July 9, 2024

Value Determines Price

You can’t increase a buyer’s perceived value of an outcome by pointing out that your costs to deliver the outcome are higher than what it’s worth to them.

Here’s an example...

Let’s say Alice has squirrels in her garage, and she wants them gone.

If someone could wave a magic wand and get rid of the squirrels, she would spend as much as $500, but not more.

(i.e., Alice has a $500 problem.)

Next, Alice calls Bob at Varmint Control, and he comes over to inspect the situation.

To permanently remove the squirrels, Bob calculates that his cost in time and materials is $1,000.

He needs to make a profit, so he gives Alice a quote for $1,200.

(i.e., Bob has a $1,200 solution.)

Alice asks why the price is so high, and Bob explains all the stuff his team needs to do and all the stuff they need to buy to do it.

Bob’s explanation doesn’t change the fact that Alice has a $500 problem, and therefore she is not going to buy a $1,200 solution from Bob.

Here’s the thing...

Bob’s explanation of his costs has no effect on what the solution is worth to Alice.

Bob’s costs are Bob’s problem.

If he wants to win the business from Alice, he’s going to have to think of an alternative solution that he can deliver profitably for $500.

Otherwise?

No deal.

Yours,

—J