We as consumers love finding deals. Getting a product or service for less than you originally were going to pay for it makes us feel good and that’s why many companies consistently offer promotions or sales.
But, there is a KEY difference between getting something for cheap or getting something at a good value. Getting something for cheap merely means that you are getting something at a low dollar amount. Getting something at a good value means for the price you pay, you are getting something greater in return back.
Example
Let’s say that I went to the store to buy a toothbrush. There is toothbrush A which costs $1, but only lasts for 1 brush. Then there is toothbrush B which costs $5, but it lasts for 10 brushes. When we do the math, toothbrush A has a cost of $1 per brush ($1/1 brush), but toothbrush B has a cost of $0.50 per brush ($5/10 brushes). Toothbrush A is the cheaper product and is tempting on a dollar price basis, but toothbrush B provides better value because you are ultimately paying less on a per brush basis.
Why is this important you may ask?
Well first brush your teeth because having healthy teeth is important 🙂
But, this idea of finding good value versus looking for the cheapest thing applies to a variety of different things in life.
Business Use Cases
The stock market is a great example of always trying to find the best value. Many people that begin investing in the stock market and do not have a lot of capital make the mistake of buying cheap stocks because they believe that allows them to potentially get more gain. While penny stocks can be quite be quite lucrative, most of them have no foundation and are basically worthless. Buying many of those stocks because those are cheap is not a good reason and many of the times you might as well just say goodbye to that money. Instead, look for stocks that have value and create a compelling product or service that can allow it to grow. Maybe that stock is a bit to expensive for you to invest right now in, but save up your money to buy shares because it is always better to buy something that has value than buy something cheap just for the sake of it.
How to Value (especially businesses)
Finding good value is not easy task and that is why there are entire industries dedicated to finding good value companies and either investing in them or flipping them for a profit. This is important if you also look into acquiring a business down the line in the future. the price point of a business may be a baseline, but look at all the parts of the business before committing to buy. Finding value is not always straightforward and looking at cash flow is a good start. But also consider the market and whether the business looks like it can continue to grow.
Key
Just remember that a low price isn’t everything. Marketing and low prices are meant to prey on our psychological wanting to feel like getting a “good deal”. But, remember that value is the key word and low prices does not always translate to value.