This blog, you may recall, has a theme, which states, in part: “Everything of value has a price. The price must cover the cost.” Accordingly, let’s take a moment to contemplate the value of our goods and services. Let’s take into consideration derivative value beyond the sum of this equation: cost + margin. And let’s do it this way:
Let’s say we’ve invented the MiracleRay. When aimed at any business, regardless of industry, the MiracleRay instantly reduces costs by 75 percent and doubles productivity. For obvious reasons, the market for MiracleRay is almost incalculably enormous. And that brings us back to our deliberations. Question #1: If our cost to produce the Miracle Ray is just $1,000, we can mark it up 500 percent, making a tidy profit on each unit sold. But if the market will bear a higher price, what is our opportunity cost if we sell it for just $5,000?
Question #2: Turn the tables — if we’re buying the MiracleRay, the price is $5,000, and it will improve our productivity and our profitability exponentially, what is our opportunity cost if we don’t buy it?
There are no easy answers to these questions. But we should bear two things in mind as we attempt to answer them:
- Short sight will almost certainly deprive us of opportunity, whether we’re seller or buyer.
- Letting value be equated to price might not be the end — but it’ll be the beginning of the end.
There’s more art than science to deriving appropriate pricing. As long as price exceeds cost — but doesn’t diminish or exceed perceived value — opportunity cost will be minimized.
Have you learned from leaving something — money or opportunity — on the table? Please share your story in the Comment box below. We’ll all benefit from knowing it.
— By evan p. cordes [CC-BY-2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons