Posted February 6, 2010 7:38 am by with 17 comments

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Ben FranklinSo, a few days ago I was on Twitter and a friend of mine asked her followers how much she should pay a designer for a new logo. My response was, “well, pay them what ever they invoice you for.” She then explained that this designer didn’t know how to price his logos and needed help. I remember when I first started my business I had no idea how to price products. I used to spend days analyzing the market, comparing other products and thinking of different marketing options. And then one day I realized how simple pricing really is.

I was talking to a potential client over the phone and they asked me if I could give them a ball bark figure on how much their project would cost. At the time I already had several clients and didn’t see myself getting to their project for awhile. So I figured I would try something different with them. I ended up sending them a quote for about 3 times what I had ever charged a client, thinking that they would look at the quote and I would never hear from them again and that would be history. In a few hours they emailed me back and said that they thought the quote looked reasonable and they wanted to move forward! I thought to myself, wow! All I have to do is ask for it!

Now I realize that the correct price for a product is the highest amount that your market is willing to pay. And, the only way that you can find out what that amount is, is by asking for it. This type of pricing method is called Value Based pricing. With Value Base your price reflects the value that your market places on the product.

Now sure I know what you are thinking. Isn’t it dangerous to price yourself to high? Aren’t you afraid of pricing yourself out of the market? To answer these questions let’s take a look at Wally World. Here is a corporation that’s motto is “Always Low Prices”. When Sam Walton coined that phrase in 1962 he wasn’t just launching a insightful marketing campaign, he was in fact laying the groundwork for their future pricing structure. Walmart’s dominance is dependent on selling at low prices at high volume. As a result their stores across the world are always packed.

But do you really want to be like Walmart? I mean, sure they do a lot of business, but it’s all at very low profit margins. Now, let’s take a look at the other side of town and the shops on main street. These are the locally owned mom and pop joints that maybe your neighbor runs. These shops can’t compete with Walmart’s prices and as a result they do less business. Can you guess which business model I would rather have? Well, if you guessed the local mom and pop shop, you win! Running a business that caters to the market’s lowest price point will guarantee a steady flow of consumers. But you really need to ask yourself, do I really want to do business with the cheapest folks in my market? Trust me, you don’t, they are annoying and will eat up all your time and money.

So how can you start getting paid more for your products and services. Just start asking for more. Sure you run the risk of losing potential customers, but in the end the ones that agree to pay premium prices will leave your business truly valuing their time with you, which in turn, turns into referrals and other opportunities down the road! So start asking for more and quite trying to be the “Wally World” of your industry!

  • Great advice Joe, and exactly what I tell SEO firms that come to me for business coaching. When you get to 85% of capacity, you should start increasing your fees. You’ll be surprised at how often prospective clients are willing to pay based on value. And the extra fees help cover the cost of hiring new employees to increase capacity.

    The key is to be confident when quoting your new price–clients can smell fear! 😉

    Although confidence is something I know you don’t lack. 😛

    • Your right Andy, you do have to be confident when quoting. I also have noticed that I am more likely to get them to agree on a quote of its layout is clean and professional. I would advise anyone just starting out to get some invoice software. It will not only help you organize your money flow, but it also will help you create awesome looking invoices and quotes that command the respect that you deserve.

    • That’s awesome! I’m totally jacking my prices up, LOL.

      Andy wrote an article on a similar principle a while ago—say no to clients when they ask for additional services for free:

      • Thanks! 😉

      • Is this your polite reminder that I should be backlinking more? 🙂 LOL

  • Right on the “money” Joe! If you want clients to value your business, you have to make it valuable! Price yourself as a premium provider of your goods and services, and your image will be one of quality. Of course you have to deliver quality, but assuming you already do, you’ve just established your USP (unique selling position) and it’s profitable too! 🙂
    .-= Rob Mangiafico´s last blog ..Getting the Most Out of the Oprah Effect – How LexiConn Helped Cosabella Increase Sales 2000% =-.

  • OMG Joe! By using this mentality, I recently doubled my rates across the board. This then allowed me to either a) bring in twice as much annually, or b) work half as many hours on client projects and do more of what I love in other ways. I chose “b” for now. Which leaves me lots of time to always pick up additional income if and when I choose to.

    And it also means I have only clients who truly appreciate and respect my services!

  • The way that we bill our customers is very important especially when it comes to Internet businesses. Potential clients want to know how much they are paying up front for services. This can become a challenge for services that require an estimation of time to complete such as creating logos, web development, etc. The Internet is such a price driven marketplace that some business tend to charge such a low amount that they end up working for a very low wage.

  • What you’ve said makes absolute sense. But it can be a frightening position to take for freelancers who mainly market their services via the net. They are competing in a global marketplace in which freelancers from low cost of living countries can easily undercut them.

    I think it might be a good idea to work for less than you really want until you’ve proven yourself and built strong relationships with several clients.
    .-= SFaith´s last blog ..Feb 4, Start An Ambulettes Business – Provide Non Emergency Medical Transportation =-.

    • Yes, you are right. This strategy works best with trusted brands. However just because the internet is a price driven market don’t assume that your prospective clients are in touch with the pulse of the market enough to find a lower rate. Most of the folks that come to me for a quote are there through a referral which means they don’t know who to go to themselves, in which case they aren’t in a good position to find the market price.

  • Great stuff here Joe. All I’d add is that folk need to be a little bit careful with their words.

    I’m not sure the correct price is the highest amount the market is willing to pay. I think it’s about both parties feeling they are getting a great value in return for the investment they put in. If this is a little less than the absolute maximum, so what. You spent less time getting the deal and you achieved a highly acceptable deal, as did the customer. Helping the customer understand the value that they will receive (not TELLING them btw) is vital to the process.

    And the technique is value based PRICING, not value based billing! Billing is after the event, and that’s far too late. Pricing is before the deal is struck and that’s exactly right. You have to spend the time getting the customer to understand the full value, the total difference it will make, to no longer be suffering his problem. If that’s not possible, you have to recognise you’re competing in a commodity market, but even here you can choose to compete as a Ferrari or as a bicycle!

    Hope this is helpful.


    • Thanks for the tip David. btw, I didn’t say billing in the post, i said pricing. Thanks again!

  • Well, but this is assuming you already have a business going with a lot of customers.

    If you’re just starting out (i.e., from employee to independent), you’ll have to charge less than the market for a while until you get established, right?
    .-= Digitivity @ The Digital Life & Tools Blog´s last blog ..Dreamhost Problems Status RSS =-.

    • I think it depends on what business you are in. If your business is the type that requires a portfolio, then you might want to do some early work under market price, to grow your portfolio. But if you are selling a product directly to consumers, I don’t think going under market prices is smart. Either way, value based pricing is a smart strategy for long term growth.

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  • Good post – I find a LOT of freelancers struggle with this… they’ll write-up a whole estimate in 30min and sit on the price for hours and hours. I did for a long time too – and once in a while I still will because I do want to help out the little guys at times and know market value isn’t exactly what they could pay but if they’re nice and can tell they’re easy to work with I’ll give them a break. Granted that’s bit me in the arse once or twice but usually my experience steers me good.

    Confidence is a big part of this as well tho – you get a shaky kid handing a $20k estimate for a site it’s likely they won’t buy into it.
    .-= Chuck Reynolds´s last blog ..People Don’t Buy What You Do – They Buy Why You Do It =-.

  • I found that I was getting loads of work, far too much work. I was working night, day and weekends trying to keep up with it all – my head felt ready to explode.

    I cut the lowest paying client and have increased substantially the amounts I charge.

    It is still in flux for me and can still feel like I am pushing the limits of my pricing too much – however not one new client has tried to haggle the price down…

    I have a lot more time to do the jobs I get. This for me is good, as I was starting to feel like no-one was getting a good deal when I did not charge enough – my head was sore keeping up and the client jobs could have been better. It feels good to have time to do a good job.
    .-= Leslie´s last blog ..Google Buzz for Business & Get Your Wallet Out =-.