How Cost And Value Determine Your Price
- Sal-Hiram Balthazar
- Jul 26, 2017
- 2 min read
Cost, Price and Value! Though mostly used interchangeably, cost, price and value are very different. By understanding the difference between cost, price and value, you will be able to create a marketing plan that will increase profitability.
As a young entrepreneur who is working towards breaking through the world of commerce, these are the three most important factors of business that—by comprehending their relationships—becomes crucial to staying alive. I had to start visualizing business in its political sense by employing that check and balance system for cost, price and value.
The cost of your products or services is the amount of money and labor that you spend on producing or creating. Cost can be either in monetary and/or laboring ways. As a creator, you must spend time and money somehow to bring your ideas into existence. After concreting your plans into existence, you should set a way to get your reward.
Through your marketing plan, you must set a price, which is the economic reward for your product and services. Pricing should always be corresponding to the benefit that your business is providing to the customers. Therefore, you are obligated to consider the prices and the values that your competitors are already providing on the market.
As a result, a thorough research of your market will enable you to set greater value for your customers. If you can meet the expectation of your customers, then you are in business. If you are not meeting the expectation of your customers, you should always consult the value that you are giving them. The price of your product or services should always depend on the value that you can bring to the customers, not mainly the cost. In relations to the customers, value is what they believe your products or services are worth.
As an example, the cost for a technician to fix your computer on-site might be $10. Nonetheless, the value of the service to you—who needs to rescue files from the hard drive for a project—surpasses the cost of $10. As a result, the technician can charge you over $100, and you will not contest the price. Therefore, as an entrepreneur, your focus should always be on going above and beyond in order to meet your customers’ need.
In the final analysis, once you know the criteria that your customers utilize as buying decision, you will discover the benefit to provide to them as well as the value that your clients assigns to the advantage that they receive from your product and services. Accordingly, you can determine your price.
Always remember, it’s always about the customer!
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