Years ago I heard a sales manager explain the difference between cost and price. The customer said, “Your price is too high.” The sales manager said, “Do you mean the price is too high, or it cost too much?” Frankly, I sat there like most people would and thought, “What the heck do you mean?”
The sales manager explained. “Price is what you pay for the service or product. Cost is the value and benefits that are part of the price.” It takes into account:
- Saving time
- Saving money
- Entertainment / fun
- Reduce labor
- Increase efficiency
When you factor in the cost benefits, the price often takes second place. The customer has to have a benefit that is important to them before they buy. They buy what they want from whom they want. It is not a matter of need, it is a matter of want. Sell to the want, not to the need.
I had a customer flat out tell me that he would buy what he wanted. I asked him what his budget would allow on a monthly basis to protect himself and his family. He, like a lot of customers, had not given much thought to the question. I told him I could design a plan that would be $500 a month, and asked if that would work in the budget. He said he would make a way to purchase what I had if he felt it was of value to him and his family, but finally (after some coaxing from his wife) told me he could afford about $100 – $150 a month.
One of the primary fears they had was he was self-employed and his wife worked for him. If something happened to him, she was going to be in big trouble in numerous ways. I suggested a life policy with living benefits that they could use if he had a heart attack, stroke, cancer, etc., or was long-term disabled. He could access cash from the policy without dying. This was very attractive to them and gave the wife the security she needed to keep her life intact should something happen to her husband. The price was under the number they gave me, so there is room for them to add coverage, which they plan to do within the next year.
You are doing your customer a disservice if you do not explain to them the difference between cost and price.