April 7, 2015

What’s the real cost?


On this side of the table, it’s tempting to think that the cost of our product is written on the sticker. If the service or hardware or software or training or package price is X, then X is the cost we have to justify to the customer.

On this side of the table, the magic formula appears to be … increase the value (so customers will pay, or pay more) and reduce our costs (so we profit more).

On the other side of the table the equation looks different.

Actual cost = (X+D+O) x T


  • X is the price paid to the supplier. The sticker price.
  • D is the cost of distracting the customer from what they know how to do whilst they figure out how to do things the new way.
  • O is the opportunity cost of using the money and time and people for something else.
  • T is the cost of time taken before equilibrium returns.

Which adds up to a lot of cost and a lot of work.

So on the other side of the table, the magic formula is … decrease each of the costs so we have some chance that the value we’re buying is worth the effort. The easiest thing to quantify is price so it grabs everyone’s attention.

Connect the DOTs

Most suppliers are so focused on price that they don’t think about D, O and T.

Stand out from the crowd by helping your customer connect the DOTs. It’ll cost you a little more but you’ll change the equation and probably command a premium.

When you’re selling, think like a buyer and understand the real cost.

Skippy Strategy: Name one thing that you can do to each element of the equation. How can you reduce distraction, enable opportunities and minimise time. Build them into the value you offer.

Making Promises