Your Master Equation

It was 15 years ago that the process began for me. I was sitting in my manager's office at IBM, getting yet another positive performance appraisal. After 11 years with IBM, I had matriculated to a senior technical position, was well-respected around the world by my colleagues, and had helped create a business that would one day rescue IBM. But, my manager was talking about my value, and what she said shocked me. She said, "Steve, I don't understand why you're still here. I don't want to lose you, but I can't give you the raise you deserve. You could make two or three times what you're making here if you were out there. Why are you still here?" It was an interesting question, and one that propelled me onto a path I'm still following to this day. Before I started on that road, though, I had to figure out my master equation.

First, though, remember my post about how the economy really works? In it, I described how value is the key ingredient for determining your success in life and how other people see you. The key to really understanding your value and the amount of value you have to generate is your master equation. And after that meeting, I had to figure out mine.

Here is how I did it:

First, I determined what I wanted to earn in order to maintain our commitments and our basic wants, including all of the costs for benefits that I had taken for granted at IBM like health insurance, computers, office space, and anything else that I would require to run my business. This was a number similar to what IBM called the "burdened cost" of an employee (salary, benefits, and the facilities and equipment required). If you are an employee, it's the cost of having you as an employee to your employer.

Second, with that number, I worked the equations.

For purposes of illustration, let's say that I decided that I would need $150,000 per year to make it all work. That's the amount above the costs for any products that I would sell. That is what I would need to make a business work. The equation answers this question:

How many customers do I need at what profit per purchase to earn this amount?

Using our nice round number, I would need to sell 150,000 people my product or service at a $1 profit each.

Or, I would need to sell 75,000 people my product or service at a $2 profit.

Or, I could sell one person at a $150,000 profit.

Or anything in-between.

Those numbers give you the minimum value that you must add in order for your customers to be willing to pay your price. Your sales job gets easier if you add substantially more value. With my coaching clients, we work on finding ways to add ten time the value so that their customers see that it's obviously in their best interest to buy from them at those prices.

What about you?

Work these equations for yourself. Are you worth substantially more than your employer or customers are paying for you? The more valuable you are, the more obvious it is that it is in their best interest for your customers (or your employer) to continue working with you.

Those who are most valuable have the greatest chance for success. Every day, you can determine your value, and then you can drop back and look at a broader view to see how you are delivering value to those around you.

It gets really interesting when you realize that value isn't just about money.

Let me know the thoughts that this brings up for you. And...

Let's go! ssh

PS I did just get a new shipment of the Mastering Life book, so I can make a limited number available personally autographed. Visit my book page to check it out and order while I still have some.