Pricing Yourself Into The Market

I started buying BMWs in 1987. Truth to tell, the first of these was a company car for my first associate in Financial Managers, Jeanne Talbot, who convinced me that the high resale value made it a great investment for me, as well as for her. Between Jeanne, and later me, and in the late ’90s my son Will, we got 275,000 miles out of that singular mechanical wonder before it ended up in the backyard of J&V Auto Repair, salvaged for spare parts for the next ten years.

Ever since then, I’ve been a committed BMW 3-series fan. I now buy them three years old, coming off their first lease, which absorbs significant depreciation. The goal is to acquire them in pristine condition, with less than 40,000 miles, drive them 100,000 miles in five years, and trade them in, still in great shape with significant resale value (sort of like me).

A couple of weeks ago, it was the end of the line for my ’06 330i sedan, a black Batman special, as it clicked past the 148,000 mark. I did my on-line research with the Kelley Blue Book (KBB), which said that in good condition it was worth $7,000 as a trade-in, and walked into Herb Chambers’ BMW showroom in Boston to see what was available.

Voila! An-of-year, pristine 2011 335i with just over 20,000 miles plus 30 months of full warranty remaining. I took a test drive on the MassPike, got a good adrenaline rush (50 to 80 in about three seconds), and returned safely to the dealer to settle in for a negotiation. To my surprise, the salesman was working from the same set of KBB numbers for both Beemers – his 2011 and my 2006 – and it took us less than ten minutes to reach agreement.

I walked out of there thinking how helpful it is to have complete information on both sides of an objective negotiation. Thanks in significant part to the Web, pricing was not an issue.

During the same time frame, I’ve been searching for a controller to fill a new position for one of my clients, to relieve me of some of the job that has grown too big to handle on my usual part-time basis. There are a lot of positive elements in this position, but I was concerned that one of them wasn’t money.

We were seeking to fill this slot at $90,000 in a newly-formed company in Taunton, MA, which resulted from the merger last fall of two old-line lighting companies acquired in the majority by a private equity investor. My experience with multiple clients indicated that this was a job that might take $100-115,000 to fill with the right person, but the more we thought about it, the more we realized that there were two key factors that drove down the price:

  • Although Taunton is considered a Boston suburb, it’s actually 10 miles closer to Providence than it is to Boston, and the Providence labor market is considerably less costly than Boston’s (see Draining the Swamp sidebar).
  • The decline of manufacturing employment in recent years in Southeastern Massachusetts and Rhode Island has left a lot of experienced controllers underemployed or out of work.

We decided to sample the demand for the position by posting an encouraging but fairly specific ad on Monster, Craigslist, and Linked In, without specifying compensation. Within two weeks, we received more than 100 resumes, most of them reasonably well-qualified, but we were concerned that the best of them would be priced out of our market when they learned about our compensation.

Not so.

Our follow-up communication included eight paragraphs of further enticement to the job and to the company. Included in paragraph six was the following direct message:

“…we want an experienced person to come work with us at $90,000 a year, help to grow the top and bottom line, ultimately take over the full CFO role from me and to participate in the upside in the form of a bonus and increased compensation when, as, and if [the Company] fulfills its promise.”

I sent this letter to fully two dozen candidates, probably twice the number I might otherwise have invited to the next round, expecting attrition of at least 50% when people saw the salary. Somewhat to my surprise, 19 of the 24 responded that they were willing to accept the stated compensation arrangement, though most at some point in their careers had earned at a higher level.

As the interviewing process has developed subsequently, it’s increasingly clear that a number of elements contributed to the strong interest in this position:

  • The high energy level conveyed by the ad;
  • The opportunity to participate in corporate renewal, without at least some of the uncertainties of a start-up;
  • The attractiveness of the “disruptive technology” of the Company’s new LED products;
  • The fact that merger mania and corporate downsizing have in fact taken their toll in the controller ranks in recent years;
  • Ease of access from both the Boston and Providence areas via I-495; and
  • The fact that age discrimination is not an issue; energy discrimination is.

Our empirical market testing over these few weeks provides us with a good sense of the appropriate price level for this position. The candidates appear to have the same knowledge of this market, presumably from their own empirical testing through their applications to other jobs. We look forward to a very short negotiation about compensation with our leading candidate. Then we’ll see how fast he can go from 50 to 80. Hopefully, it will be an adrenalin rush for us all.