Time-to-Profit Value Model

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Sometimes capital equipment is not used in the profit-making process. Instead, it is used to “get ready” to make a profit. For example, if your equipment performs processes during product development, its job is to help its owner get ready to make a profit. The value of your equipment, in this case, is directly related to how quickly it helps the customer finish development and get to the profit-making process.

The value model for this scenario considers the total profit from the time the get-ready process starts to some relevant time after profit-making begins. See the figure below.

Diagram of the time-to-profit value model

To illustrate, let’s try another example. Suppose a solar power company is developing its next-generation solar cell. During that development, the company will need to analyze the results of many design iterations before the solar cell design is ready for production. If

  • your equipment type is responsible for analyzing the design iterations,
  • there are differences among alternatives in the time it takes to do it, and
  • that time drives the buying decision,

your value model might look like the example shown below.

UnitsYour EquipmentCompetitor’s Equipment
Design iterations#3030
Time to develop (each)Days1515
Time to analyze (each)Days0.51.5
Total development timeDays465495
Total development timeMonths1516
Factory capacity – cells/monthM11
Production months 1st 3 years#2120
Net capacity cells/yearM2120
Price per cell$1212
Total revenue$M249237
Your equipment type price$M105
All other equipment$M100100
Total equipment cost$M110105
Depreciation expense (5 Year)$M2221
All other costs of goods$M5050
Total cost of goods sold$M7271
Total gross profit$M177166
Difference 11 
Example time to profit value model comparative financials

This example shows how shorter design-analysis-cycle time accelerates time to market for the solar power company. That acceleration translates into more profit in the three years after product design started. Like an adjacent effects value model, tremendous value can be created by a single piece of equipment when it makes other equipment and operations more profitable. For the equipment seller, that translates into a lot of pricing leverage if the value can be substantiated during the sales cycle.