Thursday, 20 February 2014

I too know

I have often been nicknamed ITK; that’s short for ‘I too know’. It means someone who is supposed to be a storehouse of information. It’s not an entirely positive word or even a compliment because it connotes some degree of conceitedness. Whenever I am called ITK, I retort with some angry criticism until I overdid it at an open day.

I accompanied a friend to visit his daughter in elementary school. The pupils were all happy to see us and on sighting us Titi, my friend’s daughter, ran towards him with open arms as he gathered her in a tight embrace. She greeted me too with a beautiful grin and handed me some mock paper money. I was about to thank her for the generosity when her class teacher walked up and asked her to tell us how she made the money.

Titi then started to explain how she bought a packet of biscuits for N3 (Three Nigerian Naira) and sold it to make a profit of N2; hence the N5 note she pressed into my palm. I didn’t know when I made an objection to the word ‘profit’ she used. I said, “You cannot establish profit until you have factored in overheads and other expenses”. The teacher shot me this ‘Are-you-for-real?’ look and walked off. My friend sighed in exasperation before saying, “ITK, would you be so kind to take this class of seven-year olds in Financial Accounting?” And vowed to never bring me for any open days ever! I didn’t snap with any retort; I was actually embarrassed for myself.

But honestly, come to think of it; many small business owners I’ve met don’t know what it means to make a profit! They do not know how to calculate all the expenses they have incurred, let alone ascertain their break-even point to determine whether they are making a profit or loss. In Ibadan where I live, I see a paradox of unimaginable proportions on a weekly basis. Farmers from the surrounding villages come to periphery markets such as the Omi-Adio and Ijaiye markets with their harvest of vegetables, pepper, tomatoes, maize and so on. They display their wares all over the ground, underneath the makeshift stalls (there are no tables) for customers to buy. Almost all the customers you’ll find there are the market women who have properly structured stalls in the urban markets. They arrive by 6 a.m. and if you get there at 8 a.m. you’ll be lucky to find any leftovers.

But, the absurdity is that the items sold in the early hours by the farmers are resold by the market women, with a markup of 50% to 100%, later in the day to customers like you and I. You may be thinking this is warranted because of high transportation costs and other market fees, but that is not the case. Once, I asked a market woman if she thought her pricing was unfair and excessive. She replied, “No, we buy cheaply from farmers and sell high to customers because we bear the risk if we don’t get to sell these highly perishable items”. I saw the wisdom in her argument but decided to press a little more by asking when last she encountered a loss from poor sales. She grinned and said she couldn’t remember; I smiled back.

A few weeks later, I chanced on one of the peasants from the periphery market and asked him if he was aware of the price of his tomatoes, in an urban market barely 8 miles away. He said he did. I asked if he was concerned that he was being shortchanged. He said I should explain how that was. I was shocked! I explained that he had spent months growing and tending his farm and after harvesting, he sells it for peanuts to someone who makes a kill on it for merely sitting in her stall for ten hours. He then laughed at me and replied that the seeds he planted were from last year’s harvest, the land he farmed was an inheritance and the farm hands were his family members. All these he explained were at no cost to him, so why should he overprice his harvest? The he continued that he had been adequately compensated. I was mute.

If he couldn’t see seeds as one of the variable costs and his farm hands as a labour cost to be factored into the price, how was I going to convey the concept of risk/loss of his harvest to him? Other associated costs of preliminary processing, storage and transporting the harvest from the farm to the market (even though it’s mostly on foot) are not even considered in the pricing strategy. They say ignorance is bliss, but it is also the reason that our rural farmers remain indigent. I have seen retailers who arbitrarily fix prices without factoring for shop rent, labour, electricity and market levies. I have seen workers in innovative businesses from the fashion industry to even carpentry who discount their creative and intellectual content and never take it into account in pricing. It’s as though this group mistakes intangibility for insignificance.

Speaking of charging for intellectual content, I once worked with an engineer who told me that, “People are supposed to pay for what they don’t know”. There was a machine that was faulty in a factory and the in-house engineer had been battling to fix it for weeks. My employer was called in to look over the machine and give his recommendation. He went there and carefully checked all the components and discovered that there was a blown fuse. The in-house engineer had tested the same fuse but did not discover that it had broken because he had incorrectly positioned the probes of his multimeter. My boss went to the electronics shop and purchased a fuse for N50 and replaced the faulty one; but while sending the invoice he billed the company N112, 050. “Sir,” I almost screamed, “this is outrageous!” He quietly replied, “The N112, 000 is for the know-how. How do you think I afford your salary?” I am yet to fully reconcile with his argument but he is one man who knew the value of what he knew.

If you are in business or you are about to start one, let’s be clear from the onset that you are in it for profit and not for charity. You need to consider all the costs that have gone into the process of providing the goods and services and make provision for them in your pricing before you can ever talk of making a profit.

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