Price vs. Cost: It Can Cost You

Being a sales trainer in the health insurance field, I’ve seen many agents who jump into the business when they’re not fully prepared to succeed. I’m going beyond obvious sales skills, such as qualifying, assessing needs, handling what most people call objections, closing and follow up. I’m also going beyond product knowledge. For the sake of time, I want to focus on one finely tuned skill that’s essential to being successful.

I’m suggesting that you become aware of, and explain to your customers, the difference between cost and price.

Yes, people can say “What’s the cost on that?” or “What’s the price on that?” because both words work in that sense, but they’re not always interchangeable. And that’s something that can become critical in your sales career.

Upon making a bad purchasing decision, as in getting burned, you won’t ever hear someone ask “What did that price you?” Instead, it’s “What did that cost you?”

So, while the terms may appear similar by definition, there is a huge difference, and it will matter in insurance sales. It takes the client out of the present moment (price) and has them looking towards the future (cost). Separating price and cost has allowed me to gain many clients after they spoke to other agents.

Old and Wise 

Let’s say a Medicare supplement plan is $112 per month. That’s the price you will pay based upon choosing the cheapest policy. But what if a plan is initially “priced” cheaply and ends up “costing” you when the premium soars in year two?

That means it’s possible that a policy seeming more expensive in year one can actually be less costly down the road. What if I explain this to the client after another agent neglected to do so? Who do you think the client would choose to do business with?

Sticking with senior market sales, many agents love to push a Plan F on their clients, because it has “no out of pocket” expenditure. And then there are the proponents that would rather offer a plan G based on the premise that you save them money* over the course of one year.

Example 1: Insurance Company A’s Plan F is $149 per month. Plan G? $136.

Is that worth it? Not really, especially if you take into account that the rate will increase in year two and beyond, along with the possibility that the part B deductible may increase as well.

Example 2: Insurance Company B’s plan F is $188 per month, Plan G? $146.

In a case like this you might offer your client a Plan G, right? Yes, most of the time. It depends on the track record of premium increases for whichever company is offering that specific premium. There’s one carrier in particular whose increase can go as high as 30 percent in year two, and sometimes they have two rate increases! So while it seems that there are great savings initially, again, it may not be that way when you look at it long-term. And you want your clients to stay on the books long-term, right?

(Actual quotes for a male, age 65, in zip code 77005, as of 4-16-2014) 

What about health reform’s metal plans? If doctor visits are not covered until after the client reaches the deductible, and taking into consideration any subsidies they might qualify for, which plan will be worth it to the consumer?

The Right Stuff

The point is that you have to know your business inside and out, because it matters to the customer. As I stated, you can easily lose your potential client to another agent if (or when) they realize they are upside down on their “awesome” part B deductible savings.

When you combine a thorough knowledge of products, rate increases and sales skills along with the reputability of the companies you represent, then and only then, can you be the go-to person for the client base you seek.

If retention matters, then so does attention to detail.

Risky Business

As a side note, I’d like to add this:

In commerce, a main factor for how price is determined is what a buyer is willing to pay. Alternatively, the definition of cost includes “risks incurred” where the definition for price excludes that.

Remember the key differences between price and cost, and it won’t cost you in the end.

*If you aren’t aware, the difference between a plan G and a Plan F is that with a plan G the client is required to pay their Part B deductible, currently $147 for 2014, same as 2013. That would be $12.25 per month if divided across a one year policy term.