Margin Doesn't Dictate Price
A Twitter listener asks if it would be a bad business practice to charge double what you were charged to contract work out. Dave says it's neither good nor bad.
QUESTION: A Twitter listener asks if it would be a bad business practice to charge double what you were charged to contract work out. Dave says it’s neither good nor bad.
ANSWER: No. I wouldn’t consider it good business or bad business. Margin does not dictate price. It is amazing to me that people who have never run a business and who are Pharisees think that they get to decide a certain margin equals greed or overcharging or usury. Margin does not equal that. It has nothing to do with that, as a matter of fact.
Greed or hoarding are a state of attitude—a spiritual state—and you can make a 3% margin and be greedy. You can make a 300% margin and not be greedy. You don’t get to decide that for other people either.
You could contract the work and charge triple for it if the value is there. It’s kind of like the guy who says that heart surgeon just got paid $80,000 an hour to do that three-hour heart surgery. Really? No, he really didn’t get paid $80,000 an hour to do that heart surgery. He got paid for the 16, 17, 18, 20 years of school that he did before he spent three hours standing over your open chest. The three hours over your open chest were not what he was paid for. It was the 20 years of study prior to him getting there.
I didn’t get paid what I get paid to do this. Somebody asked me the other day how long it takes me to do show prep every day. My answer is 20 years because I’ve been doing this on the air for 20 years. Really, it’s longer than that because you have to consider the life experiences and the formal education I have in finance that prepared me to do this. And you get to listen for free. Isn’t that amazing? “Well, it’s unfair for you to charge Zander Insurance millions of dollars to advertise.” And you get to decide that? Why do you get to decide that when I obviously make them more than I cost them? Otherwise, they wouldn’t have been on the air with me for 15 years and 18 years respectively.
The margin does not dictate fairness or bad or good business. What you’ve got to look at is the value of the service in the marketplace and what the market will pay for that service. What it costs you to provide that service versus what you charge for it—really, the only ratio there that matters is it creates profit, which gives you 1) the motivation and incentive to operate in the marketplace and 2) if you don’t have enough margin, you close up. You go broke. Margin is there to keep you open and to give you incentive and to create profit, which is why we work.
No, it is not bad business to charge double what you were charged to contract work out. And it is not greedy. It’s not bad business to charge triple. It’s not bad business to charge half. None of those are bad business by definition due to the conversation we’re having. That’s the point.