# What Should You Charge? 4 Methods to Avoid

Selling a product is so much easier. You have a fixed cost at which you buy (called wholesale), so you figure out how much profit youâ€™d like, and mark it up according. Thereâ€™s even the MSRP (Manufacturerâ€™s Suggested Retail Price) to make your life easier. But everyone who decides to sell their services will agonize over this question: â€śHow much should I charge?â€ť

There are many ways to answer that question. Letâ€™s look at four to avoid.

## Formula-Based Pricing

Many of us used a formula to answer that question:

1. How much do I want to make a year?
2. How many hours a week do I want to work?

So if itâ€™s your dream to make \$60,000 a year, working only 20 hours a week (including a two-week vacation), you do this:

\$60,000 / 50 weeks / 20 hours = \$60/hour

Next, determine the time it takes you to create a â€śbasicâ€ť website (for me, that was a 5-10 page custom-designed static site, no programming). If that takes 35 hours, your pricing would start at \$2,100. Or you could simply charge by the hour and the client pays what he pays.

Sounds great, except for one problem. Clients donâ€™t care about your formulas.

Pricing your product is actually simple, as long as you consider it from the buyerâ€™s point of view. How much it costs you to make something is irrelevant. They donâ€™t care â€¦

Your formula has no bearing on what a client is or isnâ€™t willing to pay. How would you justify \$60 an hour if the client thinks thatâ€™s too expensive? Telling him youâ€™re worth that because you want to make \$60k a year working 20 hours a week isnâ€™t going to convince him to hire you. Neither is telling the client â€śhow longâ€ť it will take.

## Esteem-Based Pricing

The second method to avoid is basing your price structure on what you â€śdeserveâ€ť to make. Iâ€™ve read books that claim weâ€™re not charging what weâ€™re worth because of low self-esteem. If we improve our self-esteem, weâ€™ll charge what weâ€™re worth, what we deserveâ€”and our clients will gladly pay it. Pardon me if Iâ€™m not quite convinced.

Your clients donâ€™t care if you think you â€śdeserveâ€ť \$60 an hour because you have a computer science degree, 15 years of programming experience, hundreds of hours of formal web training, \$10,000 worth of hardware and software, and a \$50,000 student loan to repay, or because some self-help guru told you that you do.Â Clients buy for their own reasons, not yours.

## Comparison-Based Pricing

Comparison-based pricing is when you set your prices based on what you think is too expensive. It usually happens after you arrive at someÂ semblanceÂ of a price, but then you start thinking, â€śI donâ€™t know, \$1,000 is a lot of money; maybe I should charge \$900 …â€ť You might think \$1,000 is a lot of money, but what are you comparing that to? Your car payment? Your rent? Your monthly income? I onceÂ sufferedÂ from thisÂ malady, but the first time a client paid three times above what I considered â€śa lot of money,â€ť I was cured.

## Competitive-Based Pricing

Researching the competition is generally considered valuable when starting a business. But I found that to be a tall order in the web industry. First of all, whoâ€™s your competition? ABC Interactive Agency, or theÂ teenager with a cracked copy of Dreamweaver? Sure, you can scour the web or post a newbie â€śHow much should I charge?â€ť question on SitePointâ€™s forum, but most of us keep that pretty close to the vest. And the prices I have found are all over the map. Even fellow web designers canâ€™t agree. Although I did look at othersâ€™ prices when I first started out, it wasnâ€™t a determining factor when setting my own.

So what should you base your pricing on? The answer lies in why people buy. Even established companies donâ€™t always know why their customers are their customers. Remember, people buy for their reasons, not yours. If you donâ€™t know what those reasons are, youâ€™ll have a difficult time determining what to charge.

Image credit