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Explaining the Difference between Value and Price

Categories: Articles | Tags: , , , ,

By John Jenks

This morning, I submitted a proposal for an e-commerce website for a wholesaler in Memphis, including SEO, Social Media Management, a mobile website, live chat, credit card processing, and any number of other features in which our company specializes. After explaining that he had hired several other web developers at a lower price (and, therefore, would not accept my bid), he also told me that those developers had been unable to implement the shopping cart with the website. That’s unfortunate, but shows that he, along with millions of others, does not understand the difference between price and value.

What is Price?

Price is what you pay for a given product or service. You buy a book that costs $14.95. It’s cost is $14.95. You decide to have your car detailed before you sell it. This costs you $80. It’s price is $80. Simple as that.

What is Value?

Value is what any given product or service is worth. If the book you bought inspires you to invent a new product that you sell for $50. It’s value is $50 multiplied by the number of products you sell. If detailing your car encourages a buyer to spend an extra $500, the value of that service is not $80, but $500.

The Difference

Price is the amount you pay. Value is what the product or service pays you. This value could be measured in financial terms, emotional terms, physical terms, or in any number of other ways. If you enjoy working out at a gym, the fulfillment you receive back from the $50 per month you spend on your membership makes the expense worth it. If some software you purchase costs $99, but saves you $250 per month and four hours of work per week, it’s value is demonstrated in more free time and greater cash flow.

In my case, I offered a business owner an employee who never stops working. This employee does not work 9-5, Monday through Friday, demand commission, bonuses, or health insurance, sleep, get sick, or take vacation time. Instead, he works persistently, making sales for his company, 24 hours per day, 365 days per year. Furthermore, this employee has paid for itself with little to no additional work on the part of the business owner within the first month of his hiring.

I’ve seen a pattern of business owners in Memphis making decisions based solely on price. It’s rather disparaging at times. As someone who has always been value driven, it’s difficult for me to understand this alternative approach to purchasing. Perhaps one must sometimes pay a slightly higher price in order to generate the value that he desires.

Black Friday is just around the corner. Has anyone started looking at the sale prices yet?