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View Full Version : what came first, the price...........


bobbygedd
11-03-2004, 07:00 PM
ok, i'm a little confused myself, but i'll explain my question the best i can (you know, i'm not the sharpest knife in the drawer). ok, so, what came first, the price, or "what the market will bear?" example, did someone one day set the standard price by starting a lawn business, buying the equipment, insurence, etc, then figuring out what it was costing him to operate, then finally comming to a conclusion on how much he needed to charge to make this work. OR, was it the other way around? did our great forfather of grass first figure out what the public would be willing to pay for grass cutting, then structure his overhead around that?

Littleriver1
11-03-2004, 08:03 PM
I think it was a progression of duel economic paths that continue to cross each other at undetermined intersections in time and place. In place because each area of this country is different in climate and economic growth. Both of which change up and down at uneven levels as time passes. One economic path was the customer " the first customer" to "the last" which we have not met and may never meet. I hope I never meet him. His economice path has grown thanks to Mr. Ford and Mr. Drake. The second economic path was the growth of the green industry. Those of us that take it serious and grow in reality and all the equipment manufactures that take our money and share it with their employees. As long as our customers keep spending we will be in the service industry. What will the market bear? No one really knows untill one tests each of his customers. If you have 10 customers and charge each $50.00 per and raise each one by $5.00 and loose 1 customer, are you making more money? The answer is yes. In reallity we sell time. If you want more time to sell, manufacture it any way you can. If you loose 9 customers, I guess you maxed out. Only a dumb ass would give up 9 customers to learn this lesson. Then only a dumb ass would give up a fin and never know the truth. If you can not make it in the market you are in, you have 2 choices. Find a different business or find a different market.

Runner
11-03-2004, 10:32 PM
O Kayyy! That about COVERS it! That's alot more answer than I could have come up with for this question! lol Great reply, if you don't mind me saying. :)

karen1122
11-04-2004, 08:41 AM
Littleriver1 - An eloquent take and local application of Mr. Alfred Marshall's baby - Supply and Demand.

Bobby - Did you learn this technique in your boat?

www.netmba.com/econ/micro/supply-demand/

bobbygedd
11-04-2004, 12:15 PM
no, could you teach me more?

karen1122
11-04-2004, 12:53 PM
Bobby,

Your expertise already appears to include "baiting the hook". Maybe Geo could comment on his experiences.

bobbygedd
11-04-2004, 01:35 PM
let's not bring deadbeat geo into this. but, i don't understand how supply and demand pertains to my question. if it did it would mean that, the first lawnboy, being the only one of his kind, could charge astronomical fees for his work, and then had to lower them, as more and more lawnboys entered the scene. i don't believe that the first lawnboy was able to price his product thru the roof, because he was the only one of his kind.

Evergreenpros
11-04-2004, 01:36 PM
ok, i'm a little confused myself, but i'll explain my question the best i can (you know, i'm not the sharpest knife in the drawer). ok, so, what came first, the price, or "what the market will bear?" example, did someone one day set the standard price by starting a lawn business, buying the equipment, insurence, etc, then figuring out what it was costing him to operate, then finally comming to a conclusion on how much he needed to charge to make this work. OR, was it the other way around? did our great forfather of grass first figure out what the public would be willing to pay for grass cutting, then structure his overhead around that?


Demand always comes first. You can create a demand or satisfy an existing demand. People buy benefits associated with products or services. People wanted the BENEFITS of having their lawn mowed and the BENEFITS of not doing it themselves. They put a price on those benefits, that is what they are willing to spend.

The benefits go up and down throughout the year with each customer you service. This is why you can service a customer for 3 years then out of the blue they cancel (barrring any other type of occurance like quality decrease, etc.). They have come to the conclusion that the benefits derived from having lawn service does not justify the cost any longer. Maybe they believe a new boat or car will provide them will a better value of benefits to dollars spent. It could be that that $120 a month will provide them with more benefits in their IRA. Everyone is different.


So in short, it is demand AND supply that always determine price.

bobbygedd
11-04-2004, 01:40 PM
back to my original question. did the lawnboy need to first figure out what the public would pay, and structure his overhead around that? or did the lawnboy first figure out what his overhead would be, then structure his prices around that?

DUSTYCEDAR
11-04-2004, 01:56 PM
we all know the lawnboy just threw a number out there

Pecker
11-04-2004, 02:07 PM
I think it started with the kid down the street who did a yard for $10. Then the homeowner figured out that if he paid an adult about three or four times that, it would be done right, complete with edging, trimming, as well as blowing, and not have mohawks. BAM! Lawnservice was born and market rates were established. Just like that.

bobbygedd
11-04-2004, 03:36 PM
we all know the lawnboy just threw a number out there
well i wish he would have thrown a bigger number.

scott in the soo
11-04-2004, 03:45 PM
wow,, things must be slow in jersey these days....

karen1122
11-04-2004, 04:15 PM
Scott in the soo – Yes it is very slow down here. Pissing down rain

Very interesting comments! ****** seems to favor the “Big Bang” theory of market creation

An alternative is the “Evolution” theory. Lawn care was in place before Lawnboy #1 (i.e. Cromagnum Lawnutis) existed. At this time the demand for a well kept lawn was being supplied by the homeowner (these further evolved into PITAus Maximus). The supply curve was then defined in dollars as what a homeowner would pay for someone else to do the work, therefore, it evolved into a modern market structure.

I wonder if someone has come up with an “Adam and Eve” theory?

tiedeman
11-04-2004, 04:30 PM
I say the guy just throw out what the market would bear first

bobbygedd
11-04-2004, 04:31 PM
interesting theory karen. but i think the first two in the garden of lawnboys, were named adam and geo. yes, adam and geo. adam needed a fig leaf to cover his private parts, geo only needed a four leaf clover. that's how dominance was established. the lawn gods told adam not to eat of the "forbidden fruit", but geo's begging and pleading made adam give in.

karen1122
11-04-2004, 05:04 PM
Ouch Bobby - the rain must have caused a very early happy hour (or hours) today. Now, if "The Garden of Lawnboy" was the actual progression, wouldn't the fig leaf and four-leaf clover be hit with the string trimmer?

And Bobby – prices are always driven by the market (and more specifically, by the individual market segment that your are dealing with). Overhead and cost structure are only related to whether or not a specific firm will be profitable in that market segment.

If you win a job and the price was solely on a cost-up basis, then you have undoubtedly left money on the table.

bobbygedd
11-04-2004, 05:13 PM
you are missing my point. ok, it's like this: when i started , 9 yrs ago, the market was already established, so i needed to structure my overhead on prices, that were already established. i knew my market would be residential lawn mowing. the price or "what the market will bear" was already established by exsisting companies. i knew my market was $25 a pop lawn cuts. so i structured my overhead around that figure. now, if i were to go to a planet where there were no lawnboys, i'd have to start over. would i first figure out what the people on this planet would be willing to pay for lawn services, then buy my equipment? or would i buy a mower, truck, trailer, wacker, etc, do some math to figure out my operating costs, then set the cost based on my operating, and living expenses?

karen1122
11-04-2004, 05:42 PM
Bobby – You have actually answered your own question. Since the market on that new planet sets the price, you need to structure your business accordingly – not from cost up.

As stated in an earlier post, the market price is the hardest thing to determine and can vary significantly by segment. Even though you estimate that the market may be $25, some of these customers may really like being hit with a shovel and pay you $30. The only way you can be sure is to continually keep pushing until you hit a pain point

bobbygedd
11-04-2004, 06:00 PM
yes, but where do i start? do i go door to door and ask, "what would you pay for a lawncut?" get it? it had to start somewhere. did the great pre historic lawngrunt say, "i can get $25 for a lawncut, so this is how much my overhead must be?" or did he say, "this is what my overhead is, i MUST get $25 for a lawncut." and if it was the first one, how the heck did he know, when nobody else ever cut grass for a living?

karen1122
11-04-2004, 06:24 PM
Please repeat after me: “Oh Silver Bullet, Master of my universe, please give me the alchohol, full bladder and vision I need to understand this crap”

Negotiation is a great tool to understand market pricing.

A salesman on the corner of NYC with a “Rolex”. He paid $15 for each of the watches and has his first offer at $8K each

1st customer thinks; wow, this is real and worth to me over $10K, the salesman is offering to sell it at $8K. I’ll buy it and I would have paid up to $9K (Sale made, $7985 made, $1K left on the table)

2nd customer thinks; jerk, it’s fake but I’ll counter offer to a maximum of $20 because it would be worth that to me to wear something that looks like it’s real. (Sale made, $5 profit, no money left on the table).

3rd customer thinks; jerk, it’s fake but I’ll counter offer to a maximum of $10 because that’s what it would be worth to me to war something that looks like it’s real. (No sale made)

3rd customer an hour later; jerk, it’s fake but I have changed my mind. I’ll take it for $20

Translation – prehistoric lawn grunt goes to many doors and negotiates pricing. This defines the market price. He must then structure his business expenses to make money at the market price.

bobbygedd
11-04-2004, 06:34 PM
there ya go karen, only 12 beers and i finally got it! so, the price came first. thank you. you did two things, you answered my question, and, you proved that women are good for more than just....well, thanks again