How to evaluate the economic value

Estimating the financial value of an innovation and coming up with an economic model of its impact is a huge topic itself. This section will briefly cover some of the key areas you need to consider at the opportunity identification stage. The two most important forms of economic value are the value to the potential customer and the value to your organisation. Finding out how much a potential customer might be willing to pay for your solution can often be benchmarked by looking at the costs of similar existing solutions, while considering a premium for how innovative your solution is. Another useful way to explore what a customer might pay is simply to ask them or test out some prices and gauge their reactions.

While your idea might be valuable for your customers you also need to consider if it is economically worth it for you and for your business. To survive, businesses need to be financially sustainable. Essentially, there needs to be more money coming into the business than there is coming out. For most organisations that means the amount of money your customers are paying for the innovation should be more than what it costs the organisation to create the innovation. The sale from each product sold should adequately cover the cost of the inputs of the product, office space, employee’s salaries and more. After considering all these costs, it might be that there is no financial value in providing this specific innovative product as it will undermine an organisation’s sustainability.

While estimating sales volumes is difficult, at least the costs can be estimated more reliably. However, many smaller organisations, startups and social enterprises have different business models. For example, they might have some of their costs covered by grants or donations. In all situations it’s still important to be aware of the financial costs and income to ensure sustainability.