(My column as it appeared in Upmarket Magazine week of March 11th)
Everyone today wants to rant and rail about anything related to “Wall Street.” Doesn’t matter if they have money at work or not, they have an opinion. But what really intrigues me is the human condition in relationship to it. I contend if you know how to look at things you can gain insight that will bust many myths about people we hold dear. And many myths that might be holding you back in business. Here’s a quick point to ponder:
“People are more informed, rational, and will only pay for value.”
That is a myth and is shattered everyday the markets are open. People will pay on what they “perceive” is value. Not whether it is or not. To use basic numbers that are for demonstration purposes only, use the following example. The S&P 500 was worth $1,500 per share at 20 times earnings. Now it’s worth $1,300 at 10 times earnings. If it’s making 1/2 the earnings why not 1/2 the price? Or better yet tell me what the real price is supposed to be? You can’t because there is no “real” price. It’s what someone else thinks it’s worth and what someone else will pay. The final value is a perceived value. (You really need to read that last line again and let it sink in.)
How many of you are pricing your goods or services based on what you believe the perceived value is instead of what the market place wants or is willing to pay? I would contend most are struggling on their bottom line because they are under charging and over delivering. Many entrepreneurs make this classic mistake. However, it is correctable — it’s just when you decide to correct it will be the difference whether you stay in business or not.
The first sale you have to make is to yourself. You must be able to state your value unflinchingly. That goes for whether you are selling a widget or selling you. Don’t make the mistake of reasoning that your time is free and whatever you charge by the hour is gravy. It’s not! Time is irreplaceable and a diminishing resource. Start viewing and treating it as such.
If you can save someone $1 million dollars by advising them to do or not do something that no one else either is or can what should be the final value that you charge? Do you charge them by the hour? And if you did at what rate per hour would you use? $100…$500…$1000…$10,000? There’s no widget involved just your brainpower, so it’s all free right? All gravy, correct? Some of you are thinking, “Well how many hours would it have taken? If I have that equation I could figure out what the bill should be.” I say to that…wrong! If that was entering your mind then what I’m trying to express just was manifested by your own thinking. You would be looking for a figure you are comfortable asking for, not what the real value of what you should be charging. Think I’m off track? Fair enough. Here’s how long it took: Under 45 seconds and it was all said in nearly one breath. Now what’s the answer? Now what would be your bill? How much would you feel comfortable sitting down right now and writing out an invoice with your letterhead, submitting it, and if it weren’t paid for within terms would sue for collections of non-payment? Answering that exercise while being honest with yourself in your answers will tell you volumes about what you are doing and where you are going.
Want a widget-based example? Apple’s iPhone® makes more in profit per phone than the total selling price of its nearest competitor.
Think about it.
© 2012 Mark St.Cyr