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WHAT IS MONEY, AND WHAT'S OK TO GET IT?Everyone talks about money. Entire books and graduate studies have been written on money. This is exactly why we get confused when thinking about how much to charge for our product or service. I don't think it's all that necessary to be so complex.At the basic level it's pretty simple. Charge more and maybe get more money. Or be thought of as greedy, and get fewer customers and be unable to stay in business. Charge less and maybe get more customers, work harder, be thought of as cheap, and make less profit and be unable to stay in business. The optimum, of course, is somewhere in the middle. You can easily imagine a few other scenarios. This is not rocket science. Unless you're working on your PhD. 
We sometimes feel confused or guilty to talk about or to ask for money. When it comes to setting prices, the old definitions often leave us paralized. How much money do we want for our product or service? The value of money is simple to understand:When I pull out a dollar and ask people what it is, I get different reactions.Most people either stare at me or they say something along the lines of, "It's a dollar stupid!" The MBA graduate goes into a long discussion starting somewhere with cavemen, and on through the Byzantine years. The Byzantines were a group of people, can't remember when, who pretty much invented the accounting systems that we use today. Kind of like counting money on steroids. Then they continue into complex topics. One I like is the Modigliani-Miller model to figure out how much money a business is worth. It came out sometime during the 1950's. It roughly says, that the amount of money is company is worth can be determined by taking it's earnings minus the cost of it's current debt, and divide all that by the interest rate the firm qualifies at to borrow more money. The Modigliani-Miller model created a firestorm of additional research that I'll bet continues to this day. The economist starts talking about how much a basket full of stuff was worth in 1960 compared to the cost of a backet full of stuff today. Lots of study is required to figure out what to put in the basket since everything keeps changing so much. My definition: "A dollar is an IOU". An "IOU" is nothing more than a piece of paper that says "I Owe You". When you understand my basic definition for the value of money, things get much simpler in terms of marketing and selling your products or services. My definition helps me to reach a win/win with my customers. Back 'in the day' people wrote IOU's on a scrap of paper - or a promise with a handshake. You and five other people helped me build my nice little cabin by a stream. I write you an IOU. Later, you can cash that in with me for a similar amount of work in return. That's an IOU. Pretty simple. To make things better, someone invented the dollar. Now I can use my dollar as a public kind of IOU. I can trade it with other people whom I've never met. They might have a unique skill. And so can you. We have more options in our trade. As long as we all agree in the value of that dollar. Of course, things got more complicated through creative forms of obvious and hidden taxes, gambling, and entitlements. Today, powerful organizations of people legally look in your window, reach in and grab IOU's from off your table. A couple hundred years ago in the United States that would have gotten your hand slapped, or worse! When you are marketing a product or service, and deciding on a price, look at what it's going to cost you to deliver. Consider how many dollars you want in return after you invest your risk, personal time, and pay your taxes. Talk to your customers, the ones who you think would be interested in your quality level and benefits. What, how many IOU's, are they willing to trade? Look at your competitors to see if you can compete in the marketplace. Decide if it's worth it for you. For honest people who work hard to provide a valuable product or service to others, money is today's IOU. Thinking in terms of providing a valuable service or product enables a marketing or sales professional to enjoy the possibilities with their potential customers in a win/win situation. |
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Questions or comments? Please Contact Me. Copyright © 1999 - 2007 Robert Winton all rights reserved. | |||