A familiar scenario goes like this:
The huge printing presses of a major Chicago newspaper began malfunctioning on the Saturday before Christmas, putting all the revenue for advertising that was to appear in the Sunday paper in jeopardy. None of the technicians could track down the problem. Finally, a frantic call was made to the retired printer who had worked with these presses for over 40 years. “We’ll pay anything; just come in and fix them,” he was told.
When he arrived, he walked around for a few minutes, surveying the presses; then he approached one of the control panels and opened it. He removed a dime from his pocket, turned a screw 1/4 of a turn, and said, “The presses will now work correctly.” After being profusely thanked, he was told to submit a bill for his work.
The bill arrived a few days later, for $10,000.00! Not wanting to pay such a huge amount for so little work, the printer was told to please itemize his charges, with the hope that he would reduce the amount once he had to identify his services. The revised bill arrived: $1.00 for turning the screw; $9,999.00 for knowing which screw to turn.
My business involves hundreds of machines, each with computer controllers that fail after about 5 years. The controllers cost $500 to replace new, but I send them to a repair facility where they are restored for $250.
Two questions come to mind:
- Is this a bargain?
- Is $250 the right cost of repair?
What if the repairman knows 99% of the time repair involves a $1.90 capacitor and 10 minutes to dissemble, solder, clean, reassemble, and test. Is charging $250 justified? Does he justify his fee on the basis of saving me $250, rather than costing me $250. When I consider that $250 to repair saves me an additional $250 over purchasing new, this a bargain.
Yet, when I consider that $250 for 10 minutes of effort equates to $1512 per hour, I see it a bit differently. But, should I see it differently? Should I care how long it takes to repair, or how much goes into the repair? Should I care whether this is a college-educated professional like a lawyer or a self-taught technician whose knowledge my business needs immediately?
The underlying question is ‘How do we place a value on someone’s knowledge?’
This is no easy question. It often seems rates charged for services far exceed what one would ‘expect’ to pay. Upon what do we base those expectation? Are they legitimate expectations.
In my laundromats a few washers have door locks that occasionally do not release. Customer clothing is held hostage until someone opens the door. The solution when frantic customers call… I tell them ‘Make a fist and strike the horse logo on the top left of the machine, then try the handle again’. Most of the time they gasp in disbelief, all of the time the door opens.
I don’t even perform the work. I only convey a crucial bit of knowledge required at that precise moment.
How customers value my knowledge is surely tied to how urgently they need to complete their laundry and get on with their day.
Knowledge is difficult to place a value on. The rarer the knowledge and the more urgently it is needed, the more we can expect to pay for it. In the end, supply and demand underpin markets in knowledge just as reliably as they do commodities or services.
I guess it’s just harder to spend money on something as intangible as knowledge. And yet, we are now well into the knowledge economy. Guess we had better get used to it.