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Round Down, and use the next lower Unit: 5 is the new 10

 
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brian-hansen
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Joined: 17 Mar 2006
Posts: 712
Location: Oregon

PostPosted: Thu Nov 11, 2010 4:34 pm    Post subject: Round Down, and use the next lower Unit: 5 is the new 10 Reply with quote

Its starting to feel like a tectonic shock, as if maybe we won't shake
off this economic downturn. We might need to get used to less excess,
less of everything really. Of course, others have felt this all through
history, and yet we keep picking ourselves up and dusting and all.

I've got some things that I try to sell, but the market pretty much just
evaporated in my area. Looking around, I see a few people making
sales, but only when the price is half what I charge.

There's a good cable show featuring the kings of the infomercial world.
As part of a reality show they meet with and negotiate with would-be
inventors who want to sell their nifty item. The key factor for these
two was, paraphrasing, "can it be sold at a certain price point?"
and the price that most worked, they thought, for their particular
medium and market, was $19.95. If I had to come up with a model
or explanation for this, it'd probably go along the lines that above $20,
an extra stage of critical thinking may come into play regarding
priorities, and do I really need it, and would I really use it, and
where would I put it, and so on. The number itself, not the price
to value ratio, is the trigger for this filter.

Maybe it still is for the television infomercial, but I believe it no
longer is for eBay. I think $5 is the new $10 for buying,
and $10 is the new $20 for buying and shipping.

In a way, eBay set the standard, by means of it's pricing system
for sellers. Auctions for items priced less than $10 cost sellers
quite a bit less*. $9.95 plus $4 shipping didn't tickle that "reason"
filter that started asking all those pesky questions and keep you
from acting out on the basis of your (quite justified?) impulse.
If the auction trended North of there, well, then the game was afoot,
perhaps, or maybe no buy, no foul, no harm done, a bit of no cost
retail therapy.

But now, the economy has changed, and eBay has changed, and
things seem just pretty much out of whack. What seems to
slow down the spinning of the room is to settle on a fixed point:
A five dollar bill is the new ten dollar bill. 5 is the new 10.
ten is the new twenty, if you count shipping.

I'm not sure if you realize it, but this is a big problem.

Anyone who intentionally buys things in order to sell them
soon learns that the cost of the item itself ends up being
a small portion of the ultimate sales price. Sellers pay
a high price to maintain a business and inventory, and
labor to organize, photograph, and list items for sale,
not to mention brick and mortar or online rental fees.

One of the lessons of what I've been calling the Hansen
Economy is that for a great number of material goods,
the cost of selling dominates the (wholesale) cost of the
items themselves. As a first approximation, it becomes
appropriate to think of items for sale as having no intrinsic
value. Their value is just how much it costs to sell them,
plus a little bit left over, hopefully. Profits.

It seems counter-intuitive, and maybe it is only a short-term
phenomenon, fueled by ultra-cheap, inflation-destroying,
Chinese manufactured goods. I'll just mention, hoping
that I've described the particulars more closely in other posts,
my analysis of the $9.95 Crescent Wrench Set from Harbor
Freight, and the $6.95 folding chair. If I wanted to sell a
Crescent Wrench, or a folding chair, how could I do it?
I couldn't compete. Those items that I had and wanted to
sell would be worth precisely $0 plus whatever level of
effort or funding that I would be willing to spend to sell them.
QED they have no value.

So, all that's left is selling effort. Time, basically. Plus Connections.
If you are a seller, you can ask yourself "is there something that
if I put some time into it, I could convince someone else to buy?"

Only now, it has to be for $4.95 ($9.95 with shipping).

Assume everything else balances out. Buyers seem to understand
if you fold a few of the most obvious sales costs into the shipping,
so long as they don't feel either that they are being ripped off, or
that the numbers are ridiculous (more to ship than to buy).

That means all that's left is the cost of the item plus the time
invested. Let's say you sell refurbished picture frames. You
sand, stain, photograph, store, and list them each for sale. If
you spent 30 minutes per frame, then at $5 each, the most you
could make was $10 per hour, and that if all went well.

When the normal price was $10, and 75% of items sold, that
led to a $15 per hour income, assuming the supply was free.
At a supply cost of $1 each, income would be $13.50 per hour.

If you added trade shows and a few big local customers, a person
could start a small business refurbishing frames, and hope
to make a go of it. eBay offers the hope of an upside for the
seller (the auction aspect). Then you've got a base, a few
markets, a glimpse of some upside, and a chance to be out
there, selling people things that they want.

The ability to start small has got to be the holy grail of
small business incubation. It is definitely not news in Portland
Oregon in 2010, with high unemployment, DIY culture, and,
of course, pods. All the stars are forming a giant arrow in the
sky that shows a counter-trend to the centralizing Wal-Marts
of the world.

But if 5 is the new 10, then it barely matters what I'm selling,
and how little it costs me. The only way I will survive is if I can
go *Faster*. At 15 minutes, $5 price, $1 cost, and 75% sales,
the model predicts $11 per hour. At 10 minutes, $14.50.
At 5 minutes, $33. At 2 minutes, well, I guess you get the idea.

The point is, if you are selling unique things, that are not just
another one of something else, if you need to describe it and
photograph it and categorize it individually, its pretty hard to
spend less than 5 minutes doing this. If you need to store it
and then later find it, there may be other costs that are not
covered by breaking even on shipping. If you are doing something
else with it: sanding, sorting, checking comparable prices, etc.
then 10 minutes is hard to beat as a per item timeframe.

At 10 minutes, $10, $2, 75%, you could gross $33 /hour.
At 10 minutes, $5, $1, 60%, you could gross $13 / hour.

Of course, I simplified selling fees as well. the point is,
that selling unique items that require *some* processing
for $5 just doesn't much cross the minimum wage job equivalent
level (MWJE), especially when considering the downside sales
risk, and other overhead costs.

eBay, meanwhile, has gone in a different direction: towards
the 99 cent auction. By now, it should be obvious that this
level cannot sustain more than a few seconds of labor being
invested in the product (and it has to be nearly free to acquire
as well). From my perspective, this seems like a serious
mis-step on eBay's part.

Maybe if eBay acknowledged that 5 is the new 10 in their pricing
policy, we could stop all the churning and see if we couldn't
use that as a starting point for building up all the DIY businesses
we need to grow our way out of the economic crisis that seems
to deepen every day. If I can buy it for a little less, make it a little
smaller and cheaper, and work on getting faster, I might be able to
stay ahead of the game. Survive for a little while longer
in a world where five is the new ten.



================================

* especially in the context where there might not be a sale.


Last edited by brian-hansen on Fri Nov 12, 2010 12:00 am; edited 2 times in total
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PostPosted: Thu Nov 11, 2010 4:47 pm    Post subject: Reply with quote

I'm not the only one feeling the pain.

http://www.dragthing.com/blog/?p=233
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brian-hansen
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PostPosted: Thu Nov 11, 2010 4:54 pm    Post subject: Reply with quote

In other areas I've seen these numbers as referring to the
maturity of children, and the top winners of a Google search.
It also seems to apply to lists in the era of short form text:
we only have the attention span to handle 5 items in a list.

For when a top ten is too too much.
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jabailo



Joined: 20 Mar 2006
Posts: 1273
Location: Kent (East Hill), WA

PostPosted: Sat Nov 13, 2010 2:11 pm    Post subject: Reply with quote

I think you are focusing mainly on commodities but you neglect labor and service economies.

I have long said that I expected a Jobs Boom to start rolling (maybe by EOY) and used the phrase in many places "Labor Is The New Capital". That is, manufactured goods and minerals, energy go down to pennies on the dollar, but services and labor (aging Baby Boom) become valuable.

So, the consultant getting $100 an hour is able to work 4 months a year, and buy everything he needs.

We may finally obtain that Leisure Society we were promised back in the 1970s. Many already have it...my sister made her money a long time ago. Now she works 3 days a week and her principle activity is vacationing...going to the "100 places you must see before die"...one each month.
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PostPosted: Tue Dec 07, 2010 4:13 pm    Post subject: Reply with quote

jabailo wrote:
I think you are focusing mainly on commodities but you neglect labor and service economies.

...

So, the consultant getting $100 an hour is able to work 4 months a year, and buy everything he needs.


It's funny that you should mention it, because, although it was
not my exact intention, I ended up analyzing the low-end service
economy in my description of what kind of time-investment works
when one is selling something for $5 instead of $10. The common
feature is that for both, a rough first approximation for the value
of raw materials is $0. Labor costs (the costs to sell and prepare
to sell) dominate the equation.

The commodity and the service economies that I am describing are
the "front line" of commerce. Because I sell a lot of $5 burritos,
I can afford the occasional $300 bed. If I sell enough $300 beds,
I can live in a house near work that also has a side yard. If I sell
enough houses with side yards, I can afford a house with a view,
and someone to come in and do the cleaning twice a week.
And so on. That front line is central to how the whole thing works.
If $5 is the new $10, then a lot of people are going to be hurting.

I'd say your consultant, in this economy, has to do at least one of two
things, he either has to be selling services (I suppose) to the rich
who aren't affected by this shift of income patterns (i.e. the wealthy),
or offer services that reduce the time it takes to perform existing
transactions nearer, or on, the "front line" of commerce - the $5
transaction. If he could somehow take one minute out of the time
it takes to sell a burrito (the order process, prep, payment processing,
etc.) and his time could be multiplied by dozen, hundreds, or thousands
of transactions, then I'd say he's earned his happy fate, and maybe even
could buy a $400 mattress, if the full moon is shining.


jabailo wrote:

We may finally obtain that Leisure Society we were promised back in the 1970s. Many already have it...my sister made her money a long time ago. Now she works 3 days a week and her principle activity is vacationing...going to the "100 places you must see before die"...one each month.


That comes to 8 years, 4 months...
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