Name Your Price
In the late eighties the economist Gambetta spent more than one morning at the wholesale fruit and vegetable market in Palermo. At peak hours more than two thousand people jostle there, and, as he puts it, the place is like a stock exchange. Buyers walk between the rows, ask the price, and never look only at the top layer of the crates. The seller paces in front of his goods with his hand on a leather bag holding his money and his account book, and at the same time he haggles, watches the crates and gives orders to his men. Every team has its own secret language of prices: a finger in the mouth means a discount of twenty lire, the “scissors” sign two hundred, and if the seller tosses “Via Cavour” to his helper, that’s six hundred.
And there’s one detail I’m telling you all this for. The seller watches faces. If he sees strangers between the rows, he concludes that somewhere else the goods have run short, since new buyers have come here. And he puts his price up.
Nobody recalculated the cost of an orange at that moment. The orange didn’t get any tastier. The faces changed.
Price Is a Decision
Remember the first and main thing: the price doesn’t live inside the thing. A man sets it. You can ask whatever you like for your goods, quadruple it in the morning and drop it in the evening. You have only one limit: the buyer has to believe your price is justified. If he doesn’t, you’re left with the right price and a full warehouse.
Young capos are afraid of this and cling to cost: I’ll add up what I spent, put something on top, and my conscience is clear. The conscience is clear, and the money’s been left on the table. The client doesn’t care how much you spent. What matters to him is how much he gets.
Sometimes uncertainty about the price is a thing that sells in itself. In Sicily there were tenders of a special kind. The client announced a starting price and kept the permitted discount secret; the winning bid was the one that came closest to the price minus that discount. Whoever knew the secret figure won. The police recorded a conversation in which a go-between for one firm asked Colletti’s son to wheedle the discount out of the chairman of a hospital board. Fishing in the dark was one thing, he explained, more or less, but they were ready to pay for the light. Notice: they had no need of concrete or steel bars. They needed a number. There are markets where they trade in goods, and there are markets where they trade in price. In the second kind, as you see, you pay up front.
Four Ways to Set a Price
There are four ways to work out what a thing might be worth. I’ll show you on Don Vincenzo’s oil, because I sat over that calculation myself.
What it costs to replace. What would a restaurant have to spend if it wanted the same oil without us? Find a mill, strike a deal, pay for transport, customs, storage, put its money at risk. We added this up for an average restaurant, and it turned out that it couldn’t get oil like that on its own for any money: nobody in Sicily would bother talking to a single kitchen. That’s the upper ceiling, up to which the client might think: “cheaper to do it myself”.
What others charge. What does the wholesaler at the market ask for similar oil? That’s what the cook will compare our price with in the very first second, like it or not. Here we had a reference point and a trap at the same time: name a price well above the market, and the cook won’t even try it.
What it will bring in over time. This way works when you’re selling not a thing but a stream of money. That’s how the mill owner reckoned our five-year contract: what it was worth to him today, if the money came in instalments and not all at once. You’ll understand that arithmetic in the chapter on money. For now remember that future money is worth less than today’s, and the further off it is, the less it’s worth.
What it’s worth to the client. The most important way, and the most forgotten. How much does a restaurant gain from our oil? We asked the cooks. Good oil lasts longer in the fryer, so less of it gets used. Fish fried in it tastes better, and the guests notice and come back. The owner can write “in Sicilian oil” on the menu and charge more for the dish. We worked it out, roughly at least, and it turned out the restaurant gained more than we’d meant to ask.
Four ways gave four different figures. That’s how it should be. The price you name lies somewhere between them. Lower than what replacement costs, higher than what your work costs, close to the market if the client is comparing, and as close as possible to the value if you’ve managed to show it. We set our price at the market wholesaler’s level and didn’t charge extra for the value. Why, you ask? Because for the first six months what we needed wasn’t money, it was the cook’s habit. The money came later, when we were selling not oil any more but a contract for a year.
Too Cheap Sends a Signal Too
And now the opposite example, so you don’t decide that below the market is always good.
In Campania, around Naples, the clans dealt in industrial waste for years. Roberto Saviano, who wrote a book about it and has lived under police protection ever since, gives their rates. Legal waste processing, done by the rules, cost from twenty-one to sixty-two cents a kilogram. The clans’ middlemen took on the same work for six to ten cents. In 2004 they took in eight hundred tonnes of soil poisoned with hydrocarbons at twenty-five cents a kilogram, transport included. Done by the rules, it would have cost five times as much.
How did they manage it? Very simply: they didn’t do the work. The waste was buried in fields and dumped in quarries. A price five times below the market always means something. If your price is far lower than everybody else’s, ask yourself what part of the work you aren’t doing. The clan knew the answer: all of it. And if somebody offers you a price like that, ask yourself the same. The buyers of those services knew the answer too. They just preferred not to ask.
Sell What the Client Will Get
Now about how a price is explained. One Sicilian mafioso, a former one by then, told a researcher about his youth. From time to time his boss sent him to settle small matters: a quarrel between shopkeepers, a dispute between peasants, a grievance over a theft. The price was open, as he remembered it, and all the profit went to him, and he knew how to charge a high price: without ever saying so outright, he let people understand that the job had been hard and that somebody had pulled a pistol on him.
A dark story, but the mechanism in it is clear, and it works the same way in any office. A man pays not for what you spent but for what he got and how hard it was to get. If the client doesn’t understand what you did for him, he’ll value it at zero. Our acquaintance explained his value with an invented pistol. You don’t need to invent anything. You need to show the real work.
Make the Client Smarter
And there’s an even better way: teach the client. Not tell him how good you are, but make him better at his own job.
Once a year, in November, when the new oil arrived, Don Vincenzo gathered the young cooks from our restaurants in his back room. We put frying pans on a hotplate, heated different oils and watched which one started to smoke when. We tasted bread with oil from different mills. The Don explained how to keep a tin so the oil wouldn’t go rancid, why you mustn’t keep it by the stove, and why cheap oil costs more if you count by the portion rather than by the litre. We didn’t charge a cent for that evening.
A cook who had understood the difference between good oil and bad never again asked why ours cost what it cost. He explained it to the restaurant owner himself. A couple of years later those young men were head chefs in different parts of town, and whenever they moved to a new place, they brought us with them. No salesman could have sold as much oil for us as those evenings with the frying pans did.
That’s the main thing about price. You can name any price you like, but you can hold on only to one the client understands. If you want to charge more, help him understand what he’s paying for. Best of all, teach him in such a way that he remembers who taught him.