Value-in-Use Pricing

Account pricing for the Abcor2000 exercise

Introduction
In a value-in-use analysis, you evaluate the difference between the (total, discounted) lifetime cost of a product and the co
current or incumbent product a customer or a customer segment is using.

Such analysis can be a powerful tool the salesperson can use to demonstrate the value of a product to a customer.

Abcor Industries, a division of Conglomerate Inc, has developped a Value-in-Use Analysis software tool to support contrac
for its new line of engraving equipment (and related plates) for use in the printing and engraving industry.

How to use this spreadsheet

Enter your data in the "Data" sheet. Final report and analysis are available in the "Results" sheet, with key results displaye
three charts.

All computations are performed dynamically in a hidden sheet. We urge the user to keep that sheet hidden and unchanged
to reveal it nonetheless, go to Format / Sheet / Unhide
Market and Manufacturing Parameters
Price of New Machine $12,000 Price of a new machine
Production Cost per Machine $3,980 Manufacturing cost of a new machine
Price per Plate (new plate) $2.00 Price of a new plate
Price per Plate (old plate) $5.00 Price of an old plate
Production Cost per Plate $0.60 Manufacturing cost of a new plate
Annual Price/Plate Increase (new) 3.0% Price increase of new plates, per year
Annual Price/Plate Increase (old) 3.0% Price increase of old plates, per year

Client-Specific Parameters
Salvage Value (new machine) $3,000 Salvage value of a new machine
Salvage Value (old machine) $1,000 Salvage value of the client's current (old) machine
Use, Current (nb of plates per year) 990 Client's current use of plates
Use, Annual Growth Rate 5.0% Client's use growth rate, per year
Time Horizon (in years, at least 2) 10 Client's time horizon
Discount Rate 15.0% Client's discount rate (cost of capital)

Graphing Parameters
Machine Price Starts at $8,000
Machine Price Step $2,000
Price/Plate Starts at $1.00
Price/Plate Step $0.50
ent (old) machine
Data

Price of New Machine 12000 year

Production Cost per Machine 3980 1
Price per Plate (new plate) 2 2
Price per Plate (old plate) 5 3
Production Cost per Plate 0.6 4
Annual Price/Plate Increase (new) 0.03 5
Annual Price/Plate Increase (old) 0.03 6
Salvage Value (new machine) 3000 7
Salvage Value (old machine) 1000 8
Use, Current (nb of plates per year) 990 9
Use, Annual Growth Rate 0.05 10
Time Horizon (in years, at least 2) 10 TOTAL
Discount Rate 0.15 1.15
Machine Price Starts at 8000
Machine Price Step 2000
Price/Plate Starts at 1
Price/Plate Step 0.5
 Machine Buyers
price dcf
Buyer
Number Old price New price Cash Buyer Seller Seller
of plates per plate per plate Flow DCF Cash flow DCF 12734
990 5.00 2.00 -8030 -8030 9406 9406 4000 20733.57
1040 5.15 2.06 3212 2793 1518 1320 6000 18733.57
1091 5.30 2.12 3474 2627 1661 1256 8000 16733.57
1146 5.46 2.19 3757 2470 1817 1195 10000 14733.57
1203 5.63 2.25 4063 2323 1987 1136 12000 12733.57
1264 5.80 2.32 4394 2185 2171 1080 14000 10733.57
1327 5.97 2.39 4752 2055 2372 1026 16000 8733.566
1393 6.15 2.46 5140 1932 2591 974 18000 6733.566
1463 6.33 2.53 5559 1817 2828 925 20000 4733.566
1536 6.52 2.61 6012 2562 3086 877
32333 12734 29437 19193
sellers dcf

19193
11193.27
13193.27
15193.27
17193.27
19193.27
21193.27
23193.27
25193.27
27193.27
Buyer/Seller Breakeven Analysis
Price Per Breakeven DCF Breakeven DCF
Plate Buyer Seller
$1.00 $32,360 $434
$1.50 $28,547 ($3,380)
$2.00 $24,734 ($7,193)
$2.50 $20,920 ($11,007)
$3.00 $17,107 ($14,820)
$3.50 $13,293 ($18,634)
$4.00 $9,480 ($22,447)
$4.50 $5,666 ($26,261)
$5.00 $1,853 ($30,074)
$5.50 ($1,961) ($33,888)

Cashflow vs. Machine Price

Buyer DCF Seller DCF
Machine Price
(price/plate=$2) (price/plate=$2)
$8,000 $16,734 $15,193
$10,000 $14,734 $17,193
$12,000 $12,734 $19,193
$14,000 $10,734 $21,193
$16,000 $8,734 $23,193
$18,000 $6,734 $25,193
$20,000 $4,734 $27,193
$22,000 $2,734 $29,193
$24,000 $734 $31,193
$26,000 ($1,266) $33,193

Cashflow vs. Plate Price

Buyer DCF Seller DCF
Price Per
(machine (machine
Plate
price=$12000) price=$12000)
$1.00 $20,360 $11,566
$1.50 $16,547 $15,380
$2.00 $12,734 $19,193
$2.50 $8,920 $23,007
$3.00 $5,107 $26,820
$3.50 $1,293 $30,634
$4.00 ($2,520) $34,447
$4.50 ($6,334) $38,261
$5.00 ($10,147) $42,074
$5.50 ($13,961) $45,888

Results
Old Price Per New Price Per Buyer Cash Seller Cash
Year Number of Plates Buyer DCF Seller DCF
Plate Plate Flow Flow
1 990 5.00 $2.00 ($8,030) ($8,030) $9,406 $9,406
2 1040 5.15 $2.06 $3,212 $2,793 $1,518 $1,320
3 1091 5.30 $2.12 $3,474 $2,627 $1,661 $1,256
4 1146 5.46 $2.19 $3,757 $2,470 $1,817 $1,195
5 1203 5.63 $2.25 $4,063 $2,323 $1,987 $1,136
6 1264 5.80 $2.32 $4,394 $2,185 $2,171 $1,080
7 1327 5.97 $2.39 $4,752 $2,055 $2,372 $1,026
8 1393 6.15 $2.46 $5,140 $1,932 $2,591 $974
9 1463 6.33 $2.53 $5,559 $1,817 $2,828 $925
10 1536 6.52 $2.61 $6,012 $1,709 $3,086 $877
Totals $35,333 $12,734 $29,437 $19,193
 Buyer/Seller Breakeven Analysis
$40,000

$32,360
$30,000
$28,547

$24,734
Machine Price

$20,000 $20,920

$17,107

$13,293
$10,000 $9,480

$5,666

$1,853 Breakeven DCF Buyer

$0 $434
($1,961)Breakeven DCF Seller
($3,380)

($7,193)
($10,000)
($11,007)

($14,820)

($18,634)
($20,000)
($22,447)

($26,261)

($30,000) ($30,074)

($33,888)

($40,000)
$1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50
Price Per Plate
 Cash Flow versus Machine Price

$40,000

Buyer DCF (price/plate=$2)

Discounted Cashflow

$35,000 Seller DCF (price/plate=$2)

$33,193
$31,193
$30,000
$29,193
$27,193

$25,000 $25,193
$23,193
$21,193
$20,000
$19,193

$16,734 $17,193

$15,000 $15,193 $14,734

$12,734
$10,734
$10,000
$8,734
$6,734
$5,000 $4,734
$2,734
$734
$0
($1,266)

($5,000)
$8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 $24,000 $26,000
Machine Price
 Cash Flow versus Price per Plate

$50,000

Buyer DCF (machine price=$12000) $45,888

Discounted Cashflow

Seller DCF (machine price=$12000) $42,074

$40,000
$38,261

$34,447

$30,000 $30,634

$26,820

$23,007
$20,000 $20,360
$19,193
$16,547
$15,380
$12,734
$11,566
$10,000
$8,920

$5,107

$1,293
$0
($2,520)

($6,334)

($10,000) ($10,147)

($13,961)

($20,000)
$1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50 $5.00 $5.50
Price Per Plate