The approach to organizing my new one-day workshops is a bit weird, I admit. That’s…
Some of my friends struggle with money questions.
I have asked myself such questions several times, without learning any good answers. Until I was confronted with the unfair consequences of the flat fees in the Management 3.0 licensing program. The simplicity of flat fees worked well in the startup phase, but now that we’re scaling Management 3.0 globally we need a smarter system. We must take into account the local pricing of courses. And so I finally committed to solving this problem.
The idea to adjust prices for local economies is called purchasing power parity. There are different ways of doing this. The basic idea is: you look at how much people are willing to pay locally for a collection of goods or services, compared to another country, and you adjust your prices accordingly.
The easiest and most popular way to do this is to use the Big Mac Index, regularly published by Economist magazine. It lists the price of a big mac in many different countries. But there are several problems with this approach. First, it treats all countries in the Eurozone the same, because they share one currency. Maybe with big macs this is not a big issue, but with workshops and courses it is! Second, what people are prepared to pay for a big mac can hardly be compared to what people are prepared to pay for training or a conference. They are entirely different target audiences (I hope), with different budgetary waistlines.
That’s when I came up with the idea to create a “CSM index”. It lists (roughly) the average price of a standard Certified Scrum Master course, per country. It’s an easy choice because CSM classes are given by many people all over the world. One could say it’s the most basic commodity in the Agile community. (After stickies.)
With the help of licensed Management 3.0 facilitators and my friends on the Happy Melly mailing list, I was able to come up with my own Purchasing Power Parity index.
This is how it works…
Suppose you do workshops in Germany and you are now invited to do the same workshop in Sweden. How much could you charge, given that price levels in Sweden are a bit different? Well, let's say you charge EUR 2,000 in Germany for your workshop. In the spreadsheet you divide that number with the ratio you find behind Germany (73.36%) and then you multiply it with the ratio for Sweden (842.06%). The result is 2000 / 73.36 * 842.06 = 22957. In other words, your EUR 2,000 in Germany is roughly the same as a SEK 22,957 workshop in Sweden. Note that SEK 22,957 converts to EUR 2,740 EUR, so your workshop in Sweden is actually more expensive than in Germany. But it is what those crazy Swedes will pay, compared to the somewhat tighter pursed Germans. Price levels in Sweden are higher on average.
You charge EUR 5,000 for a 2-day in-company class in Belgium. What can you charge when you do the same one in China? Well, 5000 divided by 73.03 (ratio for Belgium) and multiplied by 363.33 (ratio for China) results in RMB 24,875. This converts to 3,085 EUR, because price levels in China are lower.
Easy isn’t it? 🙂
*** DISCLAIMER ***
My spreadsheet is just a first version which is barely good enough for my own purposes. For a number of countries I did not find enough data points of CSM classes. It would probably be useful to extend this tool with other popular classes (Personal Scrum Master, PMP Practitioner, Management 3.0) so that we have a wider dataset and more accurate indexes.
But I don’t have the time to do that. 🙂
*** DISCLAIMER ***
With this informal CSM index we can now calculate prices that are more fair, considering local price levels. However, two problems remain: the converted prices now heavily depend on the rough averages of CSM classes. And our nice round original prices end up becoming ugly converted prices. That’s why I prefer to round all my prices to a fixed set of “easy numbers”:
100, 150, 200, 300, 400, 600, 800,
1000, 1500, 2000, 3000, 4000, 6000, 8000,
10000, 15000, etc…
By rounding up and down to easy numbers there is less concern about whether I used the “correct” data points in the CSM index. After all, small differences don’t matter (in most cases), because everything is rounded to easy numbers anyway.
By using the CSM index, and applying the easy numbers, I can now finally calculate the answers to the three questions posed earlier:
My friends will be so happy!
I created a barely-enough version of the spreadsheet for myself (and you are free to use it), but now I’m wondering if anyone is interested in taking this a bit further…
I know I would be a customer.
p.s. In the spreadsheet I used Switzerland instead of the USA to normalize all prices against, because… Well, why not?