Lesson 34 – PRICING……………… THE ART/SCIENCE OF A BUSINESS
Over the past few weeks, I have been getting down to the money side of a business. I am intrigued at the answers or lack thereof to the following questions I posed:
- What is Money?
- What is Cost?
- What is an Expense?
- What is Value?
- What is a Margin?
- What is Profit?
All these questions seem to have obvious answers, yet in a room full of aspiring/prospective Entrepreneurs/Business Owners, not once have there been accurate answers given. Even in rooms that have Educators/Teachers on the subject, there were no concise answers provided.
This is of course, in my opinion!
How can anyone create pricelists, sales campaigns, or even define a profit without known the answers to the above 6 easy questions? To be clear…… as a business owner, I’m very simple….. I want to make a profit on every transaction made by my companies. The profit can vary by product line or sales campaign….. none-the-less, there must be a profit for the Struggledork’s businesses to survive.
Sipho reminds “ME” at every moment she can catch my ear; “SABEF Struggledork….. where is the profit in that sale?”
As an ENTREPRENEUR, I try to avoid the obvious…. that being -“no profit = no future for the business.” It is possible for company sales to increase whilst simultaneously becoming insolvent …….. The catchphrase “SELL OR SUCK” logic, is only applicable when you sell at a profit. Increasing sales without profit leads to an inevitable insolvency of the business. I am taken aback by the number of companies that are under the assumption that selling will keep the business afloat.
Sales may keep your business afloat for a period of time…….! When the cycle finally catches up, the death is very quick, with people around the train-wreck asking …..”What happened?”
Just look at ENRON (USA Company that went broke selling itself to its demise). Selling was not ENRON’s problem……… more like inflated market values, poor margins and out-right B.S
Okay SABEF Struggledork…… definitions of the six easy questions:
1. MONEY: I think MONEY is a human-made storage device for exchanging ENERGY/TIME/MONEY
- COST: I think in business, cost is made up of 4 elements in the following order:
v ENERGY…all humans come to this planet already equipped with ENERGY and it is always the first cost element!
v SPACE ENERGY seeks to create SPACE for something in which to exist and is the second most important cost element.
v TIME is a human system and was created in the first instance to measure and in the second instance, becomes the deepest of all human calibrators. Time allows for continuous improvements which are calibrated by time. In my opinion, there are 3 thoughts to be considered about time; 1. Humans measure in P.I.T. (points in TIME)
2. Humans measure Ac.T. (across TIME) and 3. Humans measure Ar.T. (around TIME). Every human and every business has a different time frame which is all around the Human/Business! TIME is not MONEY …… MONEY is worthless without ENERGY and is cost element 3.
v MONEY: is the least and yet the most important of cost. It is the paradox of costs. Humans who need MONEY always chase MONEY and make it the most important of all costs. Humans who want MONEY make MONEY come to them by design and now it is the least important. Either way, MONEY on earth is a very important subject that must be studied.
- EXPENSE: Business expense is very clear. EXPENSE is MONEY spent on something. All businesses are looking to keep track of all MONEY distributions, especially outbound MONEY spent as an expense.
- VALUE has to include COST’s + EXPENSE’s and must include PROFIT in the thought. Value is always in the mind of the customer….. As a business owner, it doesn’t matter what you think!!!
- MARGIN is always what is between the buy price from the supplier and the selling price to the customer in business terms…… My only question is: did we make a profit and how do I know?
- PROFIT is always what is left over from the MARGIN ALLOWED!! If you don’t make a profit, that is the precise measure of NO VALUE ADDED.
NO PROFIT = NO ADDED VALUE
If there is no profit, how can a company claim that VALUE was ADDED?
In order to think through the complexities of setting the price for any product/service line or even a sales campaign, each of the six aspects of business must be considered. When I look at pricing, I understand it is the art of understanding your market place and the science of considering all the 6 separate thought events that happen every day in every business, worldwide without fail!
Until next week when we start creating thoughts around price lists and pricings…..
SABEF STRUGGLEDORK OUT
