There are many ways that businesses arrive at a price for their goods and services and many variables but they are generally based on the concept of supply and demand. The target market of a particular item or service will pay to the point they perceive that item or service to be value to THEM. Value, of course, to one consumer may be outrageous to another – one consumer may consider that $1 million is good value to pay for a Ferrari whilst (many) other would consider it a gross waste of money.
What we aim to arrive at is a way of pricing our own value to an employer so that we do not make the mistake of overvaluing or, for that matter, undervaluing our services as an employee. A self-employed tradesman, for example, will cost his jobs based on the cost to him plus a reasonable allowance for earnings. That allowance may take into consideration what he could reasonable expect to earn over a full year given that he has a finite number of jobs he can complete. For example, a fencing contractor may be able to complete 2 fences per day and work 250 days per year aiming to earn $50,000. Therefore the minimum he can charge per job for his labour (not materials) is $50,000 ¸ 500 jobs = $100 per job. Naturally, he would want to add a margin for safety in the case of a downturn in workload. He is then capable of varying his profit according to how hard or how quickly or how often he works.
For most employed jobs, however, there is generally a finite minimum and maximum market rate that is paid and we need to be aware of how this operates. There is generally a base rate, usually based on an industry award or workplace agreement and is then varied according to other aspects such as length of service, qualifications, output or any number of things. Think of these as FEATURES that you possess, much the same as a motor vehicle would. For example, a basic Holden may sell for $30,000 and be able to provide good service to the buyer – but that same buyer may want to add additional features such as mag wheels, a bigger engine, more air bags, ABS brakes or a roof rack. These additional features all cost extra money much as an employee does when they have additional features.
- Machine Operator – basic model with Certificate 3 in Engineering and under 3 years service gets paid a base rate of $18 per hour.
- Machine Operator – advanced model with Certificate 4 in Engineering plus a Forklift Licence plus a First Aid certificate plus 10 years service may get a base rate of $22 per hour + 1% + a flat $5 per week + overtime.
Note, however, that the consumer of your services (the employer) must perceive that you and your features are good VALUE at that price. The labour market works on the principle of supply and demand also so, if there is a pre-set market rate for a service (i.e. your labour), the candidate offering the best value (more features) will get the job.
Each of your attributes has a value that should be assessed for what it is worth to an employer. An employer (or business) will always be looking at ways to make more money (obvious) and there are two basic ways of doing that - they can either:
a) increase income or
b) decrease their costs
both of which are designed to make more money – simple! And every employee can do that in many different ways, but the really valuable ones will understand WHY. Take a few basic attributes and examine how they can make an employer more money:
Loyalty – a loyal employee will stay in a job longer, therefore saving the employer the money and time it takes to find and train a new employee.
Alert – an employee able to spot and potential hazards will prevent accidents or mishaps and save am employer repair or insurance costs.
Punctual – a punctual employee is a more productive employee. Higher productivity means more output means more income.
Reliable or accurate – a reliable or accurate employee will use less materials in their job meaning less cost or more profit.
Attention to detail – means less reworking of processes, less cost and more profit.
Tactful – means customers are more likely to warm to an employee, meaning more sales and more income.
Empathy – means customers are likely to remain loyal, meaning more sales and more income.
Here is an example of how important it is to do a seemingly simple job well, and the consequences of not doing so. A factory employs production line staff to pack their goods in boxes and label them before they are dispatched to customers. If the staff do not follow procedures, mishaps can occur such as breakages, slow work, incorrect labeling, goods not packed securely or omissions. The consequences can be disastrous because of all the people and processes that may be affected viz:
a) any slowing of the production line means that supplies may be building up at the start of the line and it costs money to store goods.
b) slowing the production line means less output and therefore a higher cost per unit and less profit without a price adjustment.
c) delays in dispatch mean that dispatch staff are decreasing their productivity and customers are receiving goods later than expected which could result in a loss of sales.
d) incomplete orders result in returns from customers, additional time (and cost) to rework the order and a possible loss of sales.
e) breakages result in rework and cost of broken items.
f) incorrect labeling, omissions or results in customer returns, rework and possible loss of sales.
g) insecure packing could result in an accident, breakages and returns.
You can see that it does not take much to go wrong and how important EVERY job is to the welfare of an organisation and to the the employees who work in that organisation. Every job is dependant on every other job so, in a way, each employee is responsible for every other co-worker as well as themselves.
Every potential employee should be able to demonstrate how, given that all other circumstances are equal, he or she is the best choice for a job based on their attributes and skills being able to increase the profitability of the business. An extreme example might be an actor.
You could ask how an actor can make a difference to profitability (apart from popularity) – surely they are just there to play their role. But consider that movies are not made for fun, they are a business too and are just as interested in profitability as any other business. In fact, because of the risk involved in making movies, the high capital investment and long lead time to get a return on that investment, the movie makers are probably more apt to be carefully considering budgetary implications of their choices. Let’s say a producer is trying to decide between Mel Gibson and Nicolas Cage for a new role. Both are just as popular at the box office, both are capable and suited to the role and they cost the same. Who would we pick? Lets just say we checked with their recent producers (reference check) and found that one of them usually took 4 or 5 takes for every scene, often took days off and took twice as long in makeup preparation. Those seemingly minor details result in possible blowouts in time and budget and could mean the difference between a profit and a loss for the film. Why?
- extra takes mean more film supplies, more editing, more staff time for setup and filming.
- days off means other production staff may be being paid for doing nothing.
- increased time means more costs in wages, catering, supplies.
- Increased time means the longer it takes to release the film and get a return for the investment.
If we think through the consequences of our own job role and demonstrate to an employer that we understand the implication on HIS business, we are creating VALUE for him. The following is a list of value opportunities that you can provide and adapt (feel free to add to it);
- Customer satisfaction (potential free advertising from word-of-mouth)
- Repeat business (customer retention, cost savings)
- Process improvement (cost saving)
- Product or service improvement (increased sales)
- Reduction of errors (higher productivity)
- Increase staff morale (higher productivity)
- More efficient communication (time savings, increased productivity)
- Increased safety (time, cost savings)
- Complaint resolution and reduction (time, cost savings, customer retention)
- Involvement of management (communication, productivity)
- Reduction of delays, waiting time (productivity, increased sales)
- Increased accessibility of staff (customer retention, potential increased sales)
- Better attitudes (customer retention, morale)
- Reduction of errors, rework (increased productivity, shorten lead times)
- Reduction of lead times (increased sales, cost savings)
- Reduction of sick days (increased productivity)
- Active staff (better networking, increased sales)
- Increase quality (increased sales)
- Increased reliability (increased sales, cost savings from rework)