Can you recognize value? More importantly, are you creating it?
By Larry Kendall, author of Ninja Selling and chairman emeritus of The Group, Inc.
The most successful entrepreneurs I know have one thing in common—they can recognize value when they see it. They’re always seeking value, and they are masters at creating it. They have a value mindset.
These entrepreneurs are clear on the differences between the five basic economic terms: cost, price, value, expense, and investment. Unfortunately, many in our industry have not yet mastered this skill. They confuse cost and price with value. Or, they see investment as an expense. Let’s define these five economic terms:
Cost: The time and money it takes to produce a good or service.
Price: The money a seller asks for the good or service.
Value: What the good or service will do for a buyer relative to the price being asked.
Expense: An outlay of time or money for a good or service that is consumed (used up).
Investment: The outlay of time or money in expectation of future benefits or returns.
Here are two examples where these five terms got confused.
A Cost-Plus Mindset
The president of a large home building company prices his homes based on their cost. His formula is sometimes called cost-plus. He adds up his costs, then adds a margin for profit and overhead, and that becomes his price. How do buyers buy homes? They look at value, not cost.
The five components of value to a buyer are location, size, condition, amenities, and price. They could care less about the builder’s costs. Do they perceive the builder created something of value that they want to live in? Or, has he spent $500,000 in costs to build a house that is only valued at $450,000 in the marketplace? This builder has a cost-plus mindset rather than a value mindset.
Expenses vs. Investments.
Sales associates are shown a formula and convincing evidence that, if they invest $24 a year ($2 a month) staying in touch and building relationships with their customers, this formula will give them a $1,000 per year return on their investment. In our classes, I ask the question, “If you could earn $1,000 in gross commission income for every $24 you invest, how much would you invest?” The correct answer is, “All you got!” It’s incredible to me how many associates have confused looks and find excuses not to make this investment. Why? They either see the $24 as an expense rather than an investment or they have a fundamental belief in scarcity. In either case, they don’t have a value mindset.
In their remarkable book, “The Go-Giver,” Bob Burg and John David Mann offer The Law of Value: “Your true worth is determined by how much more you give in value than you take in payment.”
Observe the best and brightest in our industry, and you will see the value mindset. Top sales associates are masters of articulating their value to a seller, not just their fee (price). Top companies articulate the value they are bringing to their associates. They present their office fees not as expenses but rather as the investment they are making in their associates’ businesses.
Managers and staff are viewed as investments, not as expenses, and a return is expected on these investments. The goal of managers and staff is to bring more value to their sales associates than they receive in compensation (The Law of Value). This mindset creates a value-driven organization.
Top companies and top associates have a mindset that “everything I do and every dollar I invest should create value for someone and generate a return on that investment.” If it doesn’t, then it is an expense and should be eliminated if possible.
Become a master at creating and delivering value. Have the value mindset.
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