Value Pricing

Hanoch Ne’eman 5 Shevat, 5782 Yerushalayim, Israel

To my dear lawyer, may his light shine:

Just following up on our earlier correspondence about my surprise over the (to my mind) high price for helping me with the title transfer. I asked you for a breakdown of the costs, to which you demurred except to say it includes court costs and the outside opinion about New Jersey law, and that more experienced lawyers take more. That was indeed helpful but what I was driving at more was what is your pricing structure and how do you arrive at it? You probably know already what I will write here, but I for myself anyway like to articulate it. 

Any reputable business or service provider, should be able to define both for himself and his customers, how he arrives at his price. This price is basically made up of two factors: overhead and profit. Let’s take a simple example. Let’s say someone has a business where it’s him and one employee. His overhead consists of what he pays his employee, plus rent if he has it, and other expenses. Let’s say that comes to thirty thousand shekels a month. He and his worker, together, work on average three hundred and twenty hours per month. So his overhead per hour of work is 30,000 / 320 = 93.75 shekels. So for every man hour the company works for a customer, they have to charge him 94 shekels. Let’s say this company values their work at 400 shekels per hour (what they want to profit). Then their hourly rate should be 494 shekels per hour. If the work takes ten hours, then the customer’s bill should be 4940 shekels plus tax. With this information, the customer can have some idea of the value he is getting. 

If you are interested, I can give you two examples of work I had done for me, one where I felt I got good value, and one where I felt somewhat taken. About a year and a half ago, I had two things done in my apartment; I had a small A/C unit put in for the first time, and I had my triss cords replaced. I had actually replaced one or two of my triss-cords myself in the past. Wanting to save time, I called someone to do it. He and his worker came. I had one actually broken, but he convinced me it was good to proactiviely replace the cords in all seven windows in the apartment, which I agreed because they were like twenty years old, and could also go. The price for one, he told me before coming, was a hundred shekels. Seven would be seven hundred. Okay I say. So they start to do them, and in about twenty minutes, including borrowing a screwdriver from me, they replace all seven cords. 

Afterwards, I felt I did not get good value in this transaction, because I felt his overhead was low and his profit was very high for the time spent. I felt I should have asked for a deal of like 450 shekels. 

The AC folks, on the other hand, I felt did give me good value. The AC unit itself, was about 1250 shekels, and they brought it from the dealer. The installation cost about 850 shekels, which took them about two and a half hours to do, including drilling a hole through about 30 cm of my exterior wall, mounting the condenser outside, and the wall unit inside, involving all sorts of tools, copper tubes, and electrical work. Plus they had come before that to give me an estimate and help me plan where to put it. I was so impressed with the quality of their work, and the value I was getting, (especially compared, I felt, to the triss guy) that I surprised them by giving them a six hundred shekel tip. 

In short, I appreciate quality work, but I like to know what I am paying for, so I can judge the value I am getting. It’s a different feeling when you know what you are paying for, and you don’t feel the merchant is simply charging you something because the guy down the street is charging that, or because he thinks he can get away with it because the customer is ignorant. 

cartoon credit: webstockreview.com