The Difference Between Price And Value

Price is what you pay.

Value is what you get.

If you are competing on price alone, you can’t deliver much value.

Your invoices at the end of the month will be eaten up by saving for provisional tax, business overheads, drawings for living expenses and whatever your core business expenses are.

The problem with the obsession over “free stuff” is that many businesspeople have developed an aversion to paying for things that will generate a positive return on investment.

They could spend $50 per month on customer relationship software that would make repeat sales easier and build stronger customer relationships, but they won’t because $50 per month is just some toy.

If you are worried that you will lose customers by increasing your prices, you are either:

  1. Not creating enough value for your customers or
  2. Targeting the wrong customer segments for your product

Think about the career path of a successful lawyer. They graduate and are billed out at $150 / hour. They get admitted to the bar and gain experience in their area of expertise, raising their chargeout to $250 / hour. They have a decade of experience and a lot of court time under their belt – charging $500 / hour plus is not unrealistic.

There is nothing wrong with raising your prices if you are delivering more value to your customers.

Thinking about how economic concepts tie into this idea, a profit-maximising firm should be willing to make as many investments that have a positive return as it can afford.

While that might be a stretch due to borrowing constraints or skill shortages in particular fields, it makes perfect sense.

If a product or service costs you $50 / month it only needs to generate an additional $51 / month in revenue to be justified as a worthwhile investment.

A business tool like customer relationship management software can generate thousands of dollars per year in additional revenue.

The difference between price and value is so immense that it is a no-brainer to invest in CRM tools if you are running a business.

And if you are selling anything, making the difference between price and value clear to potential customers is one of the most important parts of the education process that leads towards a sale.