Overcoming The Price Hurdle To Find Value And Succeed

Priceless Crowns At Rosenborg Castle, Copenhagen

We all know that it takes money to make money. If you want $10,000 a year in passive interest income at a rate of 2%, you’ll need $500,000 in capital to get there. If you’ve only got $25,000 in capital, well then here’s $500 a year, just enough to buy yourself a round-trip ticket to Hawaii. Wait a minute, that doesn’t sound too bad!

I’ve been highly anticipating the response to my introductory $980 Get On The Map (GOTM) service where I help bloggers and small businesses get noticed on the web. There’s a lot of art behind the science of pricing. Price too low, and you might be signaling an inferior product or fend off too much demand. Price too high, and you might not get any clients. Finding the intersection between marginal utility and marginal cost is a journey that changes over time.

Going about pricing a product out of the necessity of money vs. the necessity for fulfillment is quite different. I get fulfillment out of helping others by providing more value than the price I charge. That’s what keeps me excited. If I had to sell something to put nutritious McDouble cheeseburgers on the table for five children everyday, I’d feel the heat, underprice and likely provide poor value.

THE VALUE OF TIME IS DIFFERENT FOR EVERYONE

I once offered a friend my condo in Lake Tahoe during President’s Day weekend. My place was going for $800 a night, and I was letting him stay for seven nights ($5,600 total price) because he was so generous with his $1,000 a night vacation home the year before. He politely declined and decided to go to Cabo San Lucas where he has access to some 6,000 square foot house on the beach that costs him $3,000 a night!

Slightly perplexed, but not disappointed, I did the math on what I believed his six weeks of vacation time was worth. I came to the conclusion that his 7-day vacation is worth about $385,000 of his time based on his $20 million annual income, and that spending $42,000 for a week in Cabo (10% of what he makes a week) is no big deal for him. Since his time was worth $385,000, he wasn’t even willing to accept my $5,600 place for free! 

My friend’s example is clearly extreme, but the point is the same. Everybody’s time is valued differently and we need to discover how much our time is really worth.

OVERCOMING THE PRICE HURDLE TO FIND VALUE

When I first started writing on Financial Samurai, I took a 100% discount to my time, and I just wrote for free without any compensation expectations. Just ask yourself when was the last time you paid me anything to come here? Don’t worry, it’s all good because I love the community! Because I wrote entirely for fun, I did as I pleased. I had to hoe my own trail.

To build a new consulting business, I’ve got to figure out what my time is worth and recalibrate. I’ve come to the conclusion that based on my experience, knowledge, previous income, online platform, asset base and ability to advise, my business time is worth somewhere between $300-$500 an hour. I just don’t want to take on more than three to four clients a month because my time is limited. Now it’s up to me to see if I can find clients who see even more value than that.

$980 is a lot of money to spend on anything, except if you have an Apple logo on it, and then it doesn’t matter whether you are rich or poor, you will buy, buy, buy. My first GOTM clients will probably get the best deal, because I will probably spend way more time than the estimated three to five hours of getting clients on the map. How can I not put in everything I’ve got, in order to make the product a success?

What I think people fail to realize is that it’s not just the quality content, links, relationship and exposure that makes GOTM an attractive value proposition. My connections are what lead to even greater returns down the road. Relationships mean everything in business!

CONNECTING THE CONNECTIONS FOR GREATER SUCCESS

1)  Recognize nothing good comes easy.  If things were easy, you’d do it yourself. If things were easy, you wouldn’t see so much money lost, time wasted, and lives ruined. The way around hardship is to find yourself a mentor whose been there before to help you out. When people throw stones, it’s really because they want in but don’t want to take the initiative.

2) Once you’re in, you’re set and it’s very hard to fall out. There’s a reason why it takes many letters of recommendations to join private clubs or get into private schools. Once you’re in, you guard your membership dearly and don’t let any knucklehead join who might dilute the quality of your institution. There’s a reason why there is preferential treatment for children of alumni to the world’s best universities. Same thing goes for getting the most prestigious jobs. Your connections will propel you further than the average person and likely set you up for the rest of your life.

3) The world isn’t fair. When I ask, “Is The 1% Better Than The 99% At Raising A Family?“, I’m trying to get you to think about what it takes to get ahead, and what are the injustices in this world which can, and cannot be overcome. If I have the means, hell yeah I’m going to spend an extra $1,500 in SAT prep courses so that my child can do well. Why do you think so many students with mediocre grades get into some of the best schools, and land the best jobs (think George Bush)? Why do you think so many kids of Hollywood’s most powerful actors and producers get all the choice rolls? The world isn’t fair, and those who are connected have a huge advantage.

4) You’ve got to invest in yourself and in your business. The most important asset is you. Your ability to make money blows away any other asset around, especially in the first 30 years of your life. The online world is a very crowded space and unfortunately, just writing good content or producing a great product won’t bring the world to you. You’ve got to build relationships with your peers, your competitors, and with your clients over a very long period of time. Proper marketing is tantamount to achieving your goals.

5) If you don’t seize an opportunity staring you in the face, someone else will. Opportunities are hard to recognize sometimes, but they are all around us. Shoulda, coulda, woulda just tells of our regrets. Whenever I do something, I want to give it all I’ve got. If I fail, at least I will know that I gave it my best and I will therefore have no regrets.

ONCE YOU RECOGNIZE VALUE, YOU ARE WELL ON YOUR WAY

Warren Buffet wisely said, “Price is what you pay, value is what you get.” Recognizing value is not easy at first. If it was, we’d all be wealthy billionaires as we continue to reinvest our resources in attractive value propositions. Over time, we get better at identifying great opportunities.

I encourage everyone who is thinking of investing in a product or service to look beyond the price and ascertain what are the intangibles that come along with the investment. Once you do, you’ll start realizing how much more value there is beyond what’s initially presented.

Readers, does it take a lot of money to make lots more money? Does it take connections to get ahead? Or, does it take both? If someone has neither, how does one get ahead? Have you ever failed to see the value in something until it’s too late?  If so, what was that something? 

Here’s a related post I wrote on figuring out product pricing. You should also read How The Rich And Powerful Become More Rich And Powerful.

Regards,

Sam

 

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Brick by Brick Investing says

    Thank you for the insight. I have been following your site for about a month now and am very impressed. As a finance guy with a lot of ideas, knowledge, and experience I sometimes find myself all over the place.

    I am very interested in your consulting and will hopefully be able to talk to you when I save up the funds!

    Keep up the good work!

    Here’s to our wealth,
    Marvin

  2. Pauline says

    If you have both connections and money, you are all good. But you should be able to perform well with only one of the two. Think Facebook, Airbnb, Ebay, they prove you can make money without millions upfront. Without those, you can still get ahead, but you will have to build your own connections, money will follow. A mentor in college, a broad social circle, a parent… if you are relentless about your project you will end up talking about it to someone who can help you.

  3. Romeo says

    I totally agree with this post. There is no wonder why families, or friends of families run our nation–the biggest business in the world. The Bush family comes to mind. How can one family have as President of the United States, the dad and then the son, and another son as a Governor of Florida? Along these same lines, two Bush members were U.S. Senators, another was also a Governor, and one was a Supreme Court Justice.

    Connections, or building relationships with others, rather, is prominent in business. We should all seek to leverage the connections of others. However, I caution that the connection should be genuine. We should always ask what can we do for others before asking others what they can do for us. I think we’ll get ahead much further in life with such a motto.

    • Financial Samurai says

      Or the Clinton family with Hilary as Secretary of State and of course ex President Bill. Their daughter got hooked up well after getting into a great school to join McKinsey. Connections. She and her husband and family are set for life!

  4. Darwin's Money says

    Something else that seems lost on our politicians is that to create value like you cited, entrepreneurs take risks – both with their personal time and financially. This risk should be rewarded with a lower tax rate like we have now on dividends and capital gains as opposed to routine, predictable W-2 income. I am appalled that we’re now headed toward the same rates on both, millionaire taxes and all kinds of other nonsensical red herrings that do very little to address the mountain of debt we’ve accumulated.

  5. Kathleen @ Frugal Portland says

    I kept telling myself that I’d spend the money on Sam once I paid off my student loan. Now I’m rethinking my whole life and reprioritizing the student loan down at the bottom of the to-do list. Perhaps my “hire Sam” time is near.

    • Financial Samurai says

      I’m happy to work with you once your ready Kathleen. Paying down student loans is a wonderful feeling. Even if the interest rate is low, there’s something about having no student loans that is just awesome!

  6. Kim@Eyesonthedollar says

    Money can open lots of doors, but I think the right connections are more important. Although one of my favorite quotes is from Joan Rivers of all people. It is something like this, “People always say money isn’t the key to happiness, but I always thought if I had enough money I could have a key made.”

  7. Untemplater says

    Having money and connections makes things easier, but is never a guarantee for success. I actually think a lot of super driven entrepreneurs have a lot of successes when they come from less. It can be extremely motivating when you realize that your parents aren’t going to be able to support you financially, and you’ve got to kick yourself in the pants and build your own career and independence, which I know from my own experience.

    As far as pricing goes, I generally will pay extra for reliable products/services and convenience. Since time and less stress is important to me, I’m wiling to pay a little extra to avoid dealing with the hassles of returns or bad service. It’s exciting being able to get the cheapest price on something, but that doesn’t always work out the best in the end.

    • Financial Samurai says

      Very good point about knowing when your parents AREN’T going to be able to hook you up financially or with connections!

      Imagine if NO parent allowed their college graduate to come back home and live with them until age 30? Could force all incoming college students to work their assess off, hustle for internships, network, and find jobs!

      Great perspective Synday. Thank you.

  8. AJ says

    If you are at starting point of the business, you might have to reach to the level of who is your start audiences and consider the price point that you can sell and still profitable. Once you build trust and reputation on what your strength among customers, then you can add more services and price can expand to bigger ticket. It is the matter of building trust between your services/products and your clients. Does not matter if you have good connection. If you can’t deliver good services to them, those kind of connection will start disappear anyway !….Customers always have cycle by itself, that’s why it is always important to have to build new customers all the time. Ask yourself what is your products, who is your customers, who is your competitors, why those customers have to come to you rather than your competitors and communicate those strength to your potentials clients. Don’t forget though… ‘Rome did not build in one day !’

    • Financial Samurai says

      I agree with this completely. Trust is HUGE in my book. All information with clients is 100% private and will never go beyond us. I am also a very private person, so I’m completely aligned with my clients wishes.

      The client lifecycle based off referrals and repeat business is important. Everything takes time, and I like to be very methodical in my approach.

      Thanks, S

  9. 20's Finances says

    First, it’s amazing how well you spin only having 25k at 2% returns. :) Sounds good to me too.

    Second, I definitely believe in the idea of investing in yourself. It’s one that I have followed fairly well as I try to make a name for myself. But, I try to limit myself to spending 25% or less each month on expenses. Between expenses and taxes, that means I am only making 50% of gross. Any more expenses than that would take away my interest right now. I understand that I may be delaying my growth, but I am also keeping myself interested and giving my self some money to invest and play with.

    Lastly, in direct response to your question, money certainly helps but it doesn’t limit someone. To catch up, you have to find an extra money source. Then, use that money to invest and increase your capital. It may start slow, but the pace should quicken… It’s easy to motivate yourself when you can be hopeful for the future. That’s my thoughts at least.

  10. Tie the Money Knot says

    Very good tips here, and I think that one that jumps out is the notion that the world isn’t fair. It’s best for people to see the world as it is, and avoid getting into an entitlement mentality. Appreciate what you do have, as there are people that would love to have it. At the same time, don’t feel like we deserve what people with more have, just because we think it’s fair. It takes work to get anything, and that work can entail many things including building the right connections. It’s so much easier to get the life you want by knowing how to work WITH people.

  11. Dominique Brown says

    Having money and the right connections will surely get your business ahead of your competitors. But, to able to stay on top, you need to be up-to-date with the latest developments in your field of business. However, someone who has neither money nor connections can still become successful. I have a few friends who came from less but became successful in their businesses. Though it was a hard road to the top, they still managed to succeed through hard work and motivation. My mentor is one of these people… hard work and consistency

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