Nobody Cares About Cost

Steven Kneiser
4-minute read ⚠️ Work In Progress

NOTE: This is Part 3 of the “Nobody Cares” series

Companies Care
about Cost
of Course

but all that cost-saving corner-cutting
goes away when they see Value™

Businesses think very differently from people

They have different incentives

• the more expensive
• the more custom
• the better

because that means they’re confident
that they’re getting the most work done

Good news:
You don’t have to be the cheapest option!

They won’t skimp on $1000,
if it’ll cost them $10k later

• Cost: money leaves & never returns
• Investment: money comes back

The question becomes:
how can we communicate your services
as an investment, rather than a cost?

“Your services” is a fancy repackaging of “a job” from the consulting world. Businesses sell products and/or services. What would happen if you thought of yourself as a 1-person business? “Getting a job” is just like making an enterprise sale (“enterprise” == big company & even bigger money).

So make sure you don’t miss
this key concept:

Companies actually want to get rid of as much money as possible

Companies actually want to get rid
of as much money as possible

Think about that

How else are they going to get back so much?

It’s like they play “hot potato” with money. They want to make sure it’s not stuck sitting in their hands …the same way you don’t want any emails from your bosssitting unanswered in your inbox. Every second that money sits there, it’s not out generating even more.

The good news is
you actually want money now

They’re happy to give you more money
if that means you’re thinking non-stop
about how you’ll make them even more

Why is this so counter-intuitive?

Individual consumers like you & me
don’t often think like businesses

Think about it this way:
businesses could cut costs,
but there’s no ceiling on profits

Businesses = profit machines

When it comes to us as individuals,
we’re highly risk-averse:
we play to not lose

Humans = survival machines

Ever heard of “loss aversion”?
We value losses 2-4 times more
than gains of the same value

What’s the Return on You?

They want your most expensive offering
if that can free up their time
to face bigger problems

If I handed you a mysterious box
that turned $1 into $1.05,
you’d get crankin’

In what environment do you turn $1 into $1.05?

This isn’t “give me 5 cents”

That’s not what they’re asking for

This is “oh you can make $1.05?
hmmmm …go ahead: here’s $1 up-front”

Life is rarely that straightforward, but now you can appreciate why businesses actually prefer to spend more money. It’s not about costs, but returns. If I gave you $100, you went on to invest only $50 of it, & made a 10% return on that $50 …you’d only have $105 & wish you could go back in time to turn that entire $100 into $110, instead of $50 into $55

“you need to spend money
to make money”

So what can we do?

Thinking like a consultant

• TODO: explain value-based pricing (or google it before I draft my own take on it 😉)

How can “thinking like a consultant” help us better approach our job search & even negotiate a higher salary?

The best “consultants” in the world optimize for other things than profit (e.g. to work on interesting projects, to work with interesting people), but let’s pretend like we’re only in it for the short-term money. There are many ways to price your services but we’ll look at the most basic, then the “best”

Cost-plus pricing

This is probably the most intuitive

If you want to make profit, just charge more than it costs to produce

• TODO: elaborate

If you always charge

so you sell products at a price slightly higher

What’s wrong with this?

What if they’re willing to pay more than you’re asking? You just negotiated against yourself. The higher the price or more specific the service, the more flexible people are on price. If we only ever charge this relatively fixed price, then we could potentially be leaving a lot of money on the table.

There must be a better way…

Value-based

• TODO: Value-based

• TODO: Cost-plus

• TODO: add image to visualize value-based pricing vs others

Thinking like an investor

Sure, understanding how companies think helps you communicate yourself to employers, but this is a great opportunity to explore how else this can improve your life & career: we’ve written about co-opting this “investment mindset” & searching like an executive

Don’t worry about your costs
Worry about their returns

NOTE: This is Part 3 of the “Nobody Cares” series

⚠️ Full story: coming soon…