What is Expensive?

Feb 20, 2015

mentoring business

I was talking with one of my mentees last week and we happened upon the topic of money and wages. I mentioned to him that, in order to talk about money properly, you have to define the word "expensive."

Naturally, people think the word "expensive" means that the price of something is too high, but the problem with this definition is that it lacks context. I explained it to my mentee in this way.

Me: Say this Contigo water bottle is up for sale.  I will sell it to you for $10,000.  Is this expensive?  Would you buy it?
Mentee: Yes I'd buy it, but only if I am a millionaire because it wouldn't be expensive.
Me: But the cost (in terms of a percentage of your assets) isn't what makes something expensive.
Mentee: Okay, then no I wouldn't buy it.
Me: What if I told you that this water bottle could stop a .50cal bullet and keep water fresh for 15 years?

The proper definition of the word "expensive" is that the price of the object is more than the value gained from it. In the example above, without the context of bulletproof-ness and contents freshness, it is difficult to quantify the value of the water bottle using only its outward properties (look and feel, weight, style, etc). However, when you start to put a value (which is, admittedly, a personal choice) on the bottle's other qualities, the $10,000 price tag starts to look less expensive. So something isn't necessarily expensive simply because its price is high, but rather if it provides the same (or better) value to you as the original price you paid for it.

As I mentioned, the quantification of the object's properties are what determine the value it provides. This is not an easy task, but this alone dictates whether something is expensive or not.

This concept relates back to negotiations over salary and contract rates. The first thing a prospective employer is going to ask you is, "What is your target salary?" Once your target is given, the first response will likely be along the lines of "that's too expensive" (of course, the wording will contain more euphemisms) ¹. The trick, then, is to counter with some discussion of the benefits of your skills. This adds context and justification to the salary target. Now, this doesn't always work with some employers, but many do start to understand what value-added services you provide to the company.

In consulting, one often must justify their rates because clients will always say it is expensive. I started to prevent these conversations by presenting myself as the tech industry equivalent of a triple threat. That is, I can perform programming, systems, and business duties, which are generally held by three different types of people ². It is my job to ensure a prospective client puts a dollar value on these services. Every client's personality is different, so there's no perfect solution to this problem. Instead, the cliché "practice makes perfect" applies here.

As an aside, anyone that asks me how to learn about negotiations and money, my answer is always:

1. Go to a high-pressure sales event (used cars, vacation condos, etc.) and haggle for the best price (regardless of whether you will buy it); and
2. Go to a bazaar and haggle over something pretty.

For a brief period of time, you get to put yourself in the "prospective employer's" position of assuming that the first price given is "expensive."