What’s it Worth?

A couple of weeks ago we ran out of water. Some of you may know that we live on a piece of paradise in the Southern Highlands which has only one disadvantage – no town water!

Photo by Luis Tosta on Unsplash

We have lived there for 25 years and we have perhaps bought water half a dozen times, and given how little rain we have had, it is hardly surprising that we were in that position once again.

This led me to think about the value that the old fellow with his water cart represented. At $280 for 14,000 litres of precious water, delivered to our home, at night, in the middle of a drought, you could pretty easily argue that he was not charging enough. To be clear, I would happily have paid $500 if that is what he wanted because we REALLY needed the water.

This is not to say that we should take advantage of the needy circumstances of our customers. Fairness for both sides of any transaction is what we should aim for, but we mustn’t forget that this fairness extends to us as well.

If we think about this in our own businesses, what is it that our customers are buying, when they choose to buy from us? What will they be prepared to pay a premium for, and what will they shop around for based on price? Unless we are selling widgets (and it is unlikely that any widget sellers are reading this article), most small businesses are selling something which is unique, or scarce, or valuable in some way other than the intrinsic components from which our products are made.

For fashion designers or cabinet makers, the unique quality we are paying for is the one-off nature of the physical item. A premium can be charged because the purchaser is prepared to pay to NOT see someone else wearing their dress, or see their dresser at a friend’s house. Certainly, the skill of the artisan is a factor, but the limited number of items they can produce means that the price goes up, on the assumed quality of their output.

In service industries, the same thinking applies but is often not recognised. The professional has a limited amount of capacity, and in some measure, she should be able to charge a premium for the scarcity of her time. Note that this is a very different thing to charging for time itself, what I am saying is that a customer ought to expect to pay more for a valuable service provided by someone who has a limited amount of attention that she can offer to the projects competing for that time.

We business owners need to be able to demonstrate to the potential client or customer that the value we propose delivering is worth something to them and that they need to bid for the opportunity to have us deliver it. For this to be successful, we need to be very confident in the value we can bring. This is the heart of the whole “Value Proposition” thing which has become such a buzzword in recent times and not to its credit as a concept. Our own sense of the value that we bring to our relationships with those we serve cannot be reduced to a template or a cliché.

In our next article, we will explore placing a value on your “Value” so that you can confidently use it in pricing. Meanwhile, I am going home to check the levels on the rainwater tank, it’s still pretty dry around here.

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Posted on October 4, 2018 in Uncategorized

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