In principle, a correct pricing is made of the direct unit cost added to a portion of overheads and the margin we would like to get on top of it. It seems obvious: you'd better to get the sales covering at leastall the costs and make a little margin that would be your return on investment.
In reality, the price is defined by the market. A price is nothing more than what a customer is ready to pay for an item. And this mainly depends of the attractiveness of the product/service offered.
So many businesses fail because they've got their pricing wrong: they live in the illusion that they decide the price, but that's not true: the customer does. If the price is too high, he decide to buy it or not. It works the other way around too: if it seems too cheap he won't buy either.
If someone will propose you a Rolex watch for 100$ or an Aston Martin car for 10,000$, would you buy it?
What me laughing is when those failed business manager keep blaming external sources for their failure: the market was not ready, the customer weren't willing to pay that price for it: customer are greedy, blame the crisis, blame the weather, blame whatever you want but you always will be the first to blame!
The tough time now would be to get a price from the market that cover your costs. That mean that you need to survey your market first.
In terms of job market, the product being yourself, what costs do you have to take into consideration?
- The investment in your career is first your studies.
- The fixed costs are the one of your private life you would like to be paid each month/quarter/year: mortgage, bill, food, clothing, etc.
- The variable costs are those that are disbursed just to get to work, as expenses for commuting, food and specific equipment (suit, tie, dry cleaning of them, safety shoes, etc.). This is a key point because once the two first are set, you only have the ability to play with the third one to determine your pricing.
The investment is the skills you acquired (what you've studied): your lifetime capital.
People used to choose their studies mainly according to their own tastes. They study what they like and that make sense. What doesn't make sense is that they rarely make a cost analysis of it. Therefore the risk is high to end up with huge student loan debt that you'll carry the most of your lifetime. And there are plenty of them.
How much does it cost to achieve those studies ? 10 grand, 100 grand a year? How much could you earn once being graduated? Will it be a good investment?
Most of the cases, the right answer is NO. Otherwise all student loan would be repaid within 5 year.
Wrong choice here may affect/arm your entire career (you should have this warning on the information packs of all universities). Wise choices can be a good investment. I've been studying in University. Because I already started a career, I had to quit my job to do so.
For me this was a difficult calculation to check the benefits of it before deciding going for it. As I had a classmate that has the same initial qualification as me and that has started his career at the same time too, I had a good benchmark to estimate afterwards if I had make a good choice. And it was a comparison point that was a motivator too: I had not let him having a better life than me, otherwise it would have proven me wrong. To reduce the costs, I choose a accelerated programme in a out-of-a-big-town univerity instead of a long painful slow standard one in a top university. The matter studied were exactly the same, just condensed into longer weeks. Less time to party, but I wasn't there for that anyway. This was supposed to last three years, but I failed one year. Despite lot of people trying to discourage me to pursue, I continued, piling on the costs. Being off the market four years is not easy, especially when you're back in. My classmate had his salary reviewed every year while I wasn't even offered the same salary I was before leaving work. Hopefully I managed to live on a very tiny budget during those 4 years and I had financial support of a relative instead of one of those shark lenders, so I can reimburse at my own pace.
Eight years later I can tell you that I've made the good choice because now I'm hired because of a brilliant academical record and I've got a better situation that I would have expected if I would have kept my pre-university job. The cost analysis was well done.
The overhead is your standing of life
How many people are completely abashed when they lost their job ? The main worry they have is that they will lose their income. Let put it straight: the salary, the key element of your pricing, is the only material compensation you'll get in return of your work. If you loose your job, you loose it. People think of this potentiality only once they're facing it.
Speaking for me, those student years on a tiny budget have learned me to live simply. Each time I had upgraded my salary, I didn't felt the need to spend it all. I'm still living in a small house. I can probably afford a twice-as-bigger home but at a cost of a higher mortgage repayment. Now I've enough saving to go through a full year of unemployment without having to reduce my standard of living. That's part of my personal marketing plan: I don't want to take the risk to be surprised by a loss of work and the subsequent income that would put me in trouble and make me taking wrong decisions. One of them could be to bargain myself on the job market just for the sake of having a job.
Therefore i can keep my pricing strategy the same: I've developed a specific set of skills that are very valuable to the one who needs it but with the risk that not everyone need it all the time.
At this point I cannot resist to refer to Kiyosaki's book "Rich Dad Poor Dad": it is full of good sense advice on how to manage your personal finances wisely.
The variable costs of getting to work: This is the most sensitive, even on a political level. Take for example the person who is on the living allowance benefits. Public money covers all his basic needs: rent, bills, food. The total monthly benefits equals lets'say 1000 $. Will this person leave his assisted life for a job paid 1200$ per month? Probably not because if you take the full costs of his life and the cost of getting to work, for example a monthly bus ticket worth 200$, it won't be a good choice to get the worries of an active life (stress, less free time) for the same net income at the end of the month. People like to do short term calculations.
I've never liked being on benefits. I've been once and it was enough. If you live your life on a short term basis, where you cannot project yourself any further than the next end of month, living on benefits is probably the best thing that matches your ambitions. But don't complain then! By remaining in this little short term comfort, you're making a big loss of opportunities: to meet people, to prove that you can do a better work and then reap more rewards,... but those don't happen instantly. They need a certain amount of investment and the people remaining where they are are not showing any will to invest in anything. Popular wisdom used to say: first you have to sow before event thinking of harvesting.
Keeping here a good visibility on your variable cost is in here essential too: would you accept a job averagely paid at your doorstep or a three-times more paid job at a one hour and a half commuting distance?
I used to live near work. I lost this job and then I had to make this choice: should I take a job in the surroundings or should I take one in London, forcing me to commute at an expensive price (trains in UK are the most expensive in the world btw)? Or should I even move to London, where employment opportunities are plentiful but where living costs are three times more expensive than where I live?
Next question that comes naturally: What is the salary I can get there?
In other words: what are the customer of that market are willing to pay for this kind of product (me)? Around my living place: not a lot. There is few demand and by the way few supply too. In London: much more. Does the variable costs of taking a job in London worth it? Plenty of people I met in my town do the same and they feel it's the best choice. Let's go then.
Prices (salaries) are fixed by the customer. As provider of work , you have little margin for haggling, especially in tough economic times, where supply is large and offer are scarce. History has proven that crisis don't last forever. On e day employees will have their revenge. Until then, unwise people are forced to review their salary expectations downwards in a desperate move to find a job. Wise career management should make you comfortable to remain unemployed for at least 1 year. If you're unemployed for more it is because 1 you've chosen a wrong job or 2 you're at the wrong place.
Job market is a local market. See Salaries benchmarks studies: they are always split by locations. Either you choose a job according to the local job market demand or you choose the job of your dream and then decide to relocate where there is a market for it. Do you know this famous actor from Luxembourg or this famous computer programmer from Mali ? No? Me neither. You know why? Because they probably died of starvations where they are because they didn't want to relocate. They would probably have more chances to succeed in their career if the first would have relocated to Hollywood and the second to the Silicon Valley.
Don't laugh, I've got plenty of similar but not so extreme example to tell.
We will explore that any deeper in the "position" segment.
If you want to have a right pricing, you should be in control of your costs and then compare to what the market is willing to pay for your work. If your calculation shows a loss, then either downsize your costs where ever it's possible or choose another career. Be flexible on one or the other, as long as you keep the balance sheet right.
Don't wait until your late forties to make this calculations. Not because it's too late, it's never to late for this but the earliest the best, but because the changes needed will be tougher to implement.
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