3 ms·

Can't really blame them. They just want to know how much it's going to cost them. Somebody is trying to allocate a budget for this project, and they ask "what's

Can't really blame them. They just want to know how much it's going to cost them. Somebody is trying to allocate a budget for this project, and they ask "what's it going to cost?" and the answer can't be "the result of a function whose inputs are undefined at this time".

gnramires 4y ago
I've come to the conclusion that estimating "value" can be quite tricky. Is it the difference as to what their profit would have been without your specific consultancy, without any consultancy, without a specific solution? To illustrate why, consider the "value" of a (1) a toilet, (2) nuts and bolts (sorry, I'm not great at examples). You couldn't live well without a toilet, the differential cost of having/not having a toilet in your home is immense. That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. The same goes for nuts and bolts in a product: they can be essential for the functioning, but it doesn't really cost much, nor makes sense to use uber-costly nuts and bolts. So a naive differential definition of value can be just a rent-extracting proposition, which I think most orgs would try to avoid. If you're sure no one else in the world could deliver this solution (i.e. it's extremely scarce and non-reproducible), then the value proposition starts to make more sense (because your time and attention is also limited). I tend think that's rare. So it seems more natural to adapt to each situation: you need to estimate your (operation) costs and target revenue, and then charge with a healthy margin on that; and if your service is highly unique or in high demand, you adapt by increasing your pricing accordingly.
- ghaff 4y ago
  >That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. Check out Toto washlet prices. :-) e.g. https://www.totousa.com/washlet-with-smart-toilet-g450-10-gpf-and-08-gpf https://www.totousa.com/washlet-with-smart-toilet-g450-10-gp... But I agree with your point. If you have some specialized, almost unique, knowledge, have plenty of demand, and are hard to substitute for--and it's something high value--you can charge a lot.
  - gnramires 4y ago
    Ah yes, I forgot about those :) Indeed I would complete the analogy as follows: if only you could produce toilets in the entire world, you could (and probably should) charge a lot of it, since it would be so scarce -- it would be the stuff of world leaders and celebrities; or you could charge for 'how to make a toilet' (which makes sense since your production capacity is limited). That's when your product/service justifies something close to value pricing.
R0b0t1 4y ago
Nah. You can definitely blame them. As a vendor you should be able to put some kind of error bars on the potential savings. If they then refuse because they think your cut will be too high, move on and let them flounder. The major malfunction a lot of executives have is that they overestimate the value of not only their own labor and their company's position in the current market, but they underestimate how hard it will be to get a competent replacement. I don't really know why. It's partially hubris. But I think it stems from not being able to separate the superficial understanding that happens when being told something from the true understanding of synthesizing that understanding yourself. Most executives seem to go through life thinking they are amazing just because they can understand what people are telling them and attribute it to themselves, when in reality they can make nothing of value.

gnramires 4y ago

I've come to the conclusion that estimating "value" can be quite tricky. Is it the difference as to what their profit would have been without your specific consultancy, without any consultancy, without a specific solution? To illustrate why, consider the "value" of a (1) a toilet, (2) nuts and bolts (sorry, I'm not great at examples). You couldn't live well without a toilet, the differential cost of having/not having a toilet in your home is immense. That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. The same goes for nuts and bolts in a product: they can be essential for the functioning, but it doesn't really cost much, nor makes sense to use uber-costly nuts and bolts. So a naive differential definition of value can be just a rent-extracting proposition, which I think most orgs would try to avoid. If you're sure no one else in the world could deliver this solution (i.e. it's extremely scarce and non-reproducible), then the value proposition starts to make more sense (because your time and attention is also limited). I tend think that's rare. So it seems more natural to adapt to each situation: you need to estimate your (operation) costs and target revenue, and then charge with a healthy margin on that; and if your service is highly unique or in high demand, you adapt by increasing your pricing accordingly.

ghaff 4y ago
>That doesn't mean it's reasonable to spend thousands of dollars on a single toilet -- even if you would if you absolutely had to. The cost isn't that high. Check out Toto washlet prices. :-) e.g. https://www.totousa.com/washlet-with-smart-toilet-g450-10-gpf-and-08-gpf https://www.totousa.com/washlet-with-smart-toilet-g450-10-gp... But I agree with your point. If you have some specialized, almost unique, knowledge, have plenty of demand, and are hard to substitute for--and it's something high value--you can charge a lot.
- gnramires 4y ago
  Ah yes, I forgot about those :) Indeed I would complete the analogy as follows: if only you could produce toilets in the entire world, you could (and probably should) charge a lot of it, since it would be so scarce -- it would be the stuff of world leaders and celebrities; or you could charge for 'how to make a toilet' (which makes sense since your production capacity is limited). That's when your product/service justifies something close to value pricing.

R0b0t1 4y ago

Nah. You can definitely blame them. As a vendor you should be able to put some kind of error bars on the potential savings. If they then refuse because they think your cut will be too high, move on and let them flounder. The major malfunction a lot of executives have is that they overestimate the value of not only their own labor and their company's position in the current market, but they underestimate how hard it will be to get a competent replacement. I don't really know why. It's partially hubris. But I think it stems from not being able to separate the superficial understanding that happens when being told something from the true understanding of synthesizing that understanding yourself. Most executives seem to go through life thinking they are amazing just because they can understand what people are telling them and attribute it to themselves, when in reality they can make nothing of value.