March 5, 2015
My favorite blog is Mr. Money Mustache (MMM). It is written by a “crazy” guy who retired at age 32 and lives in Colorado with his wife and son. He’s not a trust fund kid or a venture capitalist or a lesser-known Mark Zuckerberg. He is financially independent, but only because his family lives on approximately $25k per year, not because he has masses of accumulated wealth. The guy is frugal to an extreme; he’s the paragon of a price shopper – he has to be to keep family expenses that low, right?
Well actually, he’s a value shopper, not a price shopper – and that’s a really important distinction. MMM does spend money, but only on things he perceives will improve his life and increase his happiness. You can see his shopping logic in action in many of his blog posts, including this one: My $750 Bread Making Machine. In his post, MMM lays out a classic Value-Based sales pitch for a Bread Making Machine, which literally and figuratively makes (saves) dough for his family.
Of course, he does buy a used one for $10, rather than a new $350 version. But thankfully for those in sales, you don’t generally have to convince such advanced spendthrifts as MMM. Even if he had bought the new model, he would have come out dramatically ahead financially according to his own math.
“Three years into ownership, I must say that this machine is still a huge hit. First of all, the cost savings are significant: to buy a good-quality loaf of whole wheat bread in the grocery store costs about $2.50. To put in flour, yeast, olive oil, water, salt, and sugar costs me about 50cents to get an equivalent sized loaf of bread, with flour purchased in 50-pound bags from Costco. The time investment is also miniscule [sic] – without any special preparation. I timed myself in measuring the ingredients into the machine and pressing ‘START’ last time I made bread: 90 seconds. If you factor in the time needed to walk to the bread section of your store and pick out loaves during regular grocery shopping, the net time cost might even be zero. Plus, I prevent a plastic bag from being manufactured as well.
So, I’ve been saving two bucks per loaf, two loaves per week, for about 3 years. That’s $600 in bread money that is now part of the ‘Stash.”
For Value-Based pricing, you do need to know how your product or service will fit into your customer’s life or business to be able to calculate a believable ROI for their purchase. If you use MMM’s post as a template, you can see the core components that need to be considered: hard costs (alternative product or material used), soft costs (time and energy), and frequency of use. When you put those factors together, you get a “Spaving” value – how much you are saving in the long run, but spending money now. The bigger the Spaving Value, the better the sales pitch.
*Featured Image Credit: Mr. Money Mustache