Do you have a hard time to determine your price? In this episode, our founder W Michael Hsu explains the value of cost, seller profit, and buyer profit. Michael also believes that it is possible to have a win-win situation for every party in a transaction. Let’s roll!
Value, Price, Cost
What is the value?
[0:10] People feel defensive when discussing the budget. Sometimes, they argue that they don’t have a budget. The truth, everyone has the price. Imagine this, if I sell you a pencil for $10. You’ll probably reject me because you think you pay more than its value, then you know the budget. (The amount of the money you want to pay)
How to Set the Price?
We believe that the traditional sales and the idea of only one party can win in a transaction is outdated. Instead, we believe there is profit to every party in a transaction.
There’re always cost for the service/product you provide. Let’s say if you run a digital agency your cost are payroll, your know-how, office utilities and so on. And, you’ll create value by doing the work. Then, you set a price for service.
Imagine this, if your cost is $30 and your price for $100. You need to cover the hard cost, the soft cost, as well as profit. And there’s value that you’ve created for your clients. In this example, your value at least has to be 10x or 20x more than your cost. Value is 100% decided by the buyer, and 100% decide by customers.
For example, Michael uses iPad to help him with work, presentation. It makes his life/work easier, also help him generate the revenue. As a result, to Michael, the iPad’s value has exceeded the amount that he paid for it. And of course, Apple has its seller profit (already built into the price)as well.
Now that, you understand how it works between the value and the cost. Hope you can find your way to create value for your customers and make that piece of profit on top of your cost.
Input your numbers to this free template, see where to increase profit.
Power of one – Know where to increase your profit