How do you price your most valuable asset?

First of all – what is it?

I believe that the everybody’s most valuable asset is the one is most limited: time.

No matter how much you own, earn or know, you can not get more than twenty-four hours per day.

So, how do you determine what your time is worth? (assuming you are willing to sell it)

Someone asked me what he should charge for his sports coaching.

The answer came from my days as a landlord. (Long since past, thank goodness.)

I heard something that I found very odd at the time. But the more I thought about it, the more it made sense.

Smart landlords know that they want to have a 5% vacancy rate.

My knee-jerk reaction to this was, “What? Why wouldn’t you want your buildings 100% full? How can you maximize your profit with one in twenty units empty!?”

The reason is you are 100% full (zero vacancy rate), your prices are too low. You would make more money by raising your rents, even if some of your people leave.

For example, maybe a 10% rent increase would result in a 5% vacancy rate, but overall, you still would make more money. Roughly 5% more than if you were full.

On the other hand, if you have a 10% vacancy rate, you are too empty, and you would be better off reducing your rents and having more renters.

Experience has shown that in the residential housing market, 5% is the magic number. What that number is for you may be different. Still, the principle is the same.

If you are too busy, raise your rates. If you are not able to stay busy, you may be better off discounting than sitting idle.

What I find fascinating is that in the rental arena, it is well known that being full 100% is not a good thing. You should never be “full”, or you’re actually leaving money on the table.

Now – what does 80/20 say about all of this? Not all hours are created equal!

That will be the topic of my next story:
80/20 Pricing Your Most Valuable Asset