Why Gifts Create the Most Value

If someone offered you $1 in exchange for $1 you would not complete the deal.  It is not worth the trouble.  If however you give $1 of your time for $1, the deal may eventuate if two conditions are met 1) the buyer has $1 but does not have time and 2) you have the time, but you do not have $1.

The buyer may get what he perceives to be a discount, because unknown to you, he may have been willing to pay $1.20 for your time.  Likewise, you may have supplied your services for $0.80, thus creating $0.40 in value ($0.20+$0.20).

In other words, the seller was prepared to provide something for $0.80, and the buyer was prepared to pay up to $1.20.  If the transaction takes place for $1, they are both happy.  The buyer got a $0.20 bargain, and the seller got a $0.20 premium.

	Value	Transaction	Create
Seller	$0.80	$1	$0.20
Buyer	$1.20	$1	$0.20
Total			$0.40

In fact, the transaction will happen anywhere between $0.80 and $1.20.  If the seller (e.g. of time) is willing to sell at $0.90, then the transaction will still take place, but value is redistributed to the buyer.

	Value	Transaction	Create
Seller	$0.80	$0.90	$0.10
Buyer	$1.20	$0.90	$0.30
Total			$0.40

Value is not created, but redistributed.  The $0.40 spread is altered by perceptions, not price.  If we had a more humble appreciation of ourselves we would create value. 

I may drop my price either because I’m more realistic, or my time is no longer as valuable as I thought.  If I can do the job more efficiently (productivity), I may drop the price from perhaps $0.80 to say $0.70, thus giving the deal more chance to consummate.

My perspective as the seller has changed, so the deal can now be done at $0.70.

	Value	Transaction	Create
Seller	$0.70	$0.90	$0.20
Buyer	$1.20	$0.90	$0.30
Total			$0.50

So $0.10 value has been created.

Alternatively, if the buyer perceives the value to be higher (e.g. branding or security), they would be willing to pay $1.30 rather than $1.20 and create $0.10 value. 

Now consider if you have something the buyer really wants.  At the most extreme case, imagine you have $1 in your pocket and you walk past a homeless beggar.  You don’t really need the $1 but to the beggar it is worth many times more than it is to you.

Say the homeless beggar can extract three times the value out of the same dollar.  The beggar is prepared to eat offal, and buys stale bread and can eat a meal for $1 – if you give it to them.

	Value	Transaction	Create
Seller	$1.00	$0	$-1.00
Buyer	$3.00	$0	$3.00
Total			$2.00

The more needy the recipient, the more value is created.  Gifts create value. The more giving in the world, the more it multiplies and the more will eventually return to you.  It could return to you in a smile, or in saving a house being robbed by the homeless person, or helping the poor to buy medicine so they don’t get sick and occupy a hospital bed.

Give $1 to a Billionaire and it is almost worthless.  Give $1 to the poor and it is of incredible value.  Money is not equal.  One unit of money is not the same value to the same people.

So the more money you have, the less its worth and vice versa.

The bigger the disparity in skills, or time, the more value you can create, and the more responsibility you owe to the recipient.

It is no different for any customer service interaction – so value your position and privilege to serve, and give as much as you can give.

Service is the ultimate act of giving.  If you want to create real value, then give.  The more you give of yourself, the more value you create.

(See future post on which giving is best – hint – Giving from Guilt does not count)