Opportunity Cost, does it pay to say sorry?

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Opportunity Cost, does it pay to say sorry?

Postby Dj Sean » Tue Oct 31, 2006 7:41 pm

First off, Happy Halloween!!

We've been talking alot about some great topics some of you guys have brought up, some of which, got me thinking about "Opportunity cost".

How many of you guys calculate or consider "opportunity cost"?

Yeah it sucks to get less than your going rate for DJ'ing a wedding or any event for that matter, but if you don't get booked that day for another gig, you get a big fat $0


What you do? Live with the consequences and stay firm to your prices. Call back and offer a lower price? Or something else?
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Postby djdonny » Tue Oct 31, 2006 8:02 pm

Since I have a day job again, I won't need to lower my price to get a gig, because I'm just about as happy to have a weekend date off. That's why I've also cut my advertising to almost nil (some PPC excluded). I've been getting enough referral leads to fill my calendar with enough gigs to satisfy my love for DJing without over-working myself.

So another part of the "opportunity cost" is how much would you value just having a Saturday or Sunday OFF FROM WORK?
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Postby Joseph Ivy » Wed Nov 01, 2006 11:42 am

I agree with djdonny. I am an avid West Cost Swing dancer and would just as soon spend a saturday night dancing as I would getting paid $700 to DJ. Based on that, I turned down a wedding when a groom said that he was willing to pay me $700, (after I offered to do it for $800 because another DJ asked me to help the couple out). He ended up paying me the $800, but I would have gladly spent the night dining and/or dancing with my wife.
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Postby dokai » Wed Nov 01, 2006 3:21 pm

However, by not accepting the opportunity, you not only miss out on the income from THAT event, but also the income on any events that would have come as a result of referrals from that event.

If you typically generate two or three referrals from each event, you should include the potential revenue from those events in your decision.
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Postby TheBartman47 » Wed Nov 01, 2006 3:54 pm

But those referals you get will probably also expect you to perform at a lower price as well. How much will that cost you? If you can pass on a few gigs and only take the higher paying ones, you could possibly end up working less hours for the same amount of money that you would have otherwise made doing more lower paying gigs. If you have lots of low paying gigs, you're also locking yourself out of being able to accept higher paying ones that might fall on the same dates.
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Postby dokai » Wed Nov 01, 2006 4:41 pm

TheBartman47 wrote:But those referals you get will probably also expect you to perform at a lower price as well. How much will that cost you? If you can pass on a few gigs and only take the higher paying ones, you could possibly end up working less hours for the same amount of money that you would have otherwise made doing more lower paying gigs. If you have lots of low paying gigs, you're also locking yourself out of being able to accept higher paying ones that might fall on the same dates.


Agreed. But if your calendar is almost full, then you're less likely to care about referrals anyway. However, your point about low-price events generating low-price referrals is also frequently true.
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Postby Dj Sean » Wed Nov 01, 2006 5:31 pm

I personally had a bride pretty excited to hire me recently, after talking with me, then many of my competitors that didn't impress her, she was pretty set on hiring me, or so I thought.

I told her $800 for 5 hours, the next day I got an email saying since my parents are paying for the DJ they decided to go with a cheaper DJ.

I replied back saying I could lower my price and try and compete plus I will offer a satisfaction guarantee.

She replied back saying I don't think you can beat this DJ's price of $500 for the whole night. I said, yeah, your right, I won't go lower than $600 with a satisfaction guarantee.

What ya say?? She said sorry.

I said sorry for you too, (hopefully your DJ won't be an amatuer performance). The worst part is they booked their wedding at one of the most expensive venues on Lake Tahoe. So why are they being so cheap about the DJ?? Well, I had the bride convinced not all DJ's are equal, but I never talked to the parents (the money) and they were never convinced.

I wanted to try this little experiment to see if it would pay off, I only tried lowering my price because the event was only one month away in the off season, so I knew I most likely wasn't gonna book that date. It didn't work this time but I did book one other gig because of a price war and I didn't lower my price much. My thought is some money is better than no money especially because currently I am making the transistion to being a full time DJ and quit my weekday job eventually.
Last edited by Dj Sean on Wed Nov 01, 2006 6:45 pm, edited 1 time in total.
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Postby Joseph Ivy » Wed Nov 01, 2006 6:13 pm

I don't believe that anybody gets two referrals from each event. If that were the case, then we would all be turning down clients like crazy. Since I constantly hear DJs talking about how to attract new clients, I don't see how it could be the case that many of us are even generating one referral per event... let alone two or three.
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Postby dokai » Wed Nov 01, 2006 6:38 pm

Joseph Ivy wrote:If that were the case, then we would all be turning down clients like crazy.


But it's a worthy goal, is it not? I'm not there, yet, as I average around one referral per event. Once I'm getting two or three referrals from each event, I'll be much more expensive than I am now. :wink:
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Postby Joseph Ivy » Wed Nov 01, 2006 7:53 pm

Actually, I overstated my position. I don't believe that MANY of us get two referrals per event. Since I've only been in business for a year, I don't have any referral numbers (accept for the DJ that referred the $800 couple to me).

Even still, I expect to generate all of the business that I want (that is working 40-45 weekends each year) from the internet and a couple of bridal shows each year.
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Postby Toneman » Wed Nov 01, 2006 10:35 pm

TheBartman47 wrote:But those referals you get will probably also expect you to perform at a lower price as well. How much will that cost you? If you can pass on a few gigs and only take the higher paying ones, you could possibly end up working less hours for the same amount of money that you would have otherwise made doing more lower paying gigs. If you have lots of low paying gigs, you're also locking yourself out of being able to accept higher paying ones that might fall on the same dates.

I agree 100%. I only offer a reduce rate for certain siturations. Example: Wedding reception for $500. Ceremony & Reception for $600. If the ceremony and reception are at the same location and I don't need to setup more equipment for the ceremony then I'll reduce the rate to $500. This doesn't cost me any more time or money. Due to that I don't need to setup and breakdown at two different locations and trave between the two. One Location, one setup, one breakdown - One price.
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Postby Dj Sean » Thu Nov 02, 2006 12:21 am

Bartman and Toneman, I understand where you guys are coming from
but, what your talking about is not really "opportunity cost". I think most of
us don't charge more for the ceremony if it's in the same place AND you
don't need a second setup.

What I wanted to talk about in thread is a little different. Are
you ready, I tried to make this short and to the point but it is a little long
none the less. Sorry
:(

Let me see if I can explain, through an example:

Say you average 40 gigs a year that is 8 shy of working ever single Saturday.

Your average price comes out to, say, $700

700
x 40
------
$ 28,000 a year

Now most of the time you book at that price no problem, but every now
and again you've got one on the fence; they want to go with your service
but there is another DJ who's willing to perform at their event at $600

**Keep in mind were only talking about last minute gigs, meaning, you
most likely will not book that date with anyone else because its coming up
fast or it's in the slow season.**


So, if you didn't book that gig you will make:


700
x 40
------
28,000
- 700
------
$ 27,300

Now, lets say you booked that gig because you matched or went lower
than your competitor's price, will say you booked it at $575

Now here's the tricky part:

*Remember if you didn't book that gig, you make


700
x 39
------
$ 27,300 for the year

*IF you did book that gig you make?

700
x 39
------
$ 27,300
+575
------
$ 27,875


Alright, so now the big question, How many gigs do you
have to book this way BEFORE you start losing money??


Well lets see:

Remember our break-even point is $ 27,300 for the year. Anything below
that number and your losing money, right??

And your normal price quote is $700

Plus, this CHEAP gig you booked was at $575


700
- 575
------
$125

So to figure out how many times would you have to book CHEAPER gigs
before you started losing money,

$ 28,000
- 27,300
----------
$ 700


700 divided by 125 = 5.6 gigs or events

So roughly after your sixth booking you start to
lose money,the other five before that your ACTUALLY making money because
*remember* you weren't going to book that date with anyone else
because of the short notice or slow season.


So, fuew, I'm done, my point is do you realize the opportunity cost when
you say,"sorry, I won't lower my price". And does anyone here try to be
flexable (to a point, of course) on your prices??
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Postby Joseph Ivy » Thu Nov 02, 2006 3:13 am

Well, you are leaving out the variable costs that come with each event, but that doesn't really effect your point much. At your first post, I figured that you were strictly speaking about maximizing income.

I've noticed that a lot of the full-timers will vary their prices to maximize profits. I'm not money-hungry and I don't need the money to pay my bills so my personal goal is not to maximize my income. When thinking about opportunity costs, I think about how much I value the pay vs how much I value spending time with friend and family (or going dancing, or laying around the house).

When someone limits their consideration of opportunity cost to simpel cash flow then I don't think that they are being fair to themself. My wife actually told me that I could work New Year's Eve for my regular rate ($800 at the time), but I won't give that up for less than $2000.
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Postby TheBartman47 » Thu Nov 02, 2006 12:43 pm

Short term math going on there. What about those referals from the cheaper gig? "Hey, this guy will DJ your event for $575 if you ask him to lower his regular price". Word gets out, and soon your doing several gigs for a lower price. You just became DJ-Mart.

You can go to a car dealership and look at the Lexus, then go to the Kia dealership and see nearly an identical vehicle, and the Kia dealer will tell you it was modeled directly after the Lexus one and has all the same features and everything. So, you go back to the Lexus dealer and tell them you saw a Kia for a much lower price and ask him to reduce his price on the Lexus. Will this work? No. But, not knowing the real differences between a Kia and Lexus, you happily buy the cheaper Kia and feel fine driving it for about a year, then things start going wrong with it. Just little things at first, like the doors not sealing good when shut, little noises and squeaks here and there, etc. It's a hard lesson learned, but you will know better next time you buy a car, and the consumer looking for a cheap DJ will also learn the hard way that price alone should not be the deciding factor.

Now, of course, for very special occasions, even the Lexus dealer may sell one for a low price, even below cost, if it's for a charitable organization, or maybe an incredible marketing opportunity like a radio station that will drive it to many locations and will include your dealership name on it. But for the everyday customer, stick with your price schedule.

Now, if you have a certain price and are getting very few gigs, then you may need to reconsider, but if you are getting a good number of gigs, then I believe a price war for one or two gigs will only hurt you in the long run. You may make more money at the end of that year, but the next year you could net an even lower income than the previous year.
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Postby Toneman » Thu Nov 02, 2006 1:20 pm

Dj Sean wrote:Remember our break-even point is $ 27,300 for the year. Anything below
that number and your losing money, right??

I'm following you....You stated in your statement above "Break-even". For me to break even I would only have to do enough events to = $0.00.

Totel cost of operations per year $10,000
Divided by the price of an event $500
---------------------------------------------------
Equals # of events to break even 20

Any thing over 20 events is profit.

A better statement would be (If I'm following you right) is "Targeted Goal".
If your target goal is $27,000 then yes you would have to do 40 events for the year to meet that and if you were to take in an event for less then your $800 price then you would be falling off your goal track every 5.6 events.
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Postby Dj Sean » Thu Nov 02, 2006 5:28 pm

I hear you Toneman but I'm specifically focusing on just "opportunity cost"

So the "break even point" in this case is, when you start losing money in the long run from ( price competiting ) or from lowering your price a bit if you know your not gonna get another call for that date coming soon.

Operations cost is an important business calculation but, for this thread I wanted to talk simply about the unique theory of "opportunity cost". Because it seems many DJ's simply don't budge in there prices, which is totally fine.

Some DJ's have figured out their expenses, assests, break-even point, and profits from a certain point or amount of gigs and they stick with that. Its simple, easy to track, and works for the most part.

But what I think some business owners never consider is "opportunity cost" and how they actually might be losing money that they otherwise could have made.

I think the reason for this is "opportunity cost" is dynamic and a little complex to calculate. My above example is only in ideal conditions in a perfect world but it demonstrates the point.
Last edited by Dj Sean on Thu Nov 02, 2006 5:49 pm, edited 1 time in total.
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Postby Dj Sean » Thu Nov 02, 2006 5:47 pm

TheBartman47 wrote:Short term math going on there. What about those referals from the cheaper gig? "Hey, this guy will DJ your event for $575 if you ask him to lower his regular price". Word gets out, and soon your doing several gigs for a lower price. You just became DJ-Mart.

Now, if you have a certain price and are getting very few gigs, then you may need to reconsider, but if you are getting a good number of gigs, then I believe a price war for one or two gigs will only hurt you in the long run. You may make more money at the end of that year, but the next year you could net an even lower income than the previous year.


Good point, and I've thought about how I would respond if this ever happened, ( it hasn't yet ). I would tell the referral the truth, I lowered my price because it was in my best interest, I knew I was probably not gonna book that date, so I lowered my price a bit.

Then I would quote him my reqular price and tell him this is what I am WORTH and this is my normal price.

It's not much different than quoteing higher prices for new years, etc.
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Postby Xtreme Productions » Thu Nov 02, 2006 6:21 pm

DJ SEAN,

Your kinda using the theory of how a hotel is run. I was in the hotel business and they believe that they have 100 rooms and if they have any empty that is money left on the table. NOW...this gets really really anoying to deal with on the managers or owners side (YOU) because you are going to have people ALL THE TIME saying that my best friends, cousins, dogs owner stepson got a price that is different than what you are quoting me "CAN YOU LOWER IT?". I'm not saying don't do it... But I did it 7 years ago for the first year I was in business to stay alive and I'm just now getting to where NO ONE asks or even worries about what I'm charging them. MONEY DOESNT MATTER AT A WEDDING!!!! of course they will try to spend the least they can but if your a good DJ they will spend whatever you quote them even if it is twice as much as the other DJ's. The point to my speach is QUALITY over QUANTITY and you will end up being able to charge more money per gig and end up making the same or more with working less.
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Postby Toneman » Fri Nov 03, 2006 2:15 pm

My next comment I was going to say was just like what Audio Meltdown stated. Let the cheap, lower quality, un-experiance and most of the time new comers quote the lower rates. Today I highly believe that the comsumers are more educated about DJ Services then they were in the past. DJ service are more popular now then ever. Comsumers have learned from past experiances or have heard the horrer stories about the cheaper DJ services from family and friends about the problems they've had when hiring a cheaper service.

Most of my clients are referance clients who have been to one of my events or who has had a friend or family member refer my serivce because of the quality and not on the price. Most comsumers are willing the pay for quality. Just like in your example about Lexus and Kia bout are nearly an identical vehicle and has all the same features but the Kia is for a much lower price. So the comsumer buys the Kia and due to the poor quality the Kia start falling apart. It's a hard lesson learned, but they will know better next time buying a car. The same is true with DJ Services. If a potential client contacts me and want a cheaper rate I'll have to send them on their way to find a cheaper service and let them find out by themselves the lesson of cheaper. Hopefully they will learn, if not then they are a client that I don't want...No matter what the price is.
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Postby TheBartman47 » Fri Nov 03, 2006 3:43 pm

Continuing the Lexus vs. Kia comparison, some people are content to live with the fact that their Kia is sub par, so long as it gets them from point A to point B, and most of the time it will do just that, and they will continue to drive the Kia because that's all they can afford. If someone comes to you looking only for a low price DJ, then they are not your customer, and they will probably be happy with the human juke box and not really mind if he messes up a few minor details and his sound quality isn't all that great. If it comes down to them having a cheap DJ or no DJ at all, let the bottom feeders fill this market niche.
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