What Is A Fair Price And How Do You Know?

Ice cased Adelie penguins after a blizzard at Cape Denison / photograph by Frank Hurley

It is 5 PM on Friday which to quote my neighbor is beer drinking time, but I am not quite there yet. Got a couple of things to do and an appointment with my treadmill first.

But before you get lost in thoughts of tipping back a cold one let’s talk for a moment about pricing and how we determine what is fair and what isn’t.

Been thinking about it quite a bit because I have spent a chunk of my week receiving bids for a service I require. The first three bids made me roll my eyes because I thought they were outrageous and I was offended that they would take me to be a fool.

Set Your Ego Aside

Several years ago I worked as a project manager for a general contractor who did both residential and commercial work. One of my responsibilities was to meet with prospective customers during which time we would discuss what work they wanted done and then I would prepare a bid.

I can’t tell you how many times someone would take my bid and tell me it was outrageous and that they would never be foolish enough to pay for such a thing.

It never surprised me because it is a common negotiating tactic. Sometimes you push back immediately and see what happens. It often leads to an immediate price reduction.

But sometimes it doesn’t.

There are multiple reasons why it might notwork the most significant of which is because sometimes it wasn’t profitable to do the job for any less.

Sometimes I would ask the prospect if they were familiar with what things really cost because the conversation was beneficial and sometimes I didn’t because I knew ego was involved and they were never going to sign unless they felt like they had gotten one over on me.

What Things Cost

For example I once met with the president and vice-president of an HOA for a very large townhouse complex. I was excited about the opportunity because a job like that was large enough to make my year so I gave them a very aggressive bid.

They looked at it and told me I was charging far too much.

I asked them if they had an competitive bids and they told me no, but assured me that they knew it was high. I asked them if they worked in the field or had ever done so and they both told me no.

So I asked them how they could tell me it was too high and they sort of hemmed and hawed at me about how sometimes you know what is fair. Eventually I told them (one was a doctor and the other a CPA) that I expected to get a check-up for $25 bucks and have my taxes done for $15 because I knew that was what was fair and they went nuts.

They were outraged and wanted how I could suggest such a thing to them. Only a fool would work for such wages and only a fool would hire someone who would work for so little.

I already knew that we weren’t going to be working together and politely suggested they try to apply their logic to where I was standing. They thanked me for my time and I went on my way.

The Definition Of a Good Deal

Ask me for my definition of a good deal and I’ll tell you it is the one that you feel good about. Really, it is that simple.

Sometimes we lose sight of that because ego drives us to say we got a deal on our car. “No one can negotiate a better price than I can. I call around and I will only accept my price.”

There may be some truth to that. You might be the person that pays less than everyone else for the car. I doubt that you put one over on the dealer because you never have all of the details. You can come in with the invoice and feel like you know a lot, but you don’t know if the manufacturer is offering any sort of dealer incentive that isn’t published or if there is some other deal in place that benefits the dealer for moving more of that model.

Do you feel good about it?

If the answer is yes and you feel good about it then you got a good deal.

Time Is Money

Circling back to the beginning I am still trying to figure out what vendor I want to hire for this particular service. I don’t know all of the costs that go into determining how much vendors should charge and I am not going to try to figure it out.

I am not independently wealthy so I need to be careful but my time is worth something so the compromise will be to solicit a couple more bids and then figure out what one I feel good about.

It is not scientific, but it is the one that let’s me sleep at night and in many ways that is what matters the most.

What do you think?

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