Random thoughts on pricing

This week has been all about pricing. Not sure why. Here are some random observations:

1. A price increase can do wonders for you. I just announced to my newsletter list a big price increase (by $100) on the AttractNewClients site (based on testing), and invited them to get in before prices go up. Response has been fantastic, easily 3 times more than my usual newsletter offers. Price increases with a deadline can cause people on the fence to take action.

1a. A web designer I work with did the same thing recently. He indicated that he is raising rates to $75 per hour from $50 per hour, starting with all new clients. Old clients could still take advantage of his $50 rate through November. He got REAL busy, fast.

2. Asking for a high price can do wonders for you. A colleague of mine shared that a catalog company asked him to bid on developing a website. He’d worked with this firm before, and knew they were difficult to work with. So he bid high. Really high. High enough to make the job well worth it to him. And he got the job!

3. Stop being a low-self-esteem pricing victim. You don’t want to appear needy as a professional. Instead, communicate your value so that pricing doesn’t even become a (major) issue. Pricing is always in the background, of course. But if you show your value and that you want the job — but don’t need it — you can ask for higher prices.

4. Here’s a new one: I offered a client a low price to write a quick strategic plan for them, say $500. I did that in order to show them what I can do and position myself for a much larger project coming up. The company liked my work so much that they insisted on paying me $1,000. That’s never happened before. But it sort of relates to the third point above: Once you establish yourself as a valuable advisor, price takes care of itself.

Comments on any of these appreciated!

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  • http://www.greenroomcreative.ca Geof Harries

    My freelance rates recently went up – from $50/hr to $80/hr and the transition wasn’t all that smooth at first, so I started second guessing myself. I caved a bit: older contracts were billed at the previous rate (as your designer friend had done) while new clients got the higher version. What I found is that I got higher quality projects afterwards, or at least ones I really wanted to work on, simply because I could now avoid the lower end of the curve. But it was tough for a while….

    geof

  • http://www.projectet.com Halo-13

    We as a company started up at the begining of this year and I know we have been undercutting out self on almost every project we have done so far. The main reason for this is was to get a feel what it was like talking to a possible customer before making a proposal and taking them and all the way thru the project. We have learned a lot but I now think it is time that we start getting our worth, the trick it to get the client to understand the value. Honestly a lot of the clients we talk to seem to think you can great website for a very low price, and being such a fresh company we really need the work just to survive. We would really like to land the large projects but we have mostly been dealing with smaller businesses.

  • http://www.designstudiomag.com DSMag

    As a smaller design company with a few freelance subcontractors, I fully understand what Halo-13 is saying. It is hard to balance the need for work with the amount you are worth. However, with that said, if you prostitute your time and talent then you will never get the quality projects like Geof stated. Keep in mind this is still client driven and there will be exceptions.

    We have started quoting what the project is worth to us to complete it the way we know the client wants it. Then the only thing you have to do is make sure they know thats what they want and then tell them why. Most importantly be honest, open, and provide real quality work. If you can do that then your clients will be more apt to refer others to you even if you are higher than they originally thought they would spend.

  • http://www.redflystudios.com Web Design Ireland

    Very interesting observation. I have a client that offers a product that is at least 50% more expensive than her next competitor and as far as I am aware, she is getting more orders. Higher price in general exuberates higher quality. Its the same in high street stores and high street services. Why should it be any different for designers/developers?

  • http://www.ptpnewmedia.com ptpnewmedia

    I feel you on this one. We started our third year at the beginning of ’05 and raised our rates as well as bids. We have been busy all year and have even beat out a couple of national companies who bid in our target markets. Don’t be afraid to get in their and compete. All you have to do is explain the value you are giving your client. Never bid a job based on time. Do a cost analysis and show a high ROI. It will be tough to survive if you keep getting “pimped” on all your projects.

    I will say this, when we did raise our rates, we actually lost a couple of clients. Big deal. Who cares. They were not worth it any way as they were always looking for the cheapest solution. Good luck to all!

  • http://www.designity.nl peach

    I must say I like your blog entries about pricing the most, always insightful!

    thanx

  • http://www.greenroomcreative.ca Geof Harries

    I think it’s important to note that when you initially start out with your own business, you can’t shoot for the moon, rate or project quality-wise, unless you’ve already got a solid client list and industry experience behind you.

    Doing work for cheap at the onset is often a reality for most people – I’ve been there – as you need to grow your portfolio and skills.

    You have to pay your dues first.

  • http://www.crystalcleardesigns.com ccdesigns

    Our firm just had some great experience with this. We try to give solid estimates of hours and labor costs to our clients during the proposal phase. We bid a project around $20k (which at first got a little lost breath on our clients side) because realistically it was going to take 2 full time employees and 3 part time sub contractors around 2 months to finish. Our next competition rolled in under $6k – which is an unrealistic paycheck for what the clients were asking for.

    We have been given the recommendation for the project.

    Now all I have to do is find some clients that like your point #4 ;)

  • http://www.realityedge.com.au mrsmiley

    Andrew, you may find that point one has a lot to do with your copy in the newsletter. I am one a recipient of your IT pro success newsletter, and have seen how you have worked the attractnewclients.com site into your copy. Yet I had questions regarding the service being offered, but had no way of contacting you via your newsletter. Replying to the email didn’t generate a response from you, nor from any mail servers saying the address was invalid. The lack of communication methods advertised in your marketing doesn’t exactly give me a warm and fuzzy feeling when I’m trying to decide whether or not to hand over my credit card details to you.

    My experience from both sides of the fence are, if you explain how the customer benefits from the price increase (better quality of service, etc) then price rises usually go without a hitch. Taking an snippet from your email …

    [quote]
    We’ve tested a variety of prices for
    http://www.AttractNewClients.com and found that we can
    charge over $150 per term for the program.
    That compares to the $44.97 offer I’ve been making
    to you as a subscriber.

    Therefore, prices will rise threefold immediately.
    [/quote]

    What test metrics were used to detirmine optimal price? How do I benefit from your price increase if by the looks of it, I’m getting exactly the same product? If I purchase at the lower price, will my price go up next on the following bill or will it stay the lower price for the life of the account?

    In my opinion, generating a sense of urgency only works if your clearly communicate the benefits without ambiguity. I’m more than a little curious why people are willing to pay more if they are getting the same product and level of service.

  • aneitlich

    Mr Smiley:

    I get lots of emails everyday from people on my newsletter list, so it is really easy to track down my email and contact me. But I do apologize if you have tried to reach me as I try to be responsive! My verizon.net account has had some bouncebacks.

    Try: andrewneitlich@yahoo.com I’ll respond to your questions within a day, and also provide my email clearly on my newsletter. That’s the best place to answer any specific questions you have about the program, not here. Similarly, a private message on this blog probably would have been a better way to vent.

    Regarding raising prices: The market determines price. People outside my newsletter list are paying (in tests) high prices for the service. Early tests are showing that we can optimize our profits at a higher price. So why wouldn’t I raise prices?

    Keep in mind that you are a single data point in my marketing funnel. Most people will not buy my program, as most people will not hire any web designer reading this. That’s okay. I only need a few.

    My goal is not to cater to a single data point but to a market — at least with a lower priced service like this.

    But you make a great point: One obstacle we need to overcome right now is being clearer about the benefits of this program. It is a really new thing — with a unique type of experience for users. It’s hard to convey what it does.

    So we have an entirely new landing page coming soon that does a better job — and will continue tweaking until we get it right.

  • http://www.realityedge.com.au mrsmiley

    I apologise for the venting part of the post. It was a necessary evil meant to demonstrate, based on a personal experience, why you may have had so many fence sitters in your initial campaign.

  • Princess

    When I began, I pimped my services out just so I could make money to pay my bills, but frankly I ended up with a lot of clients that wanted a lot for nothing. My prices have since gone up, but when I run a great special trying to wait for my next big client, I get the same quality of clients as before. They can be down right insulting in their demands and expectations where as my higher end clients give me no trouble at all-they should be paying less for being so easy to deal with-lol!

  • lorne

    Maybe the price of GAs has something to do with all the raising of rates huh ??

  • webpusher

    Heartily agree with those whose experience of low paying clients – they want the moon!

    Its strange, but if you can get clients who are willing to pay for your services they will usually work well with you, the project will go smoother and everyone will be happier all round.

    It is difficult in Ireland though, the mentality of ‘my nephew has photoshop’ still pervades and people just dont understand what you are doing for them. Having said that margins are tight for most businesses today!

  • dleal

    Andrew,

    Since I found your blog, i read it all avidly until the present. I count almost all of your posts and articles as exceptionally enlightening, and for that I would like to congratulate and thank you.

    With that said, there is one issue that I could never understand whenever price rates are mentioned. Specifically, we are told to price based on value provided but, for a novice like me (finishing my first site now) how do I know I am really providing value? How do I know (with almost no experience) that the site I just created will lead to more clients (even if its design is clean, and I believe I am communicating my client’s message clearly)?

    I believe a site by itself (and from reading your blog I believe it even more) is no silver bullet. That is, the site is just another tool in the client’s marketing toolbox. For someone who does not sell their products online, the site acts like a glorified marketing brochure (“here’s what we can do for you”, “here’s why you will want to hire us”, and so on).

    So, in my view, real value comes from helping the client attract more clients in every way possible, like helping them pick a niche and tailor the message to that niche, helping them find their strengths and improve their weaknesses.

    To conclude, I believe there is value in a well done site, but the best site in the world won’t help you if your message isn’t clear, or you don’t know who your customers are. On that topic, I believe you advocate that designers should be marketing consultants instead of “just” designers. This is especially valuable when dealing with small companies.

    Back to the main question. How, then, to communicate value? Or, to put it more accurately, how to deliver real, meaningful value?

    Thank you for your time,

    David

  • aneitlich

    David,

    Great question and a big question. I’ll get to it in next post…

    AN

  • http://www.crystalcleardesigns.com ccdesigns

    David,

    I can help answer that a little.

    One thing I have learned while doing this now for 10 years is that very little of it has to do with the website you develop. If you are passionate about developing websites, have attention to detail, and never settle – lets assume the quality of the product you develop is almost irrelevant (because it is always good).

    Pay attention to your clients, ask a LOT of questiosn, and understand their business. The more you do this – the more ideas you will think about to make the internet work for them. This is extremely important. You will have a much more promising career in web development if you begin to understand each business you are exposed to and figure a way to make the web work as a unique medium.

    One line examples from my career:
    Jewelry company: e-commerce to sell products
    Golf product manufacturer: e-commerce for retail; rep/order management for wholesale
    Camp: online registration and Paypal payment
    Car dealership: online inventory, credit app, contact forms
    Nightlife: event listings, photo galleries, DJ mix downloads
    Church: online donations through Paypal
    Realtors: property listings, realtor splashes
    Apraisals: order status and .pdf output
    Advertising: proof delivery system and online portfolio

    So what I am trying to illustrate here is that even if a business doesn’t want to directly sell a product online – they still sell something: a service, production, . . . something. Find out what the web can do for them, and do it – the value will come the more you do this.

    Hope this helps ;) Back to work!

  • http://www.ptpnewmedia.com ptpnewmedia

    I will take ccdesigns thoughts a step further. It is important that you measure and quantify the results from your web site.

    The examples are long but read through them and they will make sense on how to add value to a web site.

    ————————–

    A company may not sell an actual product on the site. However, that company may be a service based organization and uses their web site to generate leads.

    The company uses PPC to help in the SE and spends $1,000 a month for this. The site generates 20 leads a month from PPC. A basic analysis shows that the company spent $50 to obtain each lead (which is low considered to other lead generation costs).

    Now assume that the company is able to do business with 30% of those leads or 4 people. These were targeted leads looking for the service that the company provided, therefore we can assume a higher closing rate. Each deal they close is worth $750.

    They have now generated $4,500 in revenue with a $1,000 investment giving them $3,000 total profit for the month. Over the course of a year, this relates to $36,000 in new business.

    It is also important to note that the lifetime value of these clients will increase as additional sells are made to them. Building relationships is so important here but that is another story.

    ——————————-

    Another way to look at a web site is how it can help minimize cost. Assume that a company has thousands of documents for the products they supply. Each time a client needs a document the following process happens.

    A client calls in and asks the company for a certain document. Next, the company’s employee must dig through files to find this document and do one of two things. They can either mail it to the client if it is a large document or they can fax it. Of course mailing it would be more expensive.

    Now let’s attach a cost to this process. Assume the persons cost to the company is $60 / hour.

    Time spent on phone (5 minutes): $5.00
    Time spent looking for document (5 minutes): $5.00
    Time spent preparing document for mailing or faxing (5 minutes): $5.00

    Total cost to send out document: $15.00

    Now assume that the company must do this 10 times a day. This process is costing the company $150.00 a day / $750.00 a week / $3000.00 a month / or $36,000 a year.

    Keep in mind, this does not include printing, copying or mailing costs associated with the documents.

    You approach the company and propose to do a web site for them for $10,000. The web site will allow them to have all their documents accessible to their customers on their web site. They will no longer have to spend the time to answer the phone to take the “document order” and find and fax or mail the document.

    At first the company may laugh at you. Now is your time to shine though. You break down the cost analysis of how much their current “document delivery” process is costing them. You then tell them that if they INVEST (not spend) $10,000 on the web site, you can save them $36,000 a year giving them $26,000 in additional yearly profit.

  • whitestorm

    As ptpnewmedia says, the key to pricing by value is showing your prospective client the Return On Investment that a website or your web services will provide them with and get them to understand that the outlay on a website isn’t a cost as such but more an investment that should realise either increased sales and lead generation or reduced costs for them, depending on their specific business. Educating the client then is key to being able to raise your prices to a sustainable level over the long term rather than scrapping around for the “bottom feeders” who will always give their business to the lowest bidder, irrespective of quality or intrinsic value.

  • wbmdan

    What types of marketing related questions do you use for prospects when meeting with them.

    I’m looking for things that relate to the scope of SEM (Search Engine Marketing) and gaining them clients.

    Sometimes it’s difficult to determine what a client needs to include on their website…

    On the same note I really like what ptpnewmedia about RIO (Return on Invesetment) and empahising the website is an investment not a ‘cost’ or ‘expense’ as many clients view it.

    Thanks.

  • http://www.projectet.com Halo-13

    I have to say this is some of the best information that I have found on this website when it comes to selling your services. Getting a client to understand the VALUE of thier INVESTMENT is what make you a better service provider. Not only does it make them look good it make you shine a solution provider.

  • darwinstudios

    I just learned a valuable lesson on a recent project bid. The lesson is that sometimes you can bid higher than your value! Learning a clients budgets and expectations for their cost is essential. I was referred a client from an associate and put together a proposal that seemed fair to both parties. When I showed it to my associate, they suggested increasing the prices almost 2.5 times. I might have actually *underbid* my way out of this project if I didn’t.

    The thinking was that this client would like to use a large marketing firm and was prepared to do that (and pay). To bid too little meant the client would not take me seriously as a solution provider.

    I put in the bid and should be closing on the deal this week!