that value to make it worthwhile to keep operating.

Questions About 'Value Capture'


"You can get anything you want in this life if you help enough other people get what they want."

Zig Ziglar, sales expert


From Chapter 5:

Finance


https://personalmba.com/value-capture/



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The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

Buy the book:


About Josh Kaufman

Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.

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