People often think “price” and “cost” are the same thing, but it’s important to recognize there is a significant difference between the two.
Remember the old adage, “Beware the cost of the lowest price”?
Well, it turns out there is a great deal of truth there that, sadly, most don’t appreciate. Just because a product is less expensive (price) than its competitors’, doesn’t mean you (or your business) save money in the long run. Sometimes, perhaps most times, you end up spending more (cost) because of time and efficiency lost to a mediocre product. Or, you could potentially spend twice as much as you’d originally hoped because you have to buy a replacement for that first purchase. Ouch.
For example, let’s pretend your $1 million dream house could be purchased for a price of $100,000. “What an amazing price!” you might say. But that $1 million mansion has the costs of very expensive electric and heating bills, insurance, high property taxes, lawn care, landscaping maintenance, upkeep of painting, fixing things that break, more furniture to fill more rooms, and the constant stress on your time, relationships with others, and headaches of keeping everything clean in such a big space! The price seemed too good to be true. Now owning it’s not such a great deal.
Check out this clip from the 1986 movie “The Money Pit”:
So what’s the difference between ‘cost’ and ‘price’?
Price = The initial sticker price of what you’re buying.
Cost = What you stand to lose in time, efficiency, problem-solving, downtime, upgrades, parts, etc. if you don’t consider all other factors. Don’t forget: Unknowns and unexpected things “behind the walls”, worry and stress headaches, long hold times for help, reliability unpredictabilities… these are all costs that keep you from doing better things with your time.
What it comes down to for most major purchase decisions: return on investment.
If spending $1 extra dollar would save you 2 hours in headache, would that be worth it to you? For many businesses, the point of purchasing a product should be how it improves something. If the less expensive price is for a product that is less reliable, it will end up costing much more in the long run than the premium product with a slightly higher initial price.
“Skilled labor isn’t cheap,
but cheap labor isn’t skilled.”
-Sailor Jack, tattoo artist