Recently I held a tele-seminar for a group of my clients on the critical distinction between VALUE and COST and in particular how to avoid undervaluing the services and/or product they provided.
Judging by the interaction on the call on the subsequent feedback this was a much anticipated topic.
It got me thinking that many other business owners likely struggle with clearly seeing the distinction and more importantly understanding the benefits for their business and their bottom lines.
Perhaps you are one of them?
If so, I suggest that you read on carefully.
Many confuse value with cost or price – they are not the same – although they are interrelated.
To explain as a starting point let’s look at how you determine your prices.
There are many ways to do this:
1. Look around the marketplace and compare yourself to your competition
2. Go with the flow – “we’ve always charged this!”
3. Be analytical and look at costs, gross profit margins, break even points and desired returns on investment
4. Add “X”% to last month’s/year’s prices
5. Based on what the market will bear
The important thing to note is that while all of these have some validity and will help to ensure that your business is hopefully running at a profit, THEY DO NOT ON THEIR OWN ENSURE YOU ARE OPTIMISING THE RETURN FOR THE VALUE YOU PROVIDE.
At this point if you are serious about your business and its success I should have your attention. If not, well frankly it’ll be your loss.
To optimise your return you need to make a paradigm shift from prices and cost to value.
Why is it that some business owners only achieve an effective hourly rate of $11.20 (you know you can get more working as a check out chick at Woolies) while others receive $60, $125, $200 or even $300 or more per hour?
One of the keys lies in understanding the distinction between cost and value.
[Another key is using a trusted business coach to help you identify the prime issues and help you address them so you get more cash, sales, profit and productivity from your business. In case you didn’t realise, that’s what The Right Team does]
You see, you have a major choice to make.
1. Be price driven (not recommended)
This view limits you to what you rightly or wrongly perceive as market forces. It often leads to short cuts and poor quality and/or service. Here you are a market follower. And it also results in lower prices and lower effective hourly rates for business owners
2. Be values and value driven (highly recommended)
This focuses on the benefits to your customer and the awesome value they will receive from using your product or service. After all your customers will remember the experience they had and the enjoyment/result from using your product/service long after they remember the cost.
Here you are a market maker and you set your own rules and are set apart from the rest of the crowd in your industry. Implemented correctly this can result in greater leverage, higher gross profit margins, higher effective hourly rates for the business owner and more enjoyment from life (less stress).
Hmmm, let me think, which is the best option?
As I said you have a major choice to make.
Warning: Don’t be fooled by the cynics who might tell you it sounds good in theory but it won’t work here or in my industry. Or perhaps you think because you’re in a regional or country area that it wouldn’t work ‘cause you’d have to charge city prices.
Believe me, ignorance is very expensive and just because you haven’t done it (or don’t know how to do it) does not mean it cannot or is not being done by others in your industry and your local business community.
What choice will you make?
Finally, to make this transition from cost to value, your greatest enemy will be the space between your own two ears (remember the last few weeks’ series on Self Talk!).
To help with this you may find value in putting yourself through an ongoing course of personal development.
To that end I can highly recommend Success University and suggest you check it out at www.bizgrowth.successuniversity.com/new
A date for your diary – March 15, 2008
Martin Smoothy, a successful business person and entrepreneur, will be visiting from Perth and will be in Shellharbour for a businessman’s breakfast on this date.
Further details will follow next week about where and how to book. | 
