Can I tell you a story about a refrigerator?
Years ago I went to a store to help a friend buy a refrigerator. It was, as you might expect, a pretty boring trip. When you compare refrigerators, you look at the features, the capacity and the price. That's about it.
The reason I remember it has nothing to do with the refrigerator. It has to do with a yellow sticker that was inside the refrigerator. One that frankly, I'd never paid attention to.
The yellow sticker, and maybe you've seen one, looks at the energy efficiency of the refrigerator. Honestly, it wasn't something I thought about much, and my friend was equally non-interested in the yearly power consumption of his frig.
So he picked the one he wanted and we took off to lunch. And I didn't think about that trip for a couple of years.
Until I went to buy a new refrigerator for our home. I called him up to see how he liked his. And that's when I heard two quick truths about that refrigerator that changed my decision making process.
- He told me that it had needed repairs twice. Those were costs he hadn't planned on.
- He told me that his energy bill had gone up far more than he'd predicted. More costs.
This immediately reminded me of an old Zig Ziglar talk on price and cost.
Price or Cost: What matters more?
If you're buying a car, you likely notice right away what the sticker pice is. But if you plan to finance it, you likely want to know what the monthly cost will be. And you may try to figure out how much insurance will cost you. Plus there's the added expenses related to maintenance.
A couple years ago, I compared three luxury used cars. They was only about $3,500 difference between the three sticker prices. And because this was at Carmax, there wasn't negotiating. The price was the price.
But then I looked into the insurance costs of the three – by calling my insurance carrier—and I did a bit of edmunds research on the average cost of repairs over a five year period.
Suddenly, the price was no longer the issue. It was the cost that made the difference. And that's what I optimized for—a lower overall cost. Not the lowest price.
When you're buying something…
I spend a lot of time working with people who are building websites. Almost always using WordPress. These freelancers, agencies and small businesses almost always need to create landing pages on their sites.
- So they inevitably look at getting something from Envato.
- They consider using LeadPages or another SaaS for landing pages.
- And then I tell them about Beaver Builder—a page builder for WordPress.
I tell them to get the most expensive version of Beaver Builder because it comes with the best value. But some people decide not to, because of the price.
Often when they make that call, they are deciding price is the most important thing to them. I get that. But then I watch them pay far more on a SaaS solution. And they spend days teaching themselves how to use it. They buy online courses. They burn hours of their own valuable time.
And what we see is that their cost was much higher than the price they didn't want to pay.
Are you doing that? Are you confusing price and cost?
When you're selling something…
If you're a freelancer, digital agency, or product developer that is selling a product or a service, you likely deal with prospects who get confused in the same way.
You talk about the price. You try to anchor it with value. I get it—and that's all the right stuff to do.
But sometimes you need to simply look at your prospect and ask them what they care most about – price or cost.
For several months I've been designing a different kind of hosting platform for WooCommerce sites. Not infrastructure as a service (IaaS) but platform as a service (PaaS). It's different because we're rolling in tons of additional features / value to the platform.
The price, even for our current Managed WordPress offering, is higher than many others. But the long term cost is way lower, when you look closer at what we're offering.
And yet, I'm not telling you this to cause you to think about my product over there. I'm telling you this because even I get distracted by price over cost. Yesterday someone wanted a discount as they were comparing my product to others.
It was like that refrigerator all over again. I immediately started thinking about capacity, features and price. And it took me half a day to get my head on straight.
Because in reality, if that customer didn't look only at price, but started thinking about cost, my product was a much better fit.
But before I could pitch them, I had to remember it myself.
Whether I'm buying or selling, cost is more important.
The reality is simple. Cost is more often than not more important than price. It's not that the price isn't important. It's just that it's not enough, on its own. It's only one part of a larger dynamic I have to think about.
And I'm guessing the same is true for you. So as you sell, make sure you understand what your prospect cares most about. And educate them if you need to. And if you're buying, make sure you're looking for the yellow stickers that tell you what the lifetime cost of the product will be, so that you can get a real sense of what you'll be spending.