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118: Price vs Cost
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Hey, 👋 Scott from The Sales Mastermind here. Today’s edition only takes 3 minutes. Buyers think in terms of Price, Cost, and Total Cost - most sellers never make it past Price. Today we’ll cover:
Storytime My daughter's former childcare centre uses an "all-in-one childcare management software" called Storypark. As a parent, I have the Storypark app on my phone, where educators have recorded my daughter's daily activities, such as eating, nappy changes, and naps. Every day, and every month, the centre sends us non-personalised communications on topics ranging from daily photos to the upcoming Mother's Day morning tea to the dreaded gastro outbreaks (IYKYK…). And whenever I arrive for either drop-off or pick-up, I use an iPad to mark my daughter as coming or going. There are three iPads just inside the front entrance, and without fail, at least one of them will be on the wrong app, logged out, or otherwise unusable. And this got me thinking about the price/cost of a deal. Sellers usually factor in only the money paid. In contrast, buyers also consider auxiliary investments, such as buying iPads and staff wages checking the front entrance iPads are usable. So let's talk about Price, Cost, and Total Cost. Price, Cost, Total Cost Simply put:
Price and Cost are clear and simple. Total Cost is hard to calculate because it is hard to decide what to include. Storypark Buyer Imagine you're in childcare and have decided to use Storypark. Now you need to figure out the Price, Cost, and Total Cost for your centre. According to their website, Storypark is either $1.79/child/month or "from" $229/month. That is the Price. The most obvious example of Cost is the iPads - there are three at the entrance, one in each room (four rooms), and at least one spare. Totalling eight iPads. At $500 each (a round number for easy math), that's an initial outlay of $4,000. Let's also factor in at least one example of Total Cost. My daughter's old childcare used to send daily photos of each room, along with a write-up of the day's activities. And that means one of the educators has to take the photos and write the email. Assuming 15 minutes per room, across all four rooms, that is 1 hour of labour cost per day. The average childcare hourly wage in New South Wales is between $26 and $30. One hour per day, five days a week, ~4 weeks in a month, that's $520-$600 in wages a month. We're keeping the example simple. There will be more Cost and Total Cost that we are not factoring in. Bringing it all together, for a buyer starting with Storypark, we're looking at:
That totals: cash out the door, $4,749 for the first month and $749 per month afterwards… it adds up quickly, and Storypark's share is only a fraction of the equation. More about Total Cost Total Cost is the hardest to calculate, as you have to decide what it includes. The scale of the buyer's organisation is vital when choosing what to include. For example:
More examples of Total Cost are:
Ultimately, you need to decide what makes sense to include or exclude in any of the Price, Cost, and Total Cost models. The one thing you can't do is ignore the way your buyers think and process the deal. Make sure you have good answers for each of Price, Cost, and Total Cost, or you're leaving buyers to make their own (probably wrong) assumptions. Until next week, PS Did someone forward you this email, and it seems like something you want more of: Link to subscribe​ PPS You can find the back catalogue here, all 110+ newsletters: https://thesalesmastermind.kit.com/​ |
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I help founders who sell, but aren't "sales"people. Are you open to one hyper actionable sales tip per week, useful for your very next sales meeting and consumable in 4 minutes or less?
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