Price vs. Cost (and Price vs. Value)

Price vs. Cost

There is a big difference between Price vs. Cost that is important to communicate when helping a prospect make a buying decision.

A price is what you pay.  A cost is the “Total Cost of Ownership” (TCO = Cost) of something.  For example, you can look at two pre-owned cars and Car A costs $10,000 while Car B costs $11,000.  The price of Car B is higher by 10%.  However, a year later Car A (which had a lower price) has a transmission problem and an issue with an engine – the maintenance cost is $2,000.  Now the cost of Car A is $12,000 while the cost of Car B is lower at just $11,000.  The Cost is what matters, not the Price.  When technology salespeople are helping buyers decide, it is important to convey the message of Total Cost of Ownership rather than just get stuck on the price.  In fact it is very frequent (although I won’t claim that it is always so, but 90% of the time it is true) that you get what you pay for and the Price may be higher because the overall it may be of lower TCO/cost plus because the customer will get a lot more Value. And this brings us to the second point.

 

Value vs. Price

McKinsey writes in “Setting Value not Price”: the difference between the benefits a company gives customers and the price it charges. More precisely, customer value equals customer-perceived benefits minus customer-perceived price.

The customer is getting the value and ultimately the R in ROI (Return on their Investment) while the price is the I in ROI.  So, per McKinsey, “The first task is to map benefits versus price—as the customer sees them.”  You need to qualify the prospect and understand what value your solution will deliver and what is the ROI and talk about the full ROI rather than just the I (which is the price).

 

 

 
 
 


Original is posted at Revenue-Inc.com: Price vs. Cost (and Price vs. Value).