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.