Cost - Price - Value
Cost and Price are not the same.
- Measured in time (effort) + materials
Cost is the amount incurred on the inputs (raw materials, salaries, rent, interest, taxes, duties, etc…) for producing any product. It’s the amount of money spent by the company in the manufacturing of a product or creation of a service.
- Cost doesn’t include profits.
Things like your computer operating cost, any software subscriptions, risks, delays, mishaps etc. are NOT included in the cost.
- Cost + Profit
All profit is derived from RISK. - Peter Drucker
Profit is adjusted by taking things like below into account:
- what if they don’t like this work?
- what if the client changes their mind?
- what if something changes midway through?
- what if there comes something that you don’t know anything about?
And, after considering all these RISKS, you increase the profit margin and hence the PRICE of the product.
- Seller determines PRICE.
- Buyer determines VALUE.
If the buyer doesn’t see any value in the product then he’ll not buy it, no matter what you do.
When VALUE exceeds PRICE, buyers give you money.