On Price, Cost, Value Creation, and the Insanely Jealous

Yesterday Chris Brogan, the social media giant, announced that he was offering a two-hour training class on how to use Google Plus for business. He has spent 250 hours working with the newest social media site, and he has complied a list of things that he believes will help others to effectively use the tool. He is accepting 1,000 people at $47 per person.

A lot of people were excited by his offer. They want to learn to use Google Plus to help them further their own business, and they know Chris as someone who can help them do so.

But others are shocked and horrified by the math. One thousand people multiplied by the $47 amounts to $47,000. One commenter on Google Plus is outraged that Chris might make $47,000 for an hour. He suggested that he “could not, with a straight face, be involved in training people how to use it (not if I stood to make an absurd amount of money, like $47,000 for an hour).”

There are lessons here for salespeople.

On Price and Value Creation

Price and cost are two very, very different ideas. There is no way to determine what something costs by looking at the price alone. In order to determine the cost, you have to subtract the price from the value created.

In this case, Chris believes that he is going to provide the people who attend his training class with something equal to or greater than $47 in value. They have to believe this is true as well, or else they won’t sign up for the class. So, how does he return them their $47 in value?

He might be saving them the time it takes to learn to use Google Plus. How much time would it cost you to learn what he is teaching? How much is that time worth to you? It is very easy to believe that Chris can earn his $47 by saving you this time, even if you place a very low value on what you are worth hourly.

He might be helping some participants open a relationship that helps them to acquire their dream client. How much is that worth? It’s not even worth examining how much the acquisition of a single client might be worth; it’s more than $47.

Chris is leveraging his time in the same way an author leverages their time by publishing a book (where they make $2.00 per book), the way a speaker leverages their time (where they make tens of thousands of dollars for performing for a group of people), or the way an entertainer leverages their time (by performing in front of a large audience).

In this case, the factor underlying the criticism is one of two things: either the person criticizing is insanely jealous or he doesn’t have a big enough vision of himself (or both).

It Doesn’t Matter What Others Believe

Salespeople fall into this trap all of the time. We look at what our lower priced competitors charge as a price, not remembering that doing so means we are looking at the number completely divorced from the value being created.

We mistakenly believe that if we had a lower price that acquiring new clients would be easier. We mistakenly believe that somehow commodity pricing is an easier game to play. In fact, it’s much more difficult to sell without differentiation and where no value created is worth paying more to obtain.

We get this wrong the other way, too. We can’t understand how are competitors can justify charging a higher price. That too is because we are focused on the wrong end of the stick—the action is in the value creation, not the price.

Your competitor’s price doesn’t matter. What matters is that you create more value at your price than they create at their price. That is a lower cost and greater value.

What Are You Worth?

I have written about price and cost a number of times here. If you don’t want to sell price, you have to instead sell cost, the difference between your price and the value you create. If you want to capture some of that value for yourself and your company, the value you create has to be worth more than the price you are charging.

As salespeople (and sales organizations), we are consumed with price. Our clients are consumed with price. But price is meaningless when it is divorced from the value attached to it.

Here is a way to think about this for you and for your business. Ask the question, “What am I worth.” Or, for your business, ask the question, “What are we worth?” Instead of focusing on price, focus instead on the value that you create. Your competitor creates 10 units of value at their price; you create 15 units at a slightly higher price. Is it worth paying more in price for the additional 5 units of value creation?

Price is a distraction. You do yourself and your client a disservice when you focus on price. You should be focused instead on how you create the greatest amount of value. You should be focused instead on doing something worth paying for in the first place.

If your competitor is worth paying more for, and if they are making money that makes you insanely jealous, spend your time figuring what you have to do to be worth paying more to obtain, not your competitor’s price (or how much money they may or may not make).

Questions

Why is your neighbor’s grass greener than yours? What is she doing different?

Why should it matter how much someone selling something profits if the value you gain is less than the price you paid?

Why is price really irrelevant?

Why is it so difficult to more the conversation with clients from price to cost?

Filed under: Sales 3.0

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