What is the Difference Between Price and Cost?

Brian Tracy stated, "The price is what it takes to purchase the item. The cost is the amount the customer eventually pays. They are not the same."

Do you really investigate the cost of what you are buying?

A screaming example of this is used boats. The price of the boat is nothing compared to the total cost to run and maintain the boat. The cost includes docking it, maintaining the engine, painting the bottom, etc. The total cost to use the boat all summer is often several times the initial price of the boat.

This certainly applies to business. It is fairly easy to apply this principal to equipment and asset purchases. Trucks, machinery, and other fixed assets are routinely purchased based on both the initial price and the cost to operate. When you combine initial price and the cost to operate you have calculated Brian Tracy's cost.

Why does this analysis seem to fall apart when services are being purchased?

For instance you hire an attorney because he costs $175 an hour instead of $250. Certainly a prudent move if they are of equal talent. You have an offer to settle a lawsuit before litigating for $30,000. Based on your attorney's opinion you litigate. You loose the case and receive a $150,000 judgment which you settle for $90,000. What did that attorney cost you?

Granted it can be very difficult to figure out the true cost of services in advance. Business owners are optimists. That is why you have the courage to take business risks.

Yet all owners must spend some time focusing on the downside. Errors by professional service providers will cost you many times their fees. If you run this risk then you must carefully select your providers. Always keep in mind how small their fees are compared to the damage they can do.