I get a lot of questions regarding pricing – it’s one of the hardest and scariest part of owning a business and it’s truly what separates an entrepreneur from everyone else. Think about it, the large majority of people in the civilized world find a job, negotiate a salary, and hope to get annual or meritorious wage increases. Whether it’s 30K, 80K, or 150K a year, they only needed to make one relatively easy decision that required a little bit of negotiation and viola, they have a steady stream of income (or so it seems).
The entrepreneur, on the other hand, has many things to consider. First, how much you charge a client affects a whole host of things.
Quality of Service/Product
When you own a business, what you charge determines how much value you can give your customer. As producers who care about our consumers, we tend to want to price things low in order to make it easier for them to buy without worry. However, although that is a noble thing to do, the fact of the matter is that when you do that you degrade the product or service that you may be selling.
For example, say that you are a web designer. You have a few prospective clients and one or two clients that you are actively working with. Being the kind and altruistic entrepreneur that you are, you decided to price your services well below your competition to win the aforementioned clients. All seems great.
Later in the week you hit a design snag with one of your clients. They really didn’t like the look and feel of the site and you are going to need to change some things around; Oh, and they wanted to show it to their boss tomorrow. At the same time, you find out that one of your prospective clients is available to meet in the next few hours to discuss moving forward with a project. On top of that, you are a couple of days late sending a proposal to your other prospect and you still need to hit up the local Chamber of Commerce breakfast and social mixer in order to try to get the 3 more clients you need to make ends meet.
Something is going to give – and most likely it’s going to be the quality of the product. IT’S INEVITABLE because when you need to feed yourself and your family you are more than willing to create something half-assed in order to make it to the next “paycheck”.
One thing that charging correctly does is that it gives you breathing room. This breathing room allows you to have the time to communicate with clients, find new clients, and ensure that you produce something that is amazing. Not only that, it allows you to go above and beyond (I’ll give an example of this in a little bit).
Quality of Your Brand
How you price your services is directly proportionate to how others value your company. Next time you are at the supermarket, look around. It’s very easy to see which brands have a greater perceived value than others. Aside from the design, the difference between the generic brand of cereal and the name brand is not much different, but the price sure is. When you see those prices, what do you typically say to yourself? Usually you rationalize that the name brand has better quality and the taste is bar none (even if it isn’t). Do they charge that much because their operations are much higher than the generic? No, it’s because they are charging what they feel they are worth.
When you raise your prices, you become the hot girl at school (even if you are a guy). The first time that I charged what I was worth I had 3 meetings in which the buyer was trying to lower my price because they REALLY wanted to work with me. They didn’t care about the price so much as they wanted me to be a part of their team. Oh, and they had actually never seen any of my work. The demand came solely from a referral (of someone I only met at a networking event) and how much I priced myself. In the end, we agreed on a value exchange.
Quality of Your Client Relationship
When you price low, you attract clients that will use you. That is not a joke or an exaggeration – it’s true. You find people who are only looking to get a good deal and really don’t care about the quality of the product so much. Rather, they are people who are looking for price rather than quality but when you give them standard quality they’ll be the first ones to complain and tell all of their friends how horrible you are.
When charging what you are worth, clients who know the value of what you are worth will pay for that value and will appreciate you and your time. Plus, you’ll be able to give them the time that they deserve. For example, I recently had a client that spent a good deal of money on a website that they needed for their organization. It’s been months since that website has been done yet I still offer to create Facebook fan pages for them and help them for free. The only reason I’m able to do this was because they paid me what I was worth AND because of paying me in that way they appreciated my expertise in web marking and social media marketing.
Quality of Your Life and Family’s Life
The “You Can Work Less” philosophy is not about being lazy, it’s about being smart. When you charge what you are worth you are being smart because you are giving yourself breathing room. When you charge more you can take on fewer clients, you take on better clients, and you’ll have more time to spend doing the things that build up who you are. When you are drowning in marketing, current clients, prospective clients, trouble clients, accounting, and so on, you end up failing your clients, your family, and yourself.
What many people don’t consider is how much a company is actually paying for you when you work full-time. Although you may be making $30 an hour, often in large companies that amount of money that it takes to keep you on staff can be anywhere between $100 – $250. The reason is that they are paying for your insurance, they are paying for your office space, your computer, the IT technicians to service your computer, the HR staff so you can complain about your boss, the janitorial staff, the electricity, and many more things that you don’t consider. That being said, although you may feel bad charging $100 an hour, that hourly rate would be a steal for most companies.
Don’t be afraid. You are charging less because you are fearful that they’ll say no. What if they say yes?